Few candidates attempted this question. The few that attempted it were able to state the characteristics of monopolistic competition in the (a) part and but could not explain why a firm in monopolistic competition is unable to make abnormal profit in the long run as a result of poor graphical illustration in the (b) part. Few candidates were able to differentiate between natural monopoly and legal monopoly in the (c) part. Few candidates that attempted this question scored average marks.

These candidates were expected to state the following answers for the (a) and (b) parts of the question to score good marks
.
(a) Characteristics of monopolistic competition

(i) a relatively large number of sellers;
(ii) differentiated product:(through branding, etc.);
(iii) free entry and exit;
(iv) it has control over the price or output;

In the short-run, a firm in monopolistic competition can earn abnormal profits as illustrated below:

As firms earn abnormal profits in the short run, more firms producing substitute goods will be attracted into the industry.
As they do so, the demand facing the individual monopolistic competitor will fall.
Demand will continue to fall till normal profit is earned in the long run. Graphically this is illustrated as follows: