Essentials of Economics 2nd Edition by Campbell McConnell, Randy Grant, Stanley Brue

Exercise 2

Compare the elasticity of the 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 characterized by too many firms, each of which produces too little." LO2