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 perfectly competitive market and some features of a monopoly. Complete the following table by indicating whether each attribute characterizes a perfectly competitive market, a monopolistically competitive market, both, or neither. Check all that apply. Attributes Negative (downward) sloping demand curve Identical products Price is equal to marginal cost Zero economic profit in the long run Perfectly Competitive Market Monopolistically Competitive Market

Explanation / Answer

Ans:

Explanation :

Demand curve is horizontal shape in perfect competition due to unique price whereas it is negativly sloped in monopolistic competition due to no uniqueness of price. Firms in a perfectly competitive industry will earn zero economic profit in long run due to free entry and exit of firms. Profit maximizing condition of a firm in perfectly competitive market is where price equals to marginal cost ( P = MC ).

Attributes Perfectly Competitive
Market Monopolisticaly
Competitive Market Negative ( downward) sloping demand curve - Yes Identical Products Yes - Price is equal to marginal cost Yes - Zero economic profit in the long run Yes -

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