Question

In 2-3 paragraphs, respond to the following. Your initial post should be substantive and be supported by course concepts.

Give an example of an industry with monopilistic competition. Explain the benefits or detractions of this type of competition.

Answer 1

A monopolistic competition is a market structure which involves a good number of buyers and sellers, selling differentiated goods and services. These firms operate for profit maximization and are able to make positive economic profits in the short run, but due to free entry/exit of firms in the industry in the long run over time, the economic profits fall to 0.

An example of monopolistic competitive firm is Restaurants.

In the hospitality industry, a lot of hospitals exist, offering different cuisines like Italian, North Indian, Mexican etc., and offering different discounts like Buy 1 Get 1 or Happy hours etc. in order to attract more and more customers.

These restaurants are able to make high economic profits in the short run, but overtime as more and more restaurants start opening and competition increases, their profits fall to 0.

Their benefits are no entry/exit barriers, a wide variety of choices to customers and ability to make profits in the short run.