Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact thatmr=mc at the optimal quantity for each firm. furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium isless than the minimum average total cost. true or false: this indicates that there is a markup on marginal cost in the market for engines. true false monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. the presence of the externality implies that there is too little entry of new firms in the market.
b. Product variety
In a monopoly market, a single company covers all demand and has full capacity to decide the price and conditions of sale. The origin of this type of market is found in its peculiar barriers to entry:
Exclusive access to a resource. The company that controls an essential production factor to obtain a good or service will be the only one capable of offering it.
The existence of legal rights, which according to have a private or public origin, are classified in patents or administrative concessions.
The nature of the service provided. Sometimes, the characteristics of some services discourage the presence of several companies in the same market since the existence of a single company reduces the costs of supply. These types of monopolies are called natural monopolies.
Cost advantages. If a single company produces at a lower cost than its competitors, it will dominate the market, since its final sale price will be very low in relation to that of other companies.
In practice, monopoly companies produce less than the market demands to keep prices artificially high. The market power exercised by these companies can be abusive, clearly harming consumers.
To avoid and correct situations of abuse of power, countries defend themselves with antitrust laws and courts for the defense of free competition.
Monopolistically competitive market in a long run detailed description is given below.
Explanation:The difference between the short‐run and the long‐run in a monopolistically competitive market is that in the long‐run new firms can enter the market, which is especially likely if firms are earning positive economic profits in the short‐run. New firms will be attracted to these profit opportunities and will choose to enter the market in the long‐run. In contrast to a monopolistic market, no barriers to entry exist in a monopolistically competitive market; hence, it is quite easy for new firms to enter the market in the long‐run. The entry of new firms leads to an increase in the supply of differentiated products, which causes the firm's market demand curve to shift to the left. As entry into the market increases, the firm's demand curve will continue shifting to the left until it is just tangent to the average total cost curve at the profit maximizing level of output, At this point, the firm's economic profits are zero, and there is no longer any incentive for new firms to enter the market. Thus, in the long‐run, the competition brought about by the entry of new firms will cause each firm in a monopolistically competitive market to earn normal profits, just like a perfectly competitive firm. Excess capacity. a monopolistically competitive firm ends up choosing a level of output that is below its minimum efficient scale,When the firm produces below its minimum efficient scale, it is under‐utilizing its available resources. In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.