Monopolistic Competition

Front

What are the assumptions of the monopolistic competition model?

Back

1. Many firms selling differentiated products. 2. Firms have some degree of price-setting power. 3. Free entry and exit in the long run.

Front

What is the shape of the firm's demand curve in monopolistic competition?

Back

The firm's demand curve is downward sloping due to product differentiation.

Front

Where is marginal revenue (MR) in relation to the demand curve in monopolistic competition?

Back

Marginal revenue (MR) is below the demand curve.

Front

How do firms maximize profit in the short run in monopolistic competition?

Back

Firms maximize profit where MR = MC.

Front

Can firms earn abnormal profits in the short run in monopolistic competition?

Back

Yes, firms may earn abnormal profits in the short run.

Front

What happens to economic profits in the long run in monopolistic competition?

Back

In the long run, firms enter and exit the market, driving economic profits to zero.

Front

What occurs at long-run equilibrium in monopolistic competition?

Back

Long-run equilibrium occurs where P = ATC but P > MC (inefficient).

Front

How do firms differentiate their products in monopolistic competition?

Back

Firms differentiate their products through advertising, branding, quality, and customer service.