Economics 19th Edition by Stanley Brue, Cambell McConnell, Campbell McConnell, Sean Masaki Flynn, Sean Flynn

Exercise 2

Compare the elasticity of a monopolistic competitor's de­mand with that of a pure competitor and a pure monopolist. Assuming identicalcosts, compare graphically the prices and outputs that would result in therun 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."