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Basic Market Structure - PDF

   

Added on  2021-04-21

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Running Head: BASIC MARKET STRUCTURE Basic Market StructureName of the StudentName of the UniversityAuthor note

BASIC MARKET STRUCTURE 1Table of ContentsAnswer 1....................................................................................................................................2Answer 2....................................................................................................................................2Answer 3....................................................................................................................................3Answer 4....................................................................................................................................3References..................................................................................................................................6

BASIC MARKET STRUCTURE 2Answer 1Monopolistic competition is a form of market where different brands in the marketplace engage in selling a similar but differentiated product with the presence of large numberof buyers (Taylor et al., 2014). As the name suggests, this form of market have somecommon feature of both monopoly and perfect competition. Similarities between pure monopoly and monopolistic competition In monopolistic competition owner of each brand can behave like a pure monopolist.The equilibrium condition is same for both the market. Both the market requires MR to beequal with MC and MC cuts MR from below. Both monopoly and monopolisticallycompetitive firm face downward sloping demand or AR curve and MR lies below it (Baumol& Blinder, 2015). In both form of market excess capacity exists as long run equilibrium occurto the left of minimum point of long-run average cost. Similarities between monopoly and perfect competition Both the market has large number of buyers and sellers. Like perfect competition, inmonopolistically competitive market firms compete with each other. In both the market,sellers can freely enter and exit the industry (Taylor et al., 2014). In both form of market,there is only normal profit in the long run. Answer 2 Normal profit describes an economic condition in which total revenue exactly equalstotal cost. The firm in state of a normal profit when it makes economic profit equals to zero.The main rationale for considering zero economic profit as the normal profit as this coversboth explicit costs and implicit costs. The economic profit is different from accounting profitwhich only covers explicit or accounting cost (Devine et al., 2018). However, along with

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