- The diagram below shows a typical monopolistically competitive
firm when the industry is in long-run equilibrium.
a. Explain why free entry and exit implies that the long-run
equilibrium is at point A.
b. What is the significance of point B and price p?
c. Explain why long-run equilibrium in monopolistic
competition can be considered to be less efficient than in
perfect competition. Explain why that may not be the
case.
9. In the text we argued that a key difference between monopolistic
competition and oligopoly is that in the former firms do not
behave strategically whereas in the latter they do. For each of the
goods or services listed below, state whether the industries are
likely to be best described by monopolistic competition or
oligopoly. Explain your reasoning.
a. Car repair
b. Haircuts
c. Dry cleaning
B