Monopolistic Competition

Question 1

What are the main characters of monopolistic competition

Answer 1

• many buyers and sellers
• perfect information
• no barriers to entry or exit
• slightly differentiated products

Question 2

What does product differentiation mean

Answer 2

firms become price makers In their own market segment

Question 3

when firms are price makers what do they face

Answer 3

a downward sloping demand curve

Question 4

What type of competition is there between firms in a monopolistic competition

Answer 4

imperfect competition

Question 5

What makes the firms price makers

Answer 5

they don’t have to accept the market price

Question 6

What determines how separated the firm is from the market

Answer 6

how differentiated the products are

Question 7

What are some pros of non price competition

Answer 7

• improving products and services
• to attract more customers
• competition drives up standards
• there are efficiency and welfare benefits

Question 8

What are some cons of non price competition

Answer 8

• generating greater market power
• lessening of competition
• results in a monopoly outcome
• damages efficiency and welfare