What are the five characteristics of Monopolistic Competition? 2. 3. 4. 5. When
ID: 1125502 • Letter: W
Question
What are the five characteristics of Monopolistic Competition? 2. 3. 4. 5. When firms sell differentiated products and charge prices above marginal cost they need to What is the profit maximizing output point? How does a monopolistic competition calculate profit? (there are two equations) Marginal Cost Average Total Cost Demand Marginal Revenue Quantity Is this Monopolistic Competition in short run or long run profit? What is the difference between long run profit between Monopolist and Monopolistic Competition firms?Explanation / Answer
Five characteristics of the monopolistic competition are as follows:
A. Free entry and exit of the firms
B. Large number of buyers and sellers
C. Products are differentiated on the basis of features and characteristics
D. Allocative and productive inefficiency in the market
E. Economic profit is zero in the long run
When prices are above the marginal cost, then they need to produce below the capacity that brings inefficiency and dead weight loss is created.
Profit maximizing output point : MR = MC
The one equation is: Profit = total revenue - total cost
The second equation is: MR = MC
And price is above the ATC to earn positive economic profit in the short run.
In the long run, monopolistic firm earns zero economic profit when price is equal to ATC.
In the short run, monopolistic firm can earn positive economic profit when price is higher than the ATC.
In the long run, a monopolist earns positive economic profit, but a monopolistic firm earns zero economic profit in the long run.
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