Answer to Question #202223 in Microeconomics for Nii-Amo Justice

Question

a. What is monopolistic competitive market?

b Explain why the fast food industry in Ghana is a better fit for a monopolistic competitive

industry?

c Using a diagram, explain why firms in monopolistic competition always produced with excess

capacity

Answer 1

a) Monopolistic competition is defined as an industry when companies produce similar services or good, however they are not perfect substitutes.

b) the industry of fast food tend to be quite competitive, however all firms have monopolies for their products. Other consumers have different preferences over different firms. The preferences provide monopolistically competitive company industry power that they exploit to gain profits.

c)

Excess capacity tends to be defined more on monopolistic competition based on the nature of the market structure. Compared to perfectly competitive market structures where demand curve tends to be horizontal, the one for monopolistic competitive markets displays downward sloping demand curve. It's demand curve may not be tangential to LAC at the minimum point.