Question

Which of the following descriptions fit both monopolies and monopolistic competitors, and which descriptions only fit one of these? Descriptions (6 items) (Drag and drop into the appropriate area below)

Answer 1

Similarity between the Monopoly and monopolistic competition is that both tend to have a downward sloping demand function and due to this reason the charge a price which is greater than the marginal cost. Both have excess capacity because they are able to produce an output level at a higher average cost than its minimum

Monopoly however generates long run economic profits because it has strong entry barriers and there is no substitute even in the long run due to its unique product

Monopolistic competition has easy entry and exit due to which there is no long run economic profit

Categories Only Monopolies has high barriers to entry/exit Both Monopolies and MCS charges a price above marginal cost of production does not Drag and produce at minimum average total cost in the long ruin Only Monopolistic Comp. Low barriers to entry lead to market entry when profits exist Drag a has zero economic profit in the long run Dragan makes unique goods without close substitutes