Question

How does monopolistic competition differ from both perfect competition and monopoly? What is 'Excess Capacity' in Chamberlin's model / Depict long-run equilibrium in monopolistic competition diagrammatically.

Answer 1

The major features which keeps monopolistic competition unique can be expressed as below:-

→more buyers and sellers exist in the perfectly competitive market,only one seller or producer in monopoly sell their homogeneous products.

But in monopolistic competition market, there will be relatively small number of producers than perfect competition,and producers produces differentiated products.

→entry and exit from the market is easy in perfect competition,not easy to enter into monopoly and nearly impossible sometimes.

But in the case of monopolistic competition, entry is free from restrictions.

→ As there is product differentiation and keen competition,there will be competitive advertising.

→ monopolistic competition is more realistic than perfect competition and monopoly,as most of the firm's and industries in present world are monopolistic competiti​ve in nature.

Excess Capacity is a condition of producing less than Socially optimum level. cost & Revenue TAR - 'MR output monopolistically competative firm will decide to produce 'od’amount of output at'op' Price [Equilibriume) decided by Mc-MR] But it is less than its punktu optimum level of output. ['Qs'is Socially optimum level equilibrium where MC=ACT Scanned with CamScanner