Describe the elasticity of the demand curve faced by a monopolistic ally competi

Question

Describe the elasticity of the demand curve faced by a monopolistic ally competitive firm in the short run. What two factors determine how elastic the demand curve will be for a monopolistic competitor? At what level of output will the monopolistic competitor produce in the SR? What price will it charge for its products? What determines whether the firm will earn an economic profit or suffer an economic loss? What will be the level of economic profit that the monopolistic competitor will tend to receive in the long run? What forces economic profits toward this level? What are the two complications that would explain why the representative firm may not earn only a normal profit in the long run and may earn economic profits? Is a monopolistic competitive market efficient? Why or why not? What problem does the market face? Explain how the concentration ratio in a particular industry is computed? What are the shortcomings of the concentration ratio as a measure of the extent of competition in an industry? What is the index? How can it be used to correct problems with concentration ratios? What do mutual interdependence and collusion mean with respect to oligopoly? Explain the there models used to explain oligopoly prices and output. Evaluate the economic efficiency of the oligopoly market structure. What are the different types of mergers? Compare the four market structures: Pure competition, Monopoly, Monopolistic Competition, and Oligopoly: in turns of (1) relationship between P, MR, AR, D, (2) Demand curve, (3) Prices, (4) Entry, (5) Profit Maximization and loss minimization for SR' LR, (5) Efficiency. What are the three types of business organizations? Which one is the most numerous and which one brings in the most revenue? What is the difference between economic profit and accounting profits?

Explanation / Answer

33.The demand curve of monopolistically competitive is more elastic than the monopolistic curve.

There are twofactors that determine the demand urve of monopolistically competitive firm are-

1.Price control-When firms have less control over the price, the demand is elastic.

2.Product differentiation- When firm's product is not differentiated from other products, the firm will face a relatively elastic demand curve and vice versa.

34.In short run,monopolistically competitive firms produce output where,the condition MR=MC is fulfilled. A monopolistically competitive firm produce the quantity of output that maximizes economic profit--the difference between total revenue and total cost.

35.In long run, new firms will enter into the market as there will be no barriers.The entry of new firms leads to an increase in the supply of differentiated products, which causes the firm's market demand curve to shift to the left. As entry into the market increases, the firm's demand curve will continue shifting to the left until it is just tangent to the average total cost curve at the profit maximizing level of output, as shown in Figure . At this point, the firm's economic profits are zero, and there is no longer any incentive for new firms to enter the market. Thus, in the longrun, the competition brought about by the entry of new firms will cause each firm in a monopolistically competitive market to earn normal profits, just like a perfectly competitive firm.

36.Monopolistic competitive firm is not efficient .There are different reasons for such inefficiency,such as-

1.Monopolistic firm produces goods below their optimum level.

2.Monopolistic firm sets their price more than marginal cost.

3.In monopoly market consumer surplus is less than perfect competition.

4.Here deadweight loss comesalong with economic loss.

In monopoly,market faces following problems-

When price increases sellers face loss.Here seller faces downward sloping demand curve.So to sell more, price should be decreased.

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