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Economics REVISION 5 (micro) > Monopolistic Competition > Flashcards

Flashcards in Monopolistic Competition Deck (17)
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1
Q

What is monopolistic competition a form of

A

Imperfect competition

2
Q

Assumptions of monopolistic competition

A
  • many consumers and producers
  • consumers are aware that there are non-price differences among products
  • firms are price takers
  • low barriers to entry and exit
3
Q

Examples of monopolistic competition

A

Uber

Sandwich bars and coffee shops

4
Q

Is there product differentiation

A

Yes - businesses have some control over their products

5
Q

Demand curve

A

Downward-sloping (some degree of price setting power as they are selling differentiated products)

6
Q

AR curve for each product

A

Highly price elastic - many close substitutes and cost of consumer switching is low

7
Q

Barriers to entry?

A

No

8
Q

Profits

A

Can be at any level in the SR

9
Q

Supernormal profit ?

A

Acts as a signal for attracting new producers with new products

10
Q

LR demand curve

A

Shifts to the left (consumers opt to buy producers offered by new / alternative companies). Moves until tangible to the AC curve

11
Q

LR equilibrium profits

A

Normal

12
Q

In reality why might a stable equilibrium not be reached

A

New products some and go, some naturally do better than others (they market is in a state of constant flux)

13
Q

Monopolistic competition: allocative efficiency

A

No - prices are above marginal cost

14
Q

Monopolistic competition: productive efficiency

A

No - saturation of the market may lead to businesses being unable to exploit fully economies of scale - causing average costs to be higher

15
Q

Critics of heavy spending on marketing and advertising

A

Argue that much of this spending is wasteful and an inefficient use of scarce resources

16
Q

What is one of the main problems with monopolistic competition

A

Social costs of packaging and negative externalities (linked to monopolistic competition).

17
Q

What is monopolistic competition associated with

A

Extensive consumer choice and innovation - good for dynamic efficiency