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Oligopoly
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a market structure in which only a few sellers offer similar or identical products
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Monopolistic competition
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a market structure in which many firms sell products that are similar but not identical
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Free entry
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A situation where firms can enter the market without restriction
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Efficient scale
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the quantity of output that minimizes average total cost
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Oligopoly and monopolistic competition. Oligopoly is a market structure in which only a few sellers offer similar or identical products. Monopolistic competition is when many firms sell products that are similar but not identical.
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What are the two types of imperfect competition?
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Both market structures involve a differentiated product so firms face downward-sloping demand curves, equate MC and MR, and charge a price above MC.
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What characteristics does monopolistic competition have in common with a monopoly?
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Both market structures have many sellers and free entry and exit. Thus, profits are driven to zero in the long run.
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What characteristics does monopolistic competition have in common with perfect competition?
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It chooses the quantity by equating MC and MR and then uses the demand curve to find the price that is consistent with this quantity (just like a monopolist).
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How does a monopolistically competitive firm choose the quantity and price that maximizes its profits?
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No. Profits attract new firms to the market, which reduces the demand faced by each of the incumbent firms until the demand faced by each firm is tangent to its ATC curve and profits are zero.
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Is it possible for a monopolistically competitive firm to generate economic profits in the long run? Why or why not?
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Monopolistic competition has excess capacity because monopolistically competitive firms produce at less than efficient scale and they charge prices in excess of marginal cost. Competitive firms produce at the efficient scale and charge prices equal to marginal cost
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How does the long-run equilibrium in monopolistic competition differ from the long-run equilibrium in perfect competition?
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No. Because price exceeds marginal cost, there is underproduction—some units that buyers value in excess of marginal cost are not produced. Also, the number of firms in the market may not be ideal because entry into the industry creates the positive product-variety externality and the negative business-stealing externality.
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Is the long-run equilibrium in monopolistic competition efficient? Explain.
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False- monopolistic competition is a market structure in which many firms sell differentiated products.
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True or False? Monopolistic competition is a market structure in which few firms sell similar products.
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True
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True or False? Similar to firms in perfectly competitive markets, firms in monopolistically competitive markets can enter and exit the market without restriction so profits are driven to zero in the long run.
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False- monopolistic competitors produce in the downward-sloping portion of their ATC curve where the ATC curve is tangent to the demand curve faced by the firm.
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True or False? In the long run, firms in monopolistically competitive markets produce at the minimum of their average-total-cost curves.
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True
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True or False? Similar to a monopolist, a monopolistically competitive firm faces a downward-sloping demand curve for its product.
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True
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True or False? Both monopolists and monopolistically competitive firms produce the quantity at which marginal revenue equals marginal cost and then use the demand curve facing the firm to determine the price consistent with that quantity.
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True
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True or False? Because a monopolistically competitive firm charges a price that exceeds marginal cost, the firm fails to produce some units that the buyers value in excess of the cost of production, and thus, monopolistic competition is inefficient.
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False- monopolistically competitive firms charge a price equal to ATC.
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True or False? In the long run, a monopolistically competitive firm charges a price that exceeds average total cost.
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False- it is not clear how one would regulate a mo-nopolistically competitive firm in order to increase efficiency.
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True or False? Economists generally agree that monopolistically competitive firms should be regulated in order to increase economic efficiency.
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True
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True or False? Firms that sell highly differentiated consumer products are more likely to spend a large percentage of their revenue on advertising.
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False- advertising may increase competition, which could increase social welfare.
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True or False? Advertising must be socially wasteful because advertising simply adds to the cost of producing a product.
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True
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True or False? Critics of advertising argue that advertising decreases competition while defenders of advertising argue that advertising increases competition and reduces prices to consumers.
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True
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True or False? Even advertising that appears to contain little information about the product may be useful because it provides a signal about the quality of the product.
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False- monopolistically competitive firms have excess capacity while competitive firms produce at the efficient scale.
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True or False? In the long run, a monopolistically competitive firm produces at the efficient scale while a competitive firm has excess capacity.
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long-run economic profits
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Which of the following is not a characteristic of a monopolistically competitive market?
many sellers
differentiated products
long-run economic profits
free entry and exit
many sellers
differentiated products
long-run economic profits
free entry and exit
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cotton
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Which of the following products is least likely to be sold in a monopolistically competitive market?
video games
breakfast cereal
beer
cotton
video games
breakfast cereal
beer
cotton
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The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run.
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Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly?
The monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve.
The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run.
Both the monopolist and the monopolistic competitor operate at the efficient scale.
The monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost.
The monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve.
The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run.
Both the monopolist and the monopolistic competitor operate at the efficient scale.
The monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost.
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profits and firms enter the market.
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In the short run, if the price is above average total cost in a monopolistically competitive market, the firm makes
losses and firms enter the market.
losses and firms exit the market.
profits and firms enter the market.
profits and firms exit the market.
losses and firms enter the market.
losses and firms exit the market.
profits and firms enter the market.
profits and firms exit the market.
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marginal revenue and then use the demand curve to determine the price consistent with this quantity.
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Which of the following is true regarding the production and pricing decisions of monopolistically competitive firms? Monopolistically competitive firms choose the quantity at which marginal cost equals
average total cost and then use the demand curve to determine the price consistent with this quantity.
marginal revenue and then use the demand curve to determine the price consistent with this quantity.
average total cost and then use the supply curve to determine the price consistent with this quantity.
marginal revenue and then use the supply curve to determine the price consistent with this quantity.
average total cost and then use the demand curve to determine the price consistent with this quantity.
marginal revenue and then use the demand curve to determine the price consistent with this quantity.
average total cost and then use the supply curve to determine the price consistent with this quantity.
marginal revenue and then use the supply curve to determine the price consistent with this quantity.
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with excess capacity and charge a price above marginal cost.
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Which of the following is true with regard to monopolistically competitive firms' scale of production and pricing decisions? Monopolistically competitive firms produce
at the efficient scale and charge a price equal to marginal cost.
at the efficient scale and charge a price above marginal cost.
with excess capacity and charge a price equal to marginal cost.
with excess capacity and charge a price above marginal cost.
at the efficient scale and charge a price equal to marginal cost.
at the efficient scale and charge a price above marginal cost.
with excess capacity and charge a price equal to marginal cost.
with excess capacity and charge a price above marginal cost.
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because price is above marginal cost, some units are not produced that buyers value in excess of the cost of production and this causes a deadweight loss.
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One source of inefficiency in monopolistic competition is that
because price is above marginal cost, surplus is redistributed from buyers to sellers.
because price is above marginal cost, some units are not produced that buyers value in excess of the cost of production and this causes a deadweight loss.
monopolistically competitive firms produce beyond their efficient scale.
monopolistically competitive firms earn economic profits in the long run.
because price is above marginal cost, surplus is redistributed from buyers to sellers.
because price is above marginal cost, some units are not produced that buyers value in excess of the cost of production and this causes a deadweight loss.
monopolistically competitive firms produce beyond their efficient scale.
monopolistically competitive firms earn economic profits in the long run.
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there are too many firms in the market and market efficiency could be increased if firms exited the market.
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When firms enter a monopolistically competitive market and the business-stealing externality is larger than the product-variety externality, then
there are too many firms in the market and market efficiency could be increased if firms exited the market.
there are too few firms in the market and market efficiency could be increased with additional entry.
the number of firms in the market is optimal and the market is efficient.
the only way to improve efficiency in this market is for the government to regulate it like a natural monopoly.
there are too many firms in the market and market efficiency could be increased if firms exited the market.
there are too few firms in the market and market efficiency could be increased with additional entry.
the number of firms in the market is optimal and the market is efficient.
the only way to improve efficiency in this market is for the government to regulate it like a natural monopoly.
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there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market.
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The use of the word "competition" in the name of the market structure called "monopolistic competition" refers to the fact that
monopolistically competitive firms charge prices equal to the minimum of their average total cost just like competitive firms.
monopolistically competitive firms face a downward-sloping demand curve just like competitive firms.
the products are differentiated in a monopolistically competitive market just like in a competitive market.
there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market.
monopolistically competitive firms charge prices equal to the minimum of their average total cost just like competitive firms.
monopolistically competitive firms face a downward-sloping demand curve just like competitive firms.
the products are differentiated in a monopolistically competitive market just like in a competitive market.
there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market.
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