Question

In: Economics

Does a monopolistic competitor produce more or less output as compared to an efficient level of...

Does a monopolistic competitor produce more or less output as compared to an efficient level of production? Explain. What are the benefits and drawbacks of this? Should the government intervene to alter this?

Solutions

Expert Solution

The efficient level of production occurs where the P=minimum ATC

Whereas a monopolistic competition will produce where the MC=MR and in the long run,the firm will produce where the P=ATC but not at its minimum so there exist an excess capacity.

So, the output produced will be lower than the efficient level of production and the price charged will be higher. This shows an inefficient market as it is socially inefficient and there will be too many or too few firms in the market. If there are too many firms entering the market, this implies that the market has business-stealing externality and if there is too little entry of firms then it means that there is product variety externality in the market.The benefits of monopolistic competition is that the firms provide differentiated goods which gives more choice to the users and the firms compete through non-price competition.The government should not intervene in this market as this provides diversity and choice and is more practical than a perfectly competitive market.As these firms require high costs on advertisements and product differentiation, the market is not a monopoly one or where only a few firms dominate.


Related Solutions

Is a market output that is less than the competitive output efficient (efficient in output)? Explain...
Is a market output that is less than the competitive output efficient (efficient in output)? Explain why or why not. Is a market output that is greater than the competitive output efficient? Explain why or not.
Do oligopolies produce an efficient level of output?
Do oligopolies produce an efficient level of output?
1. Does depolarization cause the muscle to become more or less likely to produce an action...
1. Does depolarization cause the muscle to become more or less likely to produce an action potential? 2. If blood travels from the left atrium to the left ventricle during ventricular diastole, why do you need a stage of the cardiac cycle known as atrial systole? What would happen to cardiac output if no atrial systole occurred?
Is De Beers more efficient under monopoly or under monopolistic competition? Explain.
Is De Beers more efficient under monopoly or under monopolistic competition? Explain.
1. At the current level of output, suppose the actual price level is less than the...
1. At the current level of output, suppose the actual price level is less than the price level that individuals expect (i.e., Pt < Pet). We know that: A. output is currently below the natural level of output. B. the interest rate will tend to rise as the economy adjusts to this situation. C. the nominal wage will tend to increase as individuals revise their expectations of the price level. D. any subsequent reduction in the aggregate price level will...
"The more open an economy is, the more viable the price level is, and the less...
"The more open an economy is, the more viable the price level is, and the less costly the loss of exchange rate instrument due to the participation in a monetary union". True or False? Explain both verbally and graphically. Special requirement: min 550 words with graph
What kind of profits does a monopolistic competitor make in the long run? Why? Cite your...
What kind of profits does a monopolistic competitor make in the long run? Why? Cite your sources.
Monopolistic competitive markets are said to be less economically efficient than perfectly competitive markets. Explain why...
Monopolistic competitive markets are said to be less economically efficient than perfectly competitive markets. Explain why this is true. Diagram the equivalent long-run equilibrium points for each to demonstrate your answer.
Q1 Minimum efficient scale is defined as the level of output at which A) all economies...
Q1 Minimum efficient scale is defined as the level of output at which A) all economies of scale are exhausted B). diminishing returns affect average total cost C). the firm's long - run average total cost starts falling . D)the maximum output is produced . Q2 If , when a firm doubles all its inputs , its average cost of production decreases , then production displays A)diseconomies of scale . B)diminishing returns C). economies of scale . D)declining fixed costs...
Consider the statement: “A market with a negative externality will produce more than the efficient quantity...
Consider the statement: “A market with a negative externality will produce more than the efficient quantity of the good, creating a deadweight loss.” Do you agree or disagree? Explain clearly. You may use a graph to help you explain
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT