![]() Restaurants are a monopolistically competitive sector in most areas there are many firms, each is different, and entry and exit are very easy. Monopolistic competition is a model characterized by many firms producing similar but differentiated products in a market with easy entry and exit. However, because of the availability of close substitutes, the price-setting power of monopolistically competitive firms is quite limited. Product differentiation gives firms producing a particular product some degree of price-setting or monopoly power. This differentiation may occur by virtue of advertising, convenience of location, product quality, reputation of the seller, or other factors. ![]() This model differs from the model of perfect competition in one key respect: it assumes that the goods and services produced by firms are differentiated. ![]() The model of monopolistic competition assumes a large number of firms. The first model of an imperfectly competitive industry that we shall investigate has conditions quite similar to those of perfect competition. ![]() Explain what it means to say that a firm operating under monopolistic competition has excess capacity in the long run and discuss the implications of this conclusion.Explain and illustrate both short-run equilibrium and long-run equilibrium for a monopolistically competitive firm.Explain the main characteristics of a monopolistically competitive industry, describing both its similarities and differences from the models of perfect competition and monopoly. ![]()
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