Microeconomics 20th Edition by McConnell, Sean Flynn, Stanley Brue

Exercise 2

Compare the elasticity of a monopolistic competitor's de­mand with that of a pure competitor and a pure monopolist. Assuming identical long-run costs, compare graphically the prices and outputs that would result in the long run under pure competition and under monopolistic competition. Contrast the two market structures in terms of productive and allocative efficiency. Explain: "Monopolistically com­petitive industries are populated by too many firms, each of which produces too little." LO2