Question

Bookstores in a large city would seem to be an example of a competitive market, since there are many sellers operating relatively small shops, each seller takes the price of a particular book as given, and the products (books, magazines, etc.) are very similar between different shops.

a. How could you argue that the bookstore market is not competitive?

b. Is it possible that each bookstore could face a demand curve that is not perfectly elastic?

c. How profitable do you expect bookstores to be in the long run?

Answer 1

a)

same price is prevailing in these book store or they are behaving like price taker. But do not satisfy all conditions of perfectly competitive market. these store are involved in many types of advertisement to attract new customers. They also partially provide offers or discount on bulk purchasing.

Further, there are close substitutes of these book available in market.

b)

Usually, demand for a particular book could be perfectly elastic. But if we consider close substitute, then demand curve might not look like perfectly elastic curve,

c)

Over the long run, all stores would be earning only normal profit only. Even if they operate in monopolistically competitive market, they are supposed to earn only normal profit over the long run. Over the long run, Firms earn only normal profit in monpolistically competitive market.