Question

Consider a firm that operates in a market that competes aggressively in prices.Due to the high fixed cost of obtaining the technology associated with entering this market, only a limited number of other firms exist. Furthermore, over 70 percent of the products sold in this market are protected by patents for the next eight years. Does this industry conform to an economist's definition of a monopolistically competitive market?

Answer 1

Answer: It does not because there are no free entry and the sellers are not many.

Step-by-step explanation:

Monopolistic competition is a form of imperfect competition whereby many producers sell goods and services that are differentiated from one another either by branding or quality and hence the products are not perfect substitutes.

Some of its characteristics are:

• There are many producers and consumers in the market.

• There are little barriers to entry and exit.

• Producers have a certain control over price.

• The main goal of the firm is profit maximization.

•Technology and factor prices are given.

But in the question, there are limited number of firms and hindrance in entry. This shows that it's not a monopolistic competition.