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    Distinctions between perfect and monopolistic competition

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    "In the long run, there is no difference between monopolistic competition and perfect competition." True, false, or ambiguous? Discuss this statement with respect to the following:
    a. The price charged to consumers - true
    b. The average total cost of production - false
    c. The efficiency of the market outcome - ambiguous
    d. The typical firm's profit in the long run hide problem- ture

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    Solution Preview

    In both cases, there are many firms and the price received by every firm is equal to the average total cost of production. The main difference between these two market forms in the long run is product differentiation. Monopolistic competition is not efficient in terms of resource allocation or in production. It provides in exchange a variety of products. In many cases, consumers have ...

    Solution Summary

    Distinctions between perfect and monopolistic competition in terms of efficiency and social cost.

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