Question

Please answer the following questions:

1) name five characteristics of the monopolistic competitive market.

2) difference between a monopoly and a monopolistic competitive market.

Answer 1

Answer 1)

Characteristic of monopolistic competition

A) this type of market structure contains large number of small firms , like restaurant business, & are independent in their behaviour or strategy , thus firms have limited market power .

B) each firm sells similar but Differentiated products, differences can be in colour, design , packing, advertisement

C) each firm earns super Normal profits in short run , but earns normal ( zero) profit in long run.

D) there exist freedom of entry & exit of firms, with low barriers to entry.

E) firms are involved in non-price Competition, no price war can start even though the products are similar.

2.) Difference between monopoly & monopolistic competition

a) there is only single seller in monopoly but a large number of smaller firms exist in Monopolistic competition

B) a monopolist always earns positive profit both in short & long run, but in monopolistic competition, only in short run, a firm can earn positive profit.

C) barriers to entry are realtively much lower in monopolistic competition than in monopoly

D) degree of control over prices , thus market power is very high in monopoly, a Monopolist has full control of prices

E) there is no difference between industry & firm in monopoly, as single firm is itself an industry.

But in monopolistic competition, firms constitute the industry.

F) due to single firm, no Competition exist in monopoly