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Another form of imperfect competition is monopolistic competition.

1. List three examples of real firms that operate in monopolistically competitive markets.

2. Compare and contrast a monopolistically competitive firm and a perfectly competitive firm. Hint: you should mention long-term economic profit, product differentiation, and barriers to entry.

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions

10) For the Monopolistic Competition Market Structure

a) List and explain the characteristics of monopolistic competition and compare them to the characteristics of pure competition and monopoly.

i) Please discuss monopolistic competition, list and explain the characteristics.

b) List and explain the characteristics of product differentiation. Provide 3 examples of companies actually using this technique and the impact of that differentiation had on the firms’ performance.

i) Product differentiation is a key concept of microeconomics. Please list and explain the characteristics.

c) You are a business manager at a monopolistically competitive firm. One of your newly hired workers wants to know the conditions under which the monopolistically competitive firm in the short run will maximize economic profit or minimize economic loss. Please explain these two things to your new employee. Be thorough.

i) Please use the MR MC approach in your answer.

The statements below are about monopolistic competition. Indicate whether each statement is true or false by moving the true or false labels to the appropriate boxes.

1. A monopolistically competitive firm may be able to distinguish itself from other firms by adjusting the physical attributes of its product, by offering a distinctive level of service, or by selecting a convenient location. 2. Product differentiation enables a monopolistically competitive firm to have some control over the price of its product. 3. In the long run each monopolistically competitive firm produces a level of output that results in allocative efficiency. 4. In the long run each monopolistically competitive firm produces a level of output that results in productive efficiency. 5. To maintain a competitive edge and earn economic profits, a monopolistically competitive firm has an incentive to improve its product. 6. Compared with purely competitive markets, under monoplistic competition consumers with a diversity of tastes can benefit from the opportunity to choose from a greater range of products and services. 7. In order to maximize its profits, each monopolistically competitive firm must determine the price of its product, how to differentiate its product, and how much it will spend on advertising.

1 How does monopolistic competition differ from the pure competition in its basic characteristics? From pure monopoly? Explain fully what product differentiation may involve. Please explain how the entry of firms into its industry affects the demand curve facing a monopolistic competitor and how that, in turn, affects its economic profit.

2 "Competition in quality and service may be just as effective as price competition in giving buyers more for their money." Do you agree? Why? Explain why monopolistically competitive firms frequently prefer nonprice to price competition.

3 Critically evaluate and explain:
a. In monopolistically competitive industries, economic profits compete away in the long run; hence, there is no valid reason to criticize such industries' performance and efficiency.
b. In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits.

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