Chapter Questions
What is monopolistic competition? How does it differ from perfect competition and monopoly?
Monopolistic competition is the middle ground between perfect competition and monopoly. Explain the statement.
Theories of monopolistic competition and monopoly do not represent the real business world whereas theory of monopolistic competition offers an explanation to price and output determination in a real business world. Explain and justify the statement.
What are the characteristics of monopolistic competition? Compare the characteristics of monopolistic competition with those of perfect competition?
There is an element of monopoly in monopolistic competition. What factors give monopoly power to a firm in monopolistic competition?
What is meant by product differentiation? What is the purpose of product differentiation? How does it affect firm's demand curve?
In monopolistic competition, firms think that the demand curve for their individual product is different from that of the industry as whole. Illustrate graphically firm's perception of their individual demand curve.
What is meant by selling costs? How is selling cost different from advertisement cost? Why do firms in monopolistic competition incur selling costs?
According to Chamberlin, average selling cost (ASC) curve is $\mathrm{U}$-shaped. What factors determine the shape of the ASC? Illustrate graphically how selling costs affect the overall cost structure of the firm.
The purpose of selling cost is to increase the demand for the product and to make demand curve more elastic. But there is limit to it. How can a firm find the optimum level of selling cost? Explain by using appropriate diagrams.
What is Chamberlin's concept of 'product group'? How is the concept of 'product group' different from the traditional meaning of industry?
How does a monopolistically competitive firm adjust its price and output to arrive at its equilibrium? Explain and illustrate how a firm in monopolistic competition reaches its equilibrium in the short run? Does a firm in equilibrium in monopolistic competition always make a supernormal profit?
Suppose market demand curve is given $Q=500-0.5 P$. Work out the proportional demand curve for a firm assuming there are 50 firms in the industry. Is the elasticity of the proportional demand curve at a given price is the same as that of the market demand curve or different?
How are the long-run conditions different from short-run conditions for a firm in monopolistic competition? Illustrate and explain the long-run equilibrium of firm in monopolistic competition? How is firm's long-run equilibrium different from its short-run equilibrium?
What is meant by 'ideal output' and 'excess capacity'? Illustrate Chamberlin's measure of excess capacity. How does Harrod's measure of excess capacity differ from Chamberlin's measure?
What are the wastages of monopolistic competition? Is the 'traditional' concept of excess capacity an overstatement of one of the wastages of monopolistic competition? Give reasons in support of your answer.
What is the usual form of non-price competition in monopolistic competition? Explain and illustrate the firm's long-run equilibrium under non-price competition. Why do firms involved in non-price competition make only normal profit in the long run?
What does Chamberlin mean by 'group equilibrium'? How does selling cost affect the group equilibrium? Illustrate firm's equilibrium with selling costs.
Group equilibrium shows that firms incurring selling costs make only normal profit in the long run. It implies that selling cost is a waste. Do you agree with this statement? Give reason for your answer.
What are the drawbacks of Chamberlin's theory of monopolistic competition? What is the merit of his theory in spite of its drawbacks?
Write a note on the critical evaluation of Chamberlin's theory of monopolistic competition? Why is his theory not in use even though it is analytical sound?