Question

How is it determined for pure competition and monopolistic competition whether the firm is operating in the short-run or the long-run?

1. While the demand curve for the monopoly and monopolistically competitive firm

      appear the same, they do differ when it comes to the elasticity of both. Which one of

      the two demand curves will be more elastic?  Explain why.

Answer 1

1) In short run firms in both the competitions could earn economic profits, economic losses and normal profits but in long run firms in both type of industries will earn only normal profit.

In long run purely competitive firm will operate at minimum of ATC and monopolistic firm will operate at downward portion of Average total cost(ATC).

2) Yes elasticity in monopoly and monopolistically competition have different elasticities. Monoploy have less elastic demand curve because there is no competition in the industry and only one firm is there in industry.

In monopolistically competitive industry have more elastic demand curve because there are many firms in the industry which produces different products. Here many substitutes available for the consumer, so he can choose from different products. Here demand curve will be more flat than monopoly.

In monopoly demand curve will be more steep.

Main thing that makes elasticity differ is many firms in monopolistically competitive industry, and only one firm in monopoly and other thing is that monopolistically competitive industry have different products which have substitutes but in monopoly there is no substitute available.

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