Monopolistic Competition Case Study

1. What is a monopolist, and what is required in order for a monopolist to earn profits in the long run? How is government involved with the creation of barriers to entry? A monopolist is, “the single supplier of a good or services for which there is no close substitute. The monopolist therefore constitutes its entire industry” (Miller, 2012, p. 533). In addition, in a monopoly market structure, the monopolist and the industry are the same. In addition, “we think of monopoly prices as being higher than prices under perfect competition and of monopoly profits as typically being higher than profits under perfect competition ( which are, in the long run, merely equivalent to a normal rate of return” ( Miller, 2012, p. 533). Therefore, n order

(2012). Monopoly: The Micro View (17th ed. pp. 532-554). Boston, MA: Addison-Wesley.

2. What is the most important characteristic of monopolistic competition? How do firms behave differently from perfect competitors? What are the implications of having a large number of firms in monopolistically competitive market?

According to Miller, a monopolistic competition is, “a market situation in which a large number of firms produce similar but not identical products. Entry into the industry is relatively easy” (2012, p. 556). The most important characteristic of monopolistic competition includes features such as, having a significant number of sellers in a highly competitive market, differentiated products, sales promotion and advertising, and easy entry of new firms in the long run. Accordingly, Chamberlin defined monopolistic competition as, “a market structure in which a relatively large number of producers offers similar but differentiated products” (Miller, 2012, p.

In pure monopoly, there is only one. In monopolistic competition, there are a large number of firms, but not so many as in perfect completion” (2012, p. 556). There are several implications of having a large number of firms in monopolistically competitive market. For instance, they have a small share of the total market. Another implication of having a large number of firms in a monopolistically competitive market is that it’s harder for all of the firms to get together to collude, thus they have a lack of collusion. The third implication is each firm acts independently of the other.

References

Miller, R. (2012). Monopolistic Competition: The Micro View (17th ed. pp. 555-572). Boston, MA: Addison-Wesley.

3. Suppose that the market for autoworkers is initially in equilibrium, but then the automakers purchase capital goods that are a substitute for workers. What happens to the market for autoworkers? Explain. Now, suppose that the automakers improve working conditions at the plants. What are the effects? Explain. Supposing that the market for autoworkers is initially in equilibrium, but then the automakers purchased capital goods that are a substitute for workers, the market for autoworkers would decrease.

References

Miller, R. (2012). The Labor Market: Demand, Supply, and Outsourcing: The Micro View (17th ed. pp. 618-641). Boston, MA: