question
oligopoly
answer
a market structure in which only a few sellers offer similar or identical products
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Monopolistic Competition
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market structure in which many firms sell products that are similar but not identical
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Many sellers
answer
There are many firms competing for the same group of customers
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Product Differentiation
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Each firm produces a product that is at least slightly different from those of other firms. Thus, rather than being a price taker, each firm faces a downward-sloping demand curve
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Free entry and exit
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Firms can enter or exit the market without restriction. Thus, the number of firms in the market adjusts until economic profits are driven to zero
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The product-variety externality
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Because consumers get some consumer surplus from the introduction of a new product, the entry of a new firm conveys a positive externality on consumers.
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The business-stealing externality
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Because other firms lose customers and profits when faced with a new competitor, the entry of a new firm imposes a negative externality on existing firms.
question
1. Which of the following conditions does NOT describe a firm in a monopolistically competitive market?
a. It sells a product different from its competitors.
b. It takes its price as given by market conditions.
c. It maximizes profit both in the short run and in the long run.
d. It has the freedom to enter or exit in the long run.
a. It sells a product different from its competitors.
b. It takes its price as given by market conditions.
c. It maximizes profit both in the short run and in the long run.
d. It has the freedom to enter or exit in the long run.
answer
b. It takes its price as given by market conditions
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2. Which of the following markets best fits the definition of monopolistic competition?
a. wheat
b. tap water
c. crude oil
d. haircuts
a. wheat
b. tap water
c. crude oil
d. haircuts
answer
d. haircuts
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3. A monopolistically competitive firm will increase its production if
a. marginal revenue is greater than marginal cost.
b. marginal revenue is greater than average total cost.
c. price is greater than marginal cost.
d. price is greater than average total cost
a. marginal revenue is greater than marginal cost.
b. marginal revenue is greater than average total cost.
c. price is greater than marginal cost.
d. price is greater than average total cost
answer
a. marginal revenue is greater than marginal cost
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4. New firms will enter a monopolistically competitive market if
a. marginal revenue is greater than marginal cost.
b. marginal revenue is greater than average total cost.
c. price is greater than marginal cost.
d. price is greater than average total cost.
a. marginal revenue is greater than marginal cost.
b. marginal revenue is greater than average total cost.
c. price is greater than marginal cost.
d. price is greater than average total cost.
answer
d. price is greater than average cost
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5. What is true of a monopolistically competitive market in long-run equilibrium?
a. Price is greater than marginal cost.
b. Price is equal to marginal revenue.
c. Firms make positive economic profits.
d. Firms produce at the minimum of average total cost.
a. Price is greater than marginal cost.
b. Price is equal to marginal revenue.
c. Firms make positive economic profits.
d. Firms produce at the minimum of average total cost.
answer
a. price is greater than marginal cost
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6. If advertising makes consumers more loyal to particular brands, it could ________ the elasticity of demand and ________ the markup of price over marginal cost.
a. increase, increase
b. increase, decrease
c. decrease, increase
d. decrease, decrease
a. increase, increase
b. increase, decrease
c. decrease, increase
d. decrease, decrease
answer
c. decrease, increase
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