Question

A monopolistic competitor is similar to a monopolist in that:

1) Both face downward-sloping demand curves
2) Both have market power
3) Both maximize profits
4) Both produce at the efficient scale

Answer 1

A monopolistic competitor is similar to a monopolist as both have downward-sloping demand curves, market power, and aim to maximize profits; however, they differ in their perceived demand curves and barriers to entry.

Step-by-step explanation:

A monopolistic competitor is similar to a monopolist in particular ways, such as both facing downward-sloping demand curves, both having market power, and both seeking to maximize profits. However, there are notable differences between them, the key being their perceived demand curves and the barriers to entry they face. A monopolist's demand curve is the market demand curve due to the absence of competitors, protected by high barriers to entry. In contrast, a monopolistic competitor has a more elastic demand curve because there are other firms with similar but differentiated products, and lower barriers to entry mean they must anticipate new competitors entering the market if they are profitable. Unlike a monopolist, a monopolistic competitor does not produce at the efficient scale and must consider the effects of their product differentiation and the number of competitors on their market power.