Question

1. List the conditions required for monopolistic competition. Which of these makes monopolistic competition seem like perfect competition and which like monopoly?
2. List the conditions required for oligopoly.
3. State the profit-maximizing conditions under oligopoly
4. Compare the profit-maximizing conditions under monopoly to those under oligopoly.
5. Compare the profit-maximizing conditions under monopolistic competition to those under perfect competition both in the long-run.

Answer 1

Ans - The conditions required for monopolistic competition are -

1) Large number of firms . Size of each firm is small.

2) Product produced are slightly different from each other . Products under monopolistic competition are not same but similar and remain close substitutes to each other.

3) An important characteristic of monopolistic competition is large expenditure on expenditure and other selling costs to promote sales of their product.

4) free entry and exit of of new firms

5) There is non price competition. Sellers compete on factors like product quality, advertisement, distribution and other sale service rather than price.

The characteristic of free entry and exit of monopolistic competition makes it similar to perfect competition.

In case of both monopoly and monopolistic competition the producer decides the price to lower or to raise it.And the equilibrium conditions of both the firm are same. i.e MR=MC and slope of Mc >slope of MR

Ans b) Conditions for oligopoly -

1. Small number of large firms

2. Some oligopolist produce identical products like perfect competition and some produce differentiated products like monopolistic competition.

3. Firms in an oligopolist market are charaterised with barriers to entry for new firms in the form of - exclusive resource ownership, patents and copyright,other governmental restriction and high start up cost.