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Compare the elasticity of the monopolistic competitors demand with that of a pure competitor and a pure monopolist. Assuming identical long-run costs, compare graphically the prices and outputs that would result in the long run under pure competition and under monopolistic competition. Contrast the two market structures in terms of productive and allocative efficiency. Explain: Monopolistically competitive industries are characterized by too many firms, each of which produces too little.
Less elastic than a pure competitor and more elastic than a pure monopolist. Price is higher and output lower for the monopolistic competitor. Pure competition: P = MC (allocative efficiency); P = minimum ATC (productive efficiency). Monopolistic competition: P > MC (allocative efficiency)…

d P > minimum ATC (productive inefficiency). Monopolistic competitors have excess capacity, meaning that fewer firms operating at capacity (where P = minimum ATC) could supply the industry output



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