Important differences between the
Explanation of Solution
The market is a structure where there are buyers and sellers who sell and buy the goods and services between the buyers and sellers. The market competition is the market structure where there is a competition among the large number of sellers in the market in order to satisfy the needs of the large number of consumers.
The perfect competition and the monopolistic competition are two market structures where there are large number of buyers and sellers in the market. The products selling in the perfect competition are identical products which make the competition and make the firm the price takers, whereas on the other hand, the monopolistic competition is the market structure where there are many sellers in the economy but selling differentiated products and thus the goods are not perfect substitutes in the monopolistic competition.
There are no barriers to entry of new firms into the market under the perfect competition, whereas there are some barriers to the entry of new firms into the market under the monopolistic competition.
The best example for the perfect competition is the wheat and many other raw materials sold in the market. The haircuts and the restaurant meals are the best examples for the monopolistic competition in the economy.
Concept introduction:
Perfect competition: Perfect competition is the market structure where there are large number of buyers and sellers in the market selling the identical products at the market determined price level. Thus, the firms in the perfect competition will be the price takers.
Monopolistic competition: The monopolistic competition is a market condition where there will be a large number of sellers selling differentiated products.
Want to see more full solutions like this?
Chapter 13 Solutions
Microeconomics (7th Edition)
- The following graph represents a monopolistically competitive firm in long-run equilibrium. Place the black point (cross sign) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Next, place the grey star on the graph to indicate the point where the LRAC reaches a minimum. PRICE PER UNIT (Dollars) 500 450 400 350 300 250 200 150 100 50 MC 0 0 50 LRAC MR Demand 100 150 200 250 300 350 400 450 500 QUANTITY (Units) Monopolistically Competitive Outcome Minimum of the LRAC The long-run equilibrium price is $ (Hint: Use the graph to find the numeric value of the price at equilibrium.) The long-run equilibrium quantity is units. The LRAC curve is at its minimum at a quantity of The long-run equilibrium price is units. the marginal cost of producing the equilibrium output. ?arrow_forwardWhen we compare the long run conditions of a Perfectly Competitive firm to the long run conditions of a Monopolistically Competitive firm we see that the Perfectly Competitive firm is less productive and cost efficient than the Monopolistically Competitive firm more productively efficient and less cost efficient than the Monopolistically Competitive firm less productively efficient and more cost efficient than the Monopolistically Competitive firm more productive and cost efficient than the Monopolistically Competitive firmarrow_forwardIn which type of market, monopolistic or competitive market, is the equilibrium market price lower? Why?arrow_forward
- Suppose the market for kitchen knives is monopolistically competitive and that businesses in this market are currently earning negative economic profits. In the long run, the demand for an individual kitchen knife business will ______ as more kitchen knife businesses leave the market, which will cause economic profits to ______ .arrow_forwardIf the firms in a monopolistically competitive market are earning economic profits or losses in the short run, would you expect them to continue doing so in the long run? Explain your answer Is a monopolistically competitive firm productively efficient? How can you tell? Offer one reason why a monopolistically competitive firm might be productively inefficient. Is it allocatively efficient? How can you tell? Offer one reason why a monopolistically competitive firm might be allocatively inefficient. What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits? Offer two obstacles to oligopolists cooperating. Aside from advertising, how can monopolistically competitive firms increase demand for their products? What effect would doing this have on the elasticity of the firm’s perceived demand curve? Explain your answers. Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a…arrow_forwardWhat do economists mean when they say that competitive markets are more efficient than monopolistic markets? Monopolistic markets result in lower price and higher production Competitive markets result in lower prices, monopolistic market result in higher production Competitive markets result in lower costs, lower prices, and higher levels of production Easy entry and exitarrow_forward
- What are the four characteristics of a monopolistically competitive industry and what is one example of a monopolistically competitive industry?arrow_forwardSuppose that a company operates in the monopolistically competitive market for denim jackets. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Nex place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. (?) PRICE (Dollars per jacket) 100 90 80 70 60 50 ATC 20 40 30 20 10 10 MC MR Demand 0 + + 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of jackets) Mon Comp Outcome Min Unit Cost at the optimal the efficient scale. Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that P= ATC quantity for each firm. Further, the quantity the firm produces in long-run equilibrium is True or False: This indicates…arrow_forwardExplain why firms operating in monopolistically competitive markets probably will not earn an economic profit in the long run.arrow_forward
- Provide some examples of goods/services you buy from a highly competitive market and some examples of goods/services you buy from a monopolistic market. Discuss why some markets are highly competitive and other markets are not (such as a monopoly).arrow_forwardThe following graph shows a firm operating in a monopolistically competitive market. Short term, how many haircuts will the firm perform and at what price? At this point, what will its total revenue, total cost, and total profit be? Given your answers, what would we expect to happen in the long term in this market (i.e. are we at long term equilibrium, or will we see further changes)?arrow_forwardFigure#4: Price and cost (dollars per client) 100.00 90.00 80.00 MC ATC 70.00 60.00 50.00 40.00 30.00 20.00 10.00 MR 8 10 Quantity (clients per day) Refer to Figure#4. This figure depicts a situation in a monopolistically competitive market. In short run, how much output will the monopolistic competition produce and will charge at what price?arrow_forward
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, IncEconomics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning