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By now we all should know that the condition to maximize profits in any industry is...

By now we all should know that the condition to maximize profits in any industry is setting marginal cost equal to marginal benefit. Firms face similar costs regardles of the type of their industry. However, marginal benefits depend on the type of industry. Consequently, the amount produced (Q) and the price of a good (P) also changes across market structures. Can anyone tell us how Q and P change across market structures? Focus on monopolistic competitive markets.

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Answer #1

Monopolistic competitive market, produces output that is inefficient in terms of productive and allocative efficiency. Further, firms set price on the basis of product diifferentiation. Hence, it will have higher price and lower quantity in comparison to the perfect competition.

Though, there is free entry and exit in the monopolistic market that is not the case with monopoly and oligopoly. So, price will be lower and quantity will be higher in monopolistic market in comparison to monopoly and oligopoly at profit maximizing level.

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