Question

Question .1 Is a monopolistically competitive firm productively efficient? Is it allocatively efficient? Why or why not? QUESTION. 2 What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits? Is there a way for oligopolists to attempt to maximize profits? What are the risks of such attempts (and ultimately, generally cause such attempts to fail)? QUESTION. 3 Briefly discuss the various ways monopolistically competitive firms can differentiate their products?

Answer 1

1. Productive efficiency occurs when a firm set the price and sell the output at minimum point on of average total cost curve. Under monopolistic competition market in the long run, firms set the price on the down portion of average total cost curve, not exactly very bottom of the average total cost curve. Thus, monopolistic competition markets are not productive efficiency. Allocative efficiency occurs when a produce the output where price equals to marginal cost. Under monopolistic competition market, the profit maximizing rule of the firm is when the produce the output where marginal revenue equals to marginal cost. This means, firms monopolistically firms produce lower output at higher prices. Thus, the monopolistically competitive markets are not allocative efficient. GO