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Monopolistic competition flashcards
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- 1characteristicslots of small buyers and sellers
each has limited market power but can set prices to limited degree.
low barriers to entry and exit
product can be differentiated from others; similar but not identical
imperfect knowledge, from both producers and consumers
demand curve is downward sloping because the firm is a price maker, but relatively elastic because lots of substitutes - 2profit maximising output in short runpaper
- 3monopolistic competition in the long runnew firms enter the market which increases market supply. Leads to lower demand for each firm shifting the AR/D curve the left. occurs until the AR curve is tangential with the ATC curve and at this point the firm is breaking even.
- 4productive and allocative effiencyin the LR, a firm in monopolistic competition can never be productively efficient because they always produce an output lower than optimal because they experience spare capacity so they aren't producing at the lowest point on the ATC curve.
Is also not allocatively efficient because price is greater than MC, so price doesn't equal MC. - 5advantages to monopolistic competitionIt applies to the real world.
consumer choice
high level of competition leads to innovation and firms trying to gain a competitive price by location/quality/price
Relatively dynamic - firms can exit due to low sunk costs - 6Disadvantages of Monopolistic competitionFirms spend on small scale advertising/branding which adds to their cost
Firms may add on features to gain competitive edge which won't increase marginal utility, but add to costs
Very few economies of scale
Not productively or allocatively efficient
tends to be spare capacity
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- Highers (MicroEconomics) Economics Fichas sobre Monopolistic competition flashcards, creado por anna boyd el 16/01/2019.
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