monopolistic notes

Question 1

What are the key characteristics of monopolistic competition in markets?

Answer 1

many producers and consumers
product differentiation
producers are pice makers
low barriers to entry and exit

Question 2

Explain the nature of demand elasticity in monopolistic competition.

Answer 2

demand is elastic due to competition in the market and sustitutes

Question 3

What are the short-run implications in monopolistic competition?

Answer 3

firms experience supernormal levels of profits and attract new entrants to the market

Question 4

What are the long-run implications in monopolistic competition?

Answer 4

in the long run firms will start to poduce at nomal levels of profit due to high competition and large amounts of substitutes

Question 5

Define and differentiate between allocative efficiency and productive efficiency in the context of monopolistic competition.

Answer 5

• Allocative efficiency: Achieved when prices align with marginal cost, producing goods according to consumer preferences.
• Productive efficiency: Production occurs at the minimum average cost curve.