monopolistic

• What type of competition characterizes a monopolistically competitive market?

  Imperfect competition
• What do firms in monopolistically competitive markets aim to do in the short run?

  Maximize profits
• What type of products do firms sell in monopolistically competitive markets?

  Non-homogeneous products
• What is the effect of branding in monopolistically competitive markets?

  It leads to product differentiation
• What does a high XED indicate in monopolistically competitive markets?

  There are many close substitutes
• What is the assumption about the number of buyers and sellers in a monopolistically competitive market?

  There are a large number of buyers and sellers
• How does market power of sellers in monopolistically competitive markets compare?

  It is relatively weak
• What type of competition do firms in monopolistically competitive markets primarily use?

  Non-price competition
• Are there barriers to entry in monopolistically competitive markets?

  No, there are no barriers
• What does a downward sloping demand curve indicate for firms in monopolistically competitive markets?

  They can raise prices without losing all customers
• What type of information do buyers and sellers have in monopolistically competitive markets?

  Imperfect information
• At what point do firms profit maximize in the short run?

  At the point MC = MR
• What does the area P1C1AB represent in the short run for firms?

  Supernormal profits
• What happens in the long run when new firms enter a monopolistically competitive market?

  Demand for existing firms' products becomes more elastic
• What is the long run equilibrium point in a monopolistically competitive market?

  P1Q1
• How can firms try to maintain their position in the short run?

  By differentiating their products and innovating
• What are the advantages and disadvantages of monopolistically competitive markets?

  Advantages:

  • Wide variety of consumer choice
  • More realistic model than perfect competition
  • Short-run supernormal profits may increase dynamic efficiency

  
  

  Disadvantages:

  • Allocatively inefficient (P > MC)
  • Limited dynamic efficiency in the long run
  • Excess capacity and productive inefficiency
  • X-inefficiency due to lack of cost minimization
• What does allocative inefficiency mean in monopolistically competitive markets?

  P is greater than MC
• Why might dynamic efficiency be limited in the long run for monopolistically competitive firms?

  Due to lack of supernormal profits
• What does excess capacity indicate in monopolistically competitive markets?

  Firms do not fully exploit their factors
• How does x-inefficiency manifest in monopolistically competitive markets?

  Firms have little incentive to minimize costs