Monopolistic Competition

Assumptions of the model

  • Describe, using examples, the assumed characteristics of a monopolistic competition: a large number of firms; differentiated products; absence of barriers to entry and exit - see page 1 of the document '1.5. Monopolistic Competition'

Revenue curves

  • Explain that product differentiation leads to a small degree of monopoly power and therefore to a negatively sloping demand curve for the product - see page 2 of the document '1.5. Monopolistic Competition'

Non-price competition

  • Distinguish between price competition and non-price competition - see page 2 of the document '1.5. Monopolistic Competition'
  • Describe examples of non-price competition, including advertising, packaging, product development and quality of service - see page 2 of the document '1.5. Monopolistic Competition'

Profit maximisation in the short run

  • Explain, using a diagram, the short-run equilibrium output and pricing decisions of a profit maximising (loss minimising) firm in monopolistic competition, identifying the firm’s economic profit (or loss) - see pages 3-4 of the document '1.5. Monopolistic Competition'

Profit maximisation in the long run

  • Explain, using diagrams, why in the long run a firm in monopolistic competition will make normal profit - see pages 4-5 of the document '1.5. Monopolistic Competition'

Monopolistic competition and efficiency

  • Explain, using a diagram, why neither allocative efficiency nor productive efficiency are achieved by monopolistically competitive firms - see pages 5-6 of the document '1.5. Monopolistic Competition'

Monopolistic competition compared with perfect competition and monopoly

  • Compare and contrast, using diagrams, monopolistic competition with perfect competition, and monopolistic competition with monopoly, with reference to factors including short run, long run, market power, allocative and productive efficiency, number of producers, economies of scale, ease of entry and exit, size of firms and product differentiation - see pages 7-9 of the document '1.5. Monopolistic Competition'
  • Complete Q1 & Q2 of the document '1.5. Monopolistic Competition'

Files to download

1.5.Monopolistic Competition .docx
monopolistic_competition.ppt