Monopolistic competition Mathematics & Economics Essay (Essay Sample)
(Name of the Author)
Which one of the following is not an assumption of trade under monopolistic competition?
* The firms are selling similar but differentiated goods
* Firms are using technology with increasing returns to scale
* The market is restricted as it is not free or exit.
* Monopoly profits are zero in the long run.
* There are many firms in the market.
The correct answer is (c) The market is restricted as it is not free to enter or exit. All firms are free to enter or exit the market, as there are no restrictions.
Monopolistic competition is a competitive market, which is almost similar to the perfect competitive market. It exhibits identical features with the perfect competition except that all the firms are selling differentiated goods. It is through this feature that firms are in a position to control the market prices.
The logic of the question is that it was designed to test the understanding of the monopolistic competition trade model, which most of the countries practice. Trade under this model involves imports and exports from the same industry, that is, an intra-industry trade. Comparative advantage is the main factor which the countries are considering while engaging in this trade. The firm, which has long specialization in manufacturing a particular good, will have the largest market share since it can sell high-quality goods at low prices (Ohyama, 2016). The reason behind this is that the technology which it has acquired over long production time has enabled it to produce at the lowest cost. Such technology can be achieved by increasing th
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