Monopolistic Competition | A-Level Economics Notes

These revision notes cover everything you need to know about Monopolistic Competition for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.

What are the characteristics of monopolistic competition?

1. low barriers to entry and exit
2. slight product differentiation

Monopolistic competition diagram in the short-run

Efficiencies in the short-run

• not productively efficient because MC≠AC at q1
• not allocatively efficient because AR≠MC at q1

What happens in monopolistic competition in the long-run?

1. since existing firms are making supernormal profit
2. and there are low barriers to entry,
3. new firms enter the market
4. market supply increases
5. each firm's average revene curve shifts to the left as they have a smaller market share

Monopolistic competition diagram in the long-run

Efficiencies in the long-run

• not productively efficient because MC≠AC at q1
• not allocatively efficient because AR≠MC at q1
• contestability
  • since there are low barriers to entry in the market,
  • when existing firms are making supernormal profit in the short-run,
  • new firms will enter the market
  • this means that market supply would increase.
  • this means each firm would have to reduce their prices
  • this means that firms are closer to the point of allocative efficiency
  • price is lower, and closer to marginal cost.
  • consumer surplus increases

Summary questions

1. what are the characteristics of monopolistic competition?
2. monopolistic competition short-run diagram
3. is monopolistic competition efficient in the short-run
4. what happens in monopolistic competition in the long-run?
5. monopolistic competition long-run diagram
6. is monopolistic competition efficient in the long-run

A-Level Economics Tutoring

I offer one-to-one and small group A-Level Economics tutoring for students across the UK and internationally. With 87+ five-star Google reviews and tutoring experience since 2017, I specialise in helping students understand difficult concepts and improve their exam technique.