Question

Explain how long-run adjustments impact perfectly competitive, monopoly, and monopolistically competitive firms; discuss the ramifications of these market structures on social welfare. Try these problems: 3, 16

Short answer

Most communist countries encouraged monopolistic competitive enterprises, and many huge Chinese corporations are still monopolistic competitive today. Typically, two state-owned monopolies compete for market share, resulting in efficiency.

Step-by-step solution

Competitive monopoly market

In a completely competitive market, where there are no entry barriers, and everyone competes with each other, long-term modifications will have little impact. As a result, long-term changes will not impact them because these businesses are already highly efficient and can rapidly adapt to any change. Monopoly

Monopolies are frequently the most affected by long-run adjustments since they are inefficient and waste many resources. Long-run adjustments may even wipe out such businesses.

Regarding adaptations, monopolistic competitive enterprises aren't any better than monopolies. Because there is less competition, these businesses normally charge higher prices, but when faced with adjustments, they become increasingly stretched.

Most communist countries encouraged monopolistic competitive enterprises, and many huge Chinese corporations are still monopolistic competitive today. Typically, two state-owned monopolies compete for market share, resulting in efficiency.

Step 2:Impact of long-run adjustments

In competitive and monopolistically competitive marketplaces, there is the entrance andan exit in the long term. This brings their economic profits and losses to a halt. Monopoly gains continue to be produced in the long run. A monopolistic competitive market is detrimental in the long term. It has no allocative as well as production efficiency. Furthermore, because a monopolistic competitive company possesses monopolistic market power, its profit-maximizing output level will lead to a net reduction of consumer and producer surplus.

Ramifications

Companies that are perfect competition are the most productive as well as maximize societal benefit. The other two are distortive, reducing societal welfare by charging a higher price for low quantities.