Monopolistic Comp

Question 1

Characteristics of Monopolistic Markets?

Answer 1

• Free Entry/ Exit
• Large No. of Firms (No strategic behaviour)
• High Product Differentiation (Each firm Monopolist of its own product)
• Consumers = homogenous

Question 2

How does the Monopoly Market arrive at Chamberlain Equilibrium? What are its properties?

Answer 2

• In the SR:
• MC=MR…
• If p>AC… Entries (D, MR shift IN)
  -if p<AC… Exits (D, MR shift OUT)

-In LR:
-MC=MR… (Profit maxxing)
-P=AC… (0 profits)
-P>MC… (allocative inefficiency)

-Consumer utility maximised
-Demand = supply (in inputs)