4. Consider an incumbent firm in a monopolistically competitive market. (a) (2 marks) Describe the two key attributes of a monopolistically competitive market in the short run. (b) (1 mark) Describe one further attribute of a monopolistically competitive market that holds in the long run. (c) (5 marks) With reference to a diagram, compare and contrast an incumbent firm's situation in short run with its situation in the long run. (Hint: describe how and why an incumbent firm's demand curve evolves over time.) (d) (2 marks) Assuming that the average cost curve is U-shaped, discuss the question of long-run efficiency in a monopolistically competitive market.
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a) In the short run, a monopolistically competitive market has two key attributes. Show more…
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