Question

critically evaluate the implications of “Barriers to Entry” on product Innovation and differentiation and market prices in the monopolistic market structure?

Answer 1

Unlike monopoly form of market, the monopolistic market structure does not have inherent barriers to entry or exit. In a monopolistic market structure, there is a freedom for the firms to enter or exit the market. The freedom to enter into the market is the reason that economic profits shrink thereby leaving only normal profits at the end. Product differentiation is vividly seen as the firms use different colour, shape and features to make a product which differentiates them from the other products in the market.

The firms in the monopolistic structure to retain their customers have to constantly innovate new processes or new products. The producers in a monopolistic market behave as if they were in a monopoly market. The price that they charge is greater than average cost (like a monopolist) and earn economic profits. They produce at the point where marginal revenue is equal to marginal cost.