Market structures: perfect competition & monopolistic competition (a) Explain the adjustment process of a monopolistically competitive firm transitioning from the short-run to the long-run. (b) Explain what is meant by the ‘advertising trap’ for a monopolistically competitive firm. In your answer, explain the adjustment process from the short-run to the long-run when the firm starts advertising. (c) Explain the main differences between a perfectively competitive market and a monopolistically competitive market. In answering this question, describe the differences in the demand curves, marginal revenue (MR) curves, marginal cost curves, price, and output in these respective markets. (Note: you cannot illustrate graphically, so your explanation needs to be very clear.)
Market structures:
(a) Explain the adjustment process of a monopolistically competitive firm transitioning from the short-run to the long-run.
(b) Explain what is meant by the ‘advertising trap’ for a monopolistically competitive firm. In your answer, explain the adjustment process from the short-run to the long-run when the firm starts advertising.
(c) Explain the main differences between a perfectively competitive market and a
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A monopolistic competitive market is defined as a market structure with a large number of buyers and sellers of differentiated items. This means that companies fight for market share by altering the physical or qualitative properties of their products. There are little obstacles to entry in a monopolistic competitive market, so new firms can enter easily and current firms can go if the business is not profitable. Firms act as price makers in this circumstance, incurring selling costs like as advertising and sending samples in order to influence client demand patterns.
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