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Essay Unit 3 - Monopolistic Competition £4.94   Add to cart
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  2.  
  3. PEARSON (PEARSON)
  4.  
  5. Economics 2008
  6.  
  7. Unit 3 - Business Economics and Economic Efficiency

Essay

Essay Unit 3 - Monopolistic Competition
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This essay uses chains of analysis and evaluation points to examine the types of efficiencies that a monopolistically competitive market structure firm may or may not possess.

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  • January 23, 2022
  • 4
  • 2021/2022
  • Essay
  • Unknown
  • A+

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1. Monopolistic competition is a market structure whereby goods are
heterogenous, there are low entry and exit barriers, there are many
buyers and sellers, and firms are price takers. The opening line of the
extract states “Malaysia is a country that has many different types of
wood available for furniture making.” Thus, the Malaysian furniture
industry is likely to be monopolistically competitive as goods in the
market are heterogenous. Additionally, line 10 of the extract states
“New firms find it easy to set up and start producing…” This statement
suggests that there are low entry and exit barriers in the market.
Therefore, the furniture industry could be classified as monopolistically
competitive.




2.
Monopolistic
competition is a
market structure
whereby goods are
heterogenous, there
are low entry and exit
barriers, there are
many buyers and
sellers, and firms are
price takers.
An increase in the demand for furniture in the monopolistic Malaysian
market is likely to shift the Average Revenue (AR) curve to the right,
given that AR = Demand. This will also shift the Marginal Revenue (MR)
curve to the right. So, as AR is greater than AC, this will result in the firm
making supernormal profit as shown by the shaded area in the diagram
above.




3.
In a monopolistically
competitive market, a firm is

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