20 Monopolistic competition

Question 1

monopolistic competition

Answer 1

competitive market structure with a downward sloping demand curve and the ability for a firm to make supernormal profit in the short run

Question 2

conditions of monopolistic competition

Answer 2

• many firms
• differentiated products - not homogeneous
• few barriers to entry and exit
• no dominant firm - no firm has power in the market
• downward sloping demand curve - some control over price

Question 3

short run monopolistic competition

Answer 3

be able to make supernormal profit

Question 4

long run monopolistic competition

Answer 4

normal profit as there are few barriers so firms are attracted to market therefore lowering price

Question 5

advantages of monopolistic

Answer 5

• greater choice of products than a monopoly
• some product differentiation there is some incentive for firms to innovate

Question 6

disadvantages of monopolistic

Answer 6

• lack of economies of scale leading to higher-priced products
• excessive advertising could be a waste
• neither productively or allocatively efficient in long or short run