Monopolistic competition Flashcards
(11 cards)
price maker
a firm with market power that can manipulate prices in order to change demand
eg: monopolistic, monopoly. oligopoly
Monopolistic competiton
a market where there are:
* many firms offering a similar product
* but with some product differencials
nail salons:peckham= quick + no attention herne hill = lots of attention
What is the structure of firms in monopolistic competition?
There are a large number of small firms, each acting independently in the market.
What are the barriers to entry and exit in monopolistic competition?
Barriers are low, allowing firms to enter or exit the industry easily, increasing competition.
How are products characterised in monopolistic competition?
Products are slightly differentiated to meet varying consumer preferences (e.g. express vs. pampered nail services).
How much market power do firms in monopolistic competition have?
Firms have low market power but some price-setting ability due to product differentiation.
How do firms in monopolistic competition maximise profit?
By producing at the output where marginal cost = marginal revenue (MC = MR).
Are firms in monopolistic competition price takers or price makers?
Price makers — they have some control over price because of their differentiated products which can be desirable to different customers
Can firms earn supernormal profit in the short-run in monopolistic competition?
Yes, they can make supernormal profit in the short-run.
What happens to profits in the long-run in monopolistic competition?
Profits fall in the long run because new firms easily enter, copy ideas, and increase competition. This reduces each firm’s uniqueness, lowers demand, and forces profits down. Firms try to delay this by finding new ways to stand out.
Why do profits in monopolistic competition tend to fall in the long-run?
because new competitors enter and imitate products, increasing supply and reducing individual market share.
