10) For the Monopolistic Competition Market Structure a) List and explain the ch
ID: 1205032 • Letter: 1
Question
10) For the Monopolistic Competition Market Structure
a) List and explain the characteristics of monopolistic competition and compare them to the characteristics of pure competition and monopoly.
i) Please discuss monopolistic competition, list and explain the characteristics.
b) List and explain the characteristics of product differentiation. Provide 3 examples of companies actually using this technique and the impact of that differentiation had on the firms’ performance.
i) Product differentiation is a key concept of microeconomics. Please list and explain the characteristics.
c) You are a business manager at a monopolistically competitive firm. One of your newly hired workers wants to know the conditions under which the monopolistically competitive firm in the short run will maximize economic profit or minimize economic loss. Please explain these two things to your new employee. Be thorough.
i) Please use the MR MC approach in your answer.
Explanation / Answer
First question 10(a) is answered below.
Kindly ask rest questions in another post.
Monopolistic competition is generally referred to as a mixture of pure competition and monopoly.
It consists of many sellers selling to many buyers, but differentiated products. The products are not completely substitutable with each other as they differ in ingredients, service type, packaging, advertising etc. They operate with the purpose of profit maximization and set prices at the point MR=MC. They have few entry/exit barriers and earn zero economic profits in the lnog run.
Coming to PC and monopoly, a perfectly competitive market consists of many sellers selling to many buyers the same product at same market price. Firms have 0 market power and operate for welfare maxmization by setting P=MC. Firms earn zero economic profits in both short and long run. Also, there are no entry/exit barriers.
A monopoly firm is the single most seller in the market selling a product (not easily substitutable) to a large number of buyers. The firm makes high barriers to entry so as to avoid competition. It has complete control over the market and operates for profit maximization purpose by setting MR=MC
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