Monopolistic competition (OCR A-Level Economics): Flashcards
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Monopolistic competition definition
Monopolistic competition definition
Many firms selling similar but not identical products
Number of firms in monopolistic comp.
Number of firms in monopolistic comp.
Many firms, each with small market share
Product differentiation in monopolistic comp.
Product differentiation in monopolistic comp.
Firms sell similar but not identical products
Barriers to entry/exit in monopolistic comp.
Barriers to entry/exit in monopolistic comp.
Low barriers; freedom of entry and exit
Non-price competition methods
Non-price competition methods
Quality, service, advertising, marketing efforts
Market power in monopolistic comp.
Market power in monopolistic comp.
Some degree of market power due to differentiation
Demand curve shape in monopolistic comp.
Demand curve shape in monopolistic comp.
Downward sloping
Short run supernormal profit condition
Short run supernormal profit condition
Short run loss condition
Short run loss condition
Profit maximising output rule
Profit maximising output rule
Where
Long run profit in monopolistic comp.
Long run profit in monopolistic comp.
Normal profits (zero economic profit)
Long run equilibrium: P vs AC
Long run equilibrium: P vs AC
(price equals average cost)
Why normal profits in long run?
Why normal profits in long run?
Entry/exit of firms drives profits to normal level
MR curve position vs demand curve
MR curve position vs demand curve
lies below demand curve