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What is the difference between a monopolistic market and a monopolistically competitive market from a long-run...

What is the difference between a monopolistic market and a monopolistically competitive market from a long-run perspective?

What is the difference between a perfectly competitive market and a monopolistically competitive market in terms of the immediate consequence of the entry by new firms?  

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Expert Solution

A)

Monopolistic market - A market which has only one firm. As it has zero competition and no entry and exit  so it has super normal profit in the long run.

Monopolistic competitive market - In monopolistic competitive market many firms are available which produces differentiated products. As it has many firms so it has entry and exit facility due to which it has zero normal profit in the long run.

2)

The affect of addition of a new firm affects more to the monopolistic competitive firm because a perfectly competitive market has already a very large number of so entry of a new firm in the perfectly competitive firm will have less effect in comparison to the addition of a new firm in the monopolistic competitive firm.

So with the addition of a new firm in the monopolistic competitive market we will see more drop in prices in the monopolistic competitive market.

Rahul Sunny answered 1 year ago
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