Monopolistic Competition Flashcards
(5 cards)
1
Q
Characteristics of Monopolistic
A
- Large number of firms
- Differentiated products
- Low barriers to entry
- Firms are price makers
- Supernormal profits are competed away in the Long Run.
2
Q
Are firms allocatively efficient?
A
No. Because P > MC in order to maximise profits as they’re price makers.
3
Q
Are firms productively efficient?
A
No. Because they don’t produce at the minimum efficient point on AC curve.
4
Q
What type of profit is earned in the short run?
A
Supernormal profit
5
Q
What type of profit is earned in the long run?
A
Normal profit. Because supernormal profits are competed away due to more firms entering the market.
