Problem
1. Think of moneylenders as credit agents operating in a monopolistic environment.
a. Why is the fact that moneylenders' marginal costs are below their average costs considered to be a hallmark of monopolistic competition?
b. Explain the social inefficiencies in this scenario.
2. Free entry by businesses into a market is generally taken to imply that the market is perfectly competitive. Why might seeing free entry into local credit markets not be sufficient to determine whether the market is competitive?