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many firms selling products that are similar, but not identical.

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Monopolistically competitive firms may not be able to produce goods at the lowest possible average cost. This statement is describing how monopolistically competitive firms might be?

without economies of scale


Does monopolistically competitive firms have horizontal marginal cost curve?

No it does not. Only Perfectly Competitive firms have a horizontal Marginal Cost curve, which is also there demand curve.


Are monopolistically competitive firms efficient in long-run equilibrium?

Monopolistically competitive firms are not considered to be perfectly efficient in the long run. This is because they have some degree of market power due to product differentiation, which can lead to higher prices and lower output compared to perfectly competitive markets.


Is the concentration ratio in a monopolistically competitive industry likely to be higher than for a perfectly competitive industry?

Yes, the concentration ratio in a monopolistically competitive industry is typically higher than in a perfectly competitive industry. Monopolistic competition involves a few firms that have some degree of market power due to product differentiation, leading to a higher concentration of market share among those firms. In contrast, perfectly competitive industries consist of many firms, each with negligible market power, resulting in a lower concentration ratio.


How do monopolistically competitive firms earn profits?

Monopolistically competitive firms earn profits by differentiating their products, allowing them to charge higher prices than those in perfectly competitive markets. They attract customers through unique features, branding, or quality, leading to a downward-sloping demand curve. In the short run, if the price exceeds average total costs, they can earn economic profits. However, in the long run, the entry of new firms typically erodes these profits, as they offer similar products and increase competition.

Related Questions

Monopolistically competitive firms may not be able to produce goods at the lowest possible average cost. This statement is describing how monopolistically competitive firms might be?

without economies of scale


Does monopolistically competitive firms have horizontal marginal cost curve?

No it does not. Only Perfectly Competitive firms have a horizontal Marginal Cost curve, which is also there demand curve.


Are monopolistically competitive firms efficient in long-run equilibrium?

Monopolistically competitive firms are not considered to be perfectly efficient in the long run. This is because they have some degree of market power due to product differentiation, which can lead to higher prices and lower output compared to perfectly competitive markets.


How do monopolistically competitive firms earn profits?

Monopolistically competitive firms earn profits by differentiating their products, allowing them to charge higher prices than those in perfectly competitive markets. They attract customers through unique features, branding, or quality, leading to a downward-sloping demand curve. In the short run, if the price exceeds average total costs, they can earn economic profits. However, in the long run, the entry of new firms typically erodes these profits, as they offer similar products and increase competition.


Why is it that firms can earn profits in the long run in monopoly and oligopoly but not in monopolistic competition and perfect competition?

Because monopolistically competitive firms have an optimal production allocation at monopoly values: marginal revenue = marginal cost, marking-up to the demand function. When competition is not perfect, marginal revenue does not equal demand but is always below it on a Cartesian plane, so the optimal production value of a monopolistically competitive firm is both less and at a higher price than a perfectly competitive one.


Which statements is true about profits in a monopolistically competitive market?

many firms will earn profits in the short term, but they must constantly innovate and compete to earn profits in the long term


Why Japanese Firms tend to be so competitive?

Japanese firms are competitive because they want to make a profit. They typically do this by expanding outside of Japan.


What are the examples of Monopolistic Competition?

Examples of monopolistic competition can be found in every high street. Monopolistically competitive firms are most common in industries where differentiation is possible, such as:The restaurant businessHotels and pubsGeneral specialist retailingConsumer services, such as hairdressing


What is nonprice competition?

Non-price competition refers to competition among firms that choose to distinguish their product via non-price means. EX: style, delivery, location, atmosphere, promotions, etc. Non-price competition is often used by firms that wish to differentiate between virtually identical products (dry-cleaners, food products, cigarettes, etc). Although any firm can use non-price competition, it is most common among monopolistically competitive firms. The reason for this is that firms which operate in the monopolistically competitive market are price takers, that is, they simply do not have enough market power to influence or change the price of their good. Consequently, in order to distinguish themselves, they must use non-price means.


What competitive environmental forces influence the firms strategy?

The competitive environmental forces influence the firms customers, rival firms, new entrants, substitutes, and supplies.


Do perfectly competitive firms advertise?

Perfectly competitive firms would not advertise as advertising would serve no purpose. A market that is perfectly competitive exists only in theory.


What are two perfectly competitive firms?

None