A monopolistically competitive firm is not efficient because it does not produce at the minimum of its average cost curve or produce where P = MC. Thus, a monopolistically competitive firm will tend to produce a lower quantity at a higher cost and charge a higher price than a perfectly competitive firm.

What happens to a monopolistically competitive firm?

What happens to a monopolistically competitive firm that begins to charge an excessive price for its product? The firm will go out of business. The government will regulate the price. Consumers will substitute a rival’s product.

Why is profit so high in a monopolistic firm?

Monopolistically competitive firms maximize their profit when they produce at a level where its marginal costs equals its marginal revenues. Because the individual firm’s demand curve is downward sloping, reflecting market power, the price these firms will charge will exceed their marginal costs.

Why can a firm in monopolistic competition make an economic profit?

In the short run, a monopolistically competitive firm maximizes profit or minimizes losses by producing that quantity that corresponds to when marginal revenue = marginal cost. If average total cost is below the market price, then the firm will earn an economic profit. Click to see full answer

Which is an attempt to monopolize the relevant industry?

E) an attempt to monopolize the relevant industry. A If there are a large number of firms in a monopolistically competitive industry A) long-run profit will be equal to zero. B) the country in which the firms are located can be expected to export the goods they produce.

Which is an example of a monopolistic market?

Thus monopoly is the industry or the sector which combines the elements of both monopoly and the competitive markets. There is freedom to the players to enter and exit from the market along with offering the different product which has similarities but is not the substitute of each other.

How is the hairdresser an example of oligopolistic competition?

The hairdresser service is not the big chain industry and thus keeps them away from the more oligopolistic market structure. The prices offered by the hairdresser will depend on the services offered by them and its uniqueness.