1. Conditions for monopolistic competition Consider the monopolistically competi

Question

1. Conditions for monopolistic competition Consider the monopolistically competitive market structure, which has some features of a competitive market and some features of a monopoly. Complete the following table by indicating if each attribute characterizes a competitive market, a monopolistically competitive market, both, or neither. Check all that apply Attributes Competitive Market Monopolistically Competitive Market Product differentiation Price taker Free entry Price equals average total cost in the long run

Explanation / Answer

Attributes

Competitive market

Monopolistically Competitive market

Comments

Product differentiation

Yes

competitive market sell goods that are identical in nature

Price taker

Yes

As competitive market do not have market power they recieve price as the market decides

Free entry

Yes

Because of low investment and identical goods in nature, entry is easy

Price equals average cost in the longrun

yes

Because of large number of players and competetion the firms are forced to reduce price which makes them to operate at minimum ATC

Attributes

Competitive market

Monopolistically Competitive market

Comments

Product differentiation

Yes

competitive market sell goods that are identical in nature

Price taker

Yes

As competitive market do not have market power they recieve price as the market decides

Free entry

Yes

Because of low investment and identical goods in nature, entry is easy

Price equals average cost in the longrun

yes

Because of large number of players and competetion the firms are forced to reduce price which makes them to operate at minimum ATC

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