a) Can the threat of a price war deter entry by potential competitors? What actions might a firm take to make this threat credible? b)Why is the firm’s demand curve flatter than the total market demand curve in monopolistic competition? Suppose a monopolistically competitive firm is making a profit in the short run. What will happen to its demand curve in the long run?
a) Can the threat of a
actions might a firm take to make this threat credible?
b)Why is the firm’s
making a profit in the short run. What will happen to its demand curve in the long
run?
Monopolistic competition refers to a market structure characterized by many firms producing differentiated products that are close substitutes for each other. In this market structure, firms have some degree of market power, which allows them to charge prices higher than in a perfectly competitive market, but not as high as in a monopoly.
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