Question

Describe the charactersitics that make up the monopoly and monopolisitc competition. Give an example of each characteristic.

Answer 1

A monopoly is one where there is a single seller. The monopolist is a price maker and the single firm that sets prices. It only decides what the market price would be There are barriers to entry and there is is no product differentiation.So no firms are allowed to enter the market. In case of a monopolistic competition there are attributes of both monopoly and perfect competition. Firms practise profit maximization in the short run, but in the long run through the entry and exit of firms, they only earn normal profits. Under monopolistic competition there is also product differentiation and firms operates where marginal costs equal marginal revenue in the short run.