Excess capacity in monopolistic competition. (Solved) In contrast with perfect competition, excess capacity characterizes monopolistic competition. Excess 2019-03-04

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Monopolistic Competition and Oligopoly Multiple Choice Questions

excess capacity in monopolistic competition

It may be recalled that monopoly element is present in monopolistic competition because products of different firms are differentiated and each of them has some control over the price of its product. B incur persistent losses in both the short run and long run. Because entry and exit are easy, favorable economic conditions in the industry encourage start-ups. The existence of excess-capacity under imperfect or monopolistic competition can be understood from Figures 28. C until minimum average total cost is achieved.

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Difference between Monopolistic Competition and Economic Efficiency

excess capacity in monopolistic competition

D allocative efficiency but not productive efficiency. D the likelihood of collusive pricing would increase. This situation is shown in the following diagram: The typical firm is at long run equilibrium at E, the price charged is P L and Quantity produced is Q L. This results in sharing of market demand among many firms so that each firm produces a smaller output than its full or optimum capacity. Chamberlin argues that the measure of excess capacity here would be q p — q n. D production at the minimum attainable average total cost. C a few firms producing either a differentiated or a homogeneous product.

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Monopolistic Competition in the Long

excess capacity in monopolistic competition

Joan Robinson also outlined it. This leads to excess or unutilized capacity. An economist would most likely explain your behavior by suggesting that. D does not exist because the firm is a price maker. For example, a typical high street in any town will have a number of different restaurants from which to choose.

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Theory of Excess Capacity under Monopolistic Competition

excess capacity in monopolistic competition

D a highly inelastic demand curve and the monopolistic element from advertising and product promotion. Its output is ideal and there is no excess capacity in the long-run. This is because in the short run under any type of market structure including perfect competition there can be all sorts of departures from the ideal reflecting incomplete adjustment to the existing market conditions. D an industry whose four-firm concentration ratio is low. B many producers of a differentiated product. C generally less elastic demand curve.

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Difference between Monopolistic Competition and Economic Efficiency

excess capacity in monopolistic competition

D price equals marginal revenue. B generally more elastic demand curve. C If there are short-run losses firms will leave the industry and the demand curves of the remaining firms will shift to the left. In the long run new firms will enter a monopolistically competitive industry: A provided economies of scale are being realized. Thus, the existence of excess capacity under monopolistic competition causes inefficiency in the use of resources and loss of consumer welfare. The inefficiency of monopolistic competition may be a small price to pay for a wide range of product choices. For example, a firm could cut prices and increase sales without fear that its actions will prompt retaliatory responses from competitors.

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Econ Chapter 11 Flashcards

excess capacity in monopolistic competition

The second reason for the emergence of excess capacity under monopolistic competition, as has been emphasised by Chamberlin, is the entry of a very large a number of firms in the industry in the long run. Monopolistic competition is similar to perfect competition in that in both of these market structures many firms make up the industry and entry and exit are fairly easy. D equal to marginal cost. B even though losses are incurred in the short run. In this long-run equilibrium situation, neither the optimum scale of plant is set up, nor the plant actually set up is operated at its optimum capacity i. Ihu the double condition run aquilinum I suu-ficd. D about to leave the industry.

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Monopolistic Competition and Oligopoly Multiple Choice Questions

excess capacity in monopolistic competition

A successful product differentiation strategy will move the product from competing on price to competing on non-price factors. Use your basic knowledge and your understanding of market structures to answer this question. We can thus use the model of monopoly that we have already developed to analyze the choices of a monopsony in the short run. Some believe that advertising and branding induces customers to spend more on products because of the name associated with them rather than because of rational factors. A monopolistically competitive industry combines elements of both competition and monopoly. Ultimately, firms in both markets will only be able to break even by selling their goods and services.

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Monopolistic Competition: Competition Among Many

excess capacity in monopolistic competition

A monopolistically competitive industry combines elements of both competition and monopoly. Or a firm may have a patent or trademark on its product that prevents competition. C normal profit is zero and price equals marginal cost. The suppliers in this market will also have excess production capacity. However, this greater diversity is more likely to satisfy consumer tastes, which leads to a more desirable market.

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Monopolistic competition

excess capacity in monopolistic competition

This is in sharp contrast to the position of the firm in long-run equilibrium under perfect competition, which operates at the minimum point of the long-run average cost curve. Tijdschrift voor Economie en Management. D neither allocative nor productive efficiency is achieved. D mutual interdependence in decision making. C resources are optimally allocated to the production of the product. The overall economic surplus, which is the sum of the producer and consumer surpluses, is maximized.

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