Economics
4th Edition
ISBN: 9781464143847
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Question
Chapter 15, Problem 3P
To determine
Concept Introduction:
- Large number of buyers and sellers: In the monopolistic competition market, there are numerous number of sellers and buyers.
- Product differentiation: This is one of the most important features of monopolistic competition. The product of the sellers is differentiated but is a close substitute of one another. It can be real or artificial. The demand curve monopolistic firms face is an elastic demand curve.
- Free Entry or Exit: There are no barriers to entry or exit, firms can easily enter or exit the market.
- In case of Monopolistic Market competition, short run equilibrium is achieved at a point where the marginal revenue is equal to the marginal cost.
- In such a market, the marginal revenue is less elastic than the average revenue curve and both are downward sloping.
- The difference between the average revenue curve, that is the demand curve and the average cost curve gives the net profit
- In the long run, the equilibrium is achieved in a place where the average revenue is equal to the marginal revenue. But the normal profit is zero.
- Since, the point does not have a minimum average cost, hence the monopolistic structure does not show product efficiency as well as
allocative efficiency.
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