For each of the following characteristics, say whether it describes a monopoly firm, a monopolistically competitive firm, both, or neither.
Characteristic: Monopoly /Monopolistically Competitive
1. Faces a downward-sloping demand curve
2. Has marginal revenue less than price
3. Faces the entry of new firms selling similar products
4. Earns economic profit in the long run
5. Equates marginal revenue and marginal cost
6. Produces the socially efficient quantity of output
Answer:
1) Both a firm in monopolistic competition and a monopoly firm face a downward-sloping demand curve.
2) Both a firm in monopolistic competition and a monopoly firm have marginal revenue that is less than price.
3) A firm in monopolistic competition faces the entry of new firms selling similar products.
4) A monopoly firm earns economic profit in the long run.
5) Both a firm in monopolistic competition and a monopoly firm equate marginal revenue and marginal cost.
6) Neither a firm in monopolistic competition nor a monopoly firm produce the socially Efficient quantity of output.
a)
Both Monopoly and Monopolistically competitiveness: demand is downward sloping, it means more goods can be sold out at a lower price.
b)
Under the monopoly and monopolistically competitive market, MR = MC is profit maximization condition. Thus, the price is above the Marginal Revenue.
c)
Neither, Entry of new firms selling a similar product is a feature of a perfectly competitive market.
d)
Firm in monopolistically competitive market structure, earn only normal profit or economic profit over the long run. Monopoly can earn positive economic profit in long run as well.
e)
Both, in these both market structure firms equates MR = MC.
f)
Neither, Neither produce socially efficient level of output.
For each of the following characteristics, say whether it describes a monopoly firm,