Monopolistic competition (Micro) Flashcards
What is monopolistic competition and what conditions for it (3 cards)
1
Q
What is monopolistic competition?
A
Low barriers to entry
Good market information
Similar goods, differentiated by branding/quality
2
Q
What kind of profit is made in the short run in monopolistic competition?
A
Can make supernormal profits, there is some brand loyalty meaning they have a downward sloping AR curve.
3
Q
What kind of profits are made in the long run in monopolistic competition?
A
Normal profits, like competitive, low barriers to entry allows new entrance when supernormal profits are seen.
Demand is therefore reduced to where D = AR.
