1. What is monopolistic competition? Show
Monopolistic competition is a market structure with some of the characteristics of monopoly and some of the characteristics of perfect competition. Like perfect competition, there are a large number of firms, and entry into the market is easy. Because entry into the market is easy, monopolistically competitive firms earn a normal profit in the long run. The difference between monopolistic competition and perfect competition is in type of product sold: a standardized product in perfect competition and a differentiated product in monopolistic competition. Because price does not equal marginal cost, monopolistically competitive firms are not economically efficient. This inefficiency is the price consumers pay for variety. 2. What behavior is most common in monopolistic competition? In monopolistic competition, the most common behavior is product differentiation, not price competition. Among the nonprice elements that differentiate products are quality, color, style, location, size, safety features, taste, and packaging. 3.What is oligopoly? Oligopoly is a market structure in which there are a few large firms and entry is difficult but not impossible. Oligopolies can produce identical products, like steel and cement, or differentiated products, like automobiles and colas. Oliogopoly is different from other market structures because firms are interdependent: any action taken by one firm usually provokes a reaction by other firms. 4. In what form does rivalry occur in an oligopoly? In oligopolies, strategic behavior is the rule. When asking their decisions, firms have to predict how their rivals will respond. The kinked demand curve is evidence that competitors match price decreases but ignore price increases. Even when a decision is not related to price, strategic behavior comes into play. For example, a dominant strategy produces results whatever a competitor does. 5. Why does competition among rivals occur most often in oliogopolies? Cooperation is difficult among the large numbers of firms in perfectly competitive or monopolistically competitive markets: too many sellers have to be organized to make cooperation practical. Cooperation is an integral part of oligopoly because there are only a few interdependent firms. In a price-leadership oligopoly, a dominant firm decides on prices and price changes and other firms follow along. In a cartel, independent firms organize themselves and agree on prices and production limits. 6. What occurs when the perfect information assumption is relaxed? In the absence of perfect information, the unobservable qualities that differentiate products and firms are misvalued. What happens? Low-quality consumers or producers force higher-quality consumers or producers out of the market�a process called adverse selection. Down payments and deductibles are methods firms use to overcome adverse selection. Imperfect information can also create opportunity for moral hazards for people altering their behavior unanticipated ways after an agreement has been struck. Read this chapter to learn about monopolistic competition. Make sure to distinguish the short-run from the long-run model. The key difference between perfectly competitive markets and monopolistically competitive ones is efficiency. Differentiate between monopolistic competition and perfect competition Perfect competition and monopolistic competition are two types of economic markets. One of the key similarities that
perfectly competitive and monopolistically competitive markets share is elasticity of demand in the long-run. In both circumstances, the consumers are sensitive to price; if price goes up, demand for that product decreases. The two only differ in degree. Firm's individual demand curves in perfectly competitive markets are perfectly elastic, which means that an incremental increase in price will cause demand for a product to vanish). Demand curves in monopolistic competition are not perfectly
elastic: due to the market power that firms have, they are able to raise prices without losing all of their customers.  Demand curve in a perfectly competitive market: This is the demand curve in a perfectly competitive market. Note how any increase in price would wipe out demand. Also, in both sets of circumstances the suppliers cannot make a profit in the long-run. Ultimately, firms in both markets will only be able to break even by selling their goods and services. Both markets are composed of firms seeking to maximize their profits. In both of these markets, profit maximization occurs when a firm produces goods to such a level so that its marginal costs of production equals its marginal revenues. DifferencesOne key difference between these two set of economic circumstances is efficiency. A perfectly competitive market is perfectly efficient. This means that the price is Pareto optimal, which means that any shift in the price would benefit one party at the expense of the other. The overall economic surplus, which is the sum of the producer and consumer surpluses, is maximized. The suppliers cannot influence the price of the good or service in question; the market dictates the price. The price of the good or service in a perfectly competitive market is equal to the marginal costs of manufacturing that good or service. In a monopolistically competitive market the price is higher than the marginal cost of producing the good or service and the suppliers can influence the price, granting them market power. This decreases the consumer surplus, and by extension the market's economic surplus, and creates deadweight loss. Another key difference between the two is product differentiation. In a perfectly competitive market products are perfect substitutes for each other. But in monopolistically competitive markets the products are highly differentiated. In fact, firms work hard to emphasize the non-price related differences between their products and their competitors'. A final difference involves barriers to entry and exit. Perfectly competitive markets have no barriers to entry and exit; a firm can freely enter or leave an industry based on its perception of the market's profitability. In a monopolistic competitive market there are few barriers to entry and exit, but still more than in a perfectly competitive market. What is the main difference between monopolistic competition and perfect competition?In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.
Which is the main difference between perfect competition and monopolistic competition Brainly?In perfect competition, the products are identical in shape, size, quality etc. whereas, in monopolistic competition the products are differentiated according to colour, size, brand etc. Firm, in perfect competition, determines the price while firms under monopolistic competition can partly control market price.
What is the difference between perfect competition and competition?In a perfect competition market, there are many competitors, barriers to entry are very low, products that are sold are homogenous and identical, absence of non-price competition.
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Comparative Table.. What is the main difference between a monopoly and monopolistic competition quizlet?What is the main difference between a monopoly and monopolistic competition? Monopolistic competition is characterized by an industry with many firms, differentiated products and easy entry and exit, while monopoly is a single firm with high barriers to entry.
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The primary difference between monopolistic competition and perfect competition is
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