Reference no: EM133302367

Analyze the differences and similarities among firms for two different market structures: Monopoly and Monopolistic Competition.

A. When comparing a Monopolistically Competitive firm to a Monopoly, we say that both firms possess market power. Market power means that both types of firms are "price-makers" that encounter the Law of Demand as they decide to price their products.

1 How does a Monopolistically Competitive firm become a price-maker, instead of a price-taker? Why will a pure monopoly always be a "price-m.aker"?

2. What is the relationship between Product Price and Marginal Revenue at any given Q level for both monopolies and monopolistic competitors? Why?

B. A Monopoly has very high entry and exit barriers, and it also has considerable control over market relevant information. A Monopolistic Competitor faces a market with an easy flow of market information, along with easy-entry and easy-exit market conditions. Taking into account these differences, explain how a Monopoly can potentially earn above-normal total economic profit for an indefinite amount of time into the future, whereas a monopolistic competitor can earn either above-normal or below-normal economic total profit in the short run, but is predicted to earn Zero (normal) total economic profit in the long run.