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Ch10 Monopoloy-Competition-Oligopoly

Multiple Choice Questions

1. In the competitive market for figure skate blades, manufacturers offer an array of products that are

A. distinctly different in a particular way.B. distinctly similar in a particular way.C. virtually identical on the competition spectrum.D. at opposite ends of the competition spectrum.

Answer: A Reference:

Explanation:

2. _____________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.

A. CollusionB. A monopolyC. An oligopoly D. A cartel

Answer: C Reference:

Explanation:

3. _________ arises when firms act together to reduce output and keep prices high.

A. CollusionB. A cartelC. A monopolyD. An oligopoly

Answer: B Reference:

Explanation:

Category: Remember

4. A _________ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.

A. prisoner's dilemmaB. cartelC. game theoryD. duopoly


Explanation:

Category: Remember

5. The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is

A. oligopoly collusion.B. prisoner's dilemma.C. game theory.D. collusion theory


Explanation:

6. If the CEO of I'MaBigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are

A. larger than the payoffs that will be received.B. smaller than the payoffs that will be perceived.C. smaller than the rewards from pursuing self-interest.D. larger than the rewards from pursuing self-interest.

Answer: D Reference:

Explanation:

7. The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to

A. match price increases, but not price cuts.B. stand at opposite ends of the competition spectrum.C. match price cuts, but not price increases. D. stand at the high point of the competition spectrum.


Explanation:

8. Perfect competition and monopoly stand at _____________ of the spectrum of competition.

A. opposite endsB. the high endC. the low endD. the mid-way point


Explanation:

Category: Remember

9. If a perfectly competitive market involves many firms selling identical products, then, in the face of such competition,

A. each of these firms must act as a price-maker.B. each of these firms must act as a price-taker.C. collusion amongst them will most often result.D. demand curves can become kinked in appearance.


Explanation:

10. Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call ________________________.

A. a cartelB. collusionC. monopolistic competitionD. perfect competition


Explanation:

11. As the name monopolistic competition implies, a firm’s decisions in this setting will in certain ways resemble ______________ and in other ways resemble________________ .

A. monopoly; imperfect competitionB. monopoly; perfect competition C. imperfect competition; perfect competitionD. imperfect competition; oligopoly


Explanation:

Category: Remember

12. If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,

A. they will be unable to earn higher-than-normal profits in the short run.B. they will wish to cooperate to make decisions about what price to charge.C. they will wish to cooperate to make decisions about what quantity to produce.D. they will be unable to earn higher-than-normal profits in the long run.


Explanation:

13. In the highly competitive setting in which oligopoly firms operate, which of the following are considered to be typical temptations each may face?

A. to cooperate to generate and then divide up monopoly-like profits B. to cooperate to mutually decide what price to chargeC. to cooperate to make decisions about what quantity to produceD. to cooperate to act as a single monopoly and all of the above


Explanation:

14. Oligopoly firms acting individually may seek to gain profits ___________________________ .

A. by expanding levels of output and cutting pricesB. by selling products that are distinctive in some wayC. by having a mini-monopoly on a particular brand nameD. by having a mini-monopoly or through tough competition


Explanation:

15. In a monopolistic competitive industry, firms can try to differentiate their products by

A. creating optimal perceptions of the product. B. choosing optimal locations from which the product is sold.C. enhancing the intangible aspects of the product.D. enhancing product’s physical aspects and all of the above.


Explanation:

16. Which of the following would be classified as a differentiated product produced

by a monopolistic competitor?

A. natural gasB. Channel No. 5C. electricityD. tap water


Explanation:

17. Monopolistic competitors in the food industry will often include a recyclable symbol on packaging used for their product as a means to

A. be socially responsible.B. be environmentally responsible.C. differentiate their product.D. be perceived more favorably.


Explanation:

18. Product differentiation may occur in _______________ because ____________________ created strong preferences for certain brands.

A. shaping intangible preferences; predatory pricingB. the minds of buyers; past habits and advertisingC. imperfect competition; the concept of differentiated productsD. imperfect competition; advertising and consumer habits


Explanation:

19. What role can advertising play with respect to differentiated products?

A. allows a firm to sell any quantity it wishesB. shapes consumers intangible preferencesC. shapes perceived demand for a price takerD. allows a firm to raise the prevailing market price


Explanation:

20. Which of the following best identifies what the concept of differentiated products is closely related to?

A. unique style.B. the degree of monopolistic competition that exists.C. optimal location.D. the degree of product variety that is available.


Explanation:

21. The demand curve as perceived by a perfectly competitive firm is __________ .

A. flatB. downward slopingC. upward slopingD. hump shaped


Explanation:

Category: Remember

22. The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to

A. sell any quantity it wishes at the prevailing market price.B. raise its price without losing all of its customers.C. choose any combination of price and quantity.D. lose fewer customers than a monopoly that raised its prices.


Explanation:

Category: Remember

23. If a perfectly competitive firm raises its price, the quantity demanded of its product _____________.

A. diminishes temporarily in the short runB. falls to zeroC. stays the sameD. falls below marginal cost


Explanation:

24. If a monopoly or a monopolistic competitor raises their prices, the quantity demanded ____________.

A. will expandB. stays the sameC. will declineD. will decline in the short run


Explanation:

Category: Remember

25. The perceived demand for a monopolistic competitor

A. is steep.B. is flat.C. takes competitors into account.D. disregards competitors.


Explanation:

26. If a monopoly or a monopolistic competitor raises their prices, then

A. decline in quantity demanded will be larger for the monopoly.B. decline in quantity demanded will be larger for the monopolistic competitor.C. the quantity demanded for the monopoly product falls to zero.D. the quantity demanded for the monopolistic competitor will fall to zero.


Explanation:

27. Would raising the price for a product create a larger decline in quantity demanded for a monopolistic competitor's than it would for a monopoly?

A. no; a monopolistic competitor perceives demand as a price makerB. no; conditions of imperfect competition means demand is constant C. yes; but temporarily because price increases only create a short-run decline D. yes; consumers will buy from competitors offering lower priced substitutes


Explanation:

28. The demand curve as perceived by a monopolistic competitor is ______________ .

A. upward-slopingB. U shapedC. downward-slopingD. flat


Explanation:

Category: Remember

29. The typical slope of the demand curve as perceived by a monopolistic competitor will

A. be steeper than the demand curve perceived by a monopolist.B. reflect that firm's ability raise its price without losing all of its customers.C. show less of a decline in demand than would a monopoly that raised its prices.D. be reflective of a perfectly competitive firm and all of the above.


Explanation:

30. If a monopolistic competitor raises its price, it _________ customers than a perfectly competitive firm, but ________________ customers compared to the number that a monopoly that raised its prices would.

A. will lose more; it will lose as manyB. will lose more; it will lose moreC. will lose fewer; it will lose moreD. will lose fewer; it will lose as many


Explanation:

Category: Remember

31. Why are the underlying economic meanings of the perceived demand curves for a monopolist and monopolistic competitor different?

A. a monopolist faces the market demand curve and a monopolist competitor does not B. a monopolist competitor faces the market demand curve and a monopolist does notC. because the demand curve for a monopolistic competitor is upward slopingD. because the demand curve perceived by the monopolist is flatter than that of a monopolist competitor


Explanation:

32. The first step to be undertaken by a profit-maximizing monopolistic competitor wanting to decide what price to charge is to

A. determine total revenue, total cost, and profitB. select the profit maximizing quantity to produceC. determine what price to charge for the productD. determine average costs, total revenue, and profit


Explanation:

Category: Remember

33. If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

A. the firm's perceived demand will shift to the left.B. the firm should keep expanding production.C. each marginal unit adds profit by bringing in less revenue than its cost.D. the firm is now earning zero for profit.


Explanation:

34. Which of the following represents a difference in the process by which a monopolistic competitor and a monopolist make their respective decisions about quantity and price?

A. only the monopolist competitor faces a downward-sloping demand curveB. the monopolist's perceived demand curve is market demandC. the monopolist competitor's perceived demand curve is market demandD. a monopolist need not fear entry and also selection b above


Explanation:

35. A monopolistically competitive firm may earn abnormally high profits in the

A. short term, but the process of entry will drive those profits to zero in the long run.B. long term, but the process of entry will drive those profits to zero in the short run.C. short run, but after entry occurs, the long term perceived demand curve shifts to the right.

D. long run, but after entry occurs, the short term perceived demand curve shifts to the right.


Explanation:

Category: Remember

36. Through the process of exit, monopolistically competitive firms remaining in the market

A. are no longer earning zero economic profits.B. will each have ongoing negative earnings.C. are no longer earning losses.D. have positive earnings.


Explanation:

37. Monopolistic competitors can make a _____________ in the short-run, but in the long run, ______________ will drive these firms toward _______________________ .

A. profit or loss; entry and exit; a zero-profit outcomeB. loss; exit; losses on their earningsC. profit or loss; exit; economic profitsD. profit; entry; a price that lies at the very bottom of the AC curve


Explanation:

38. The long-term result of entry and exit in a perfectly competitive market is that all firms end up selling at the price level determined by the lowest point on the

A. total cost curve.B. average variable cost curve.C. total marginal cost curveD. average cost curve.


Explanation:

39. In monopolistic competition, the end result of entry and exist is that firms end up with a price that lies

A. on the upward-sloping portion of the average cost curve.B. at the very bottom of the AC curve.C. on the downward-sloping portion of the average cost curve.D. at the very top of the AC curve.


Explanation:

40. In a perfectly competitive market, each firm produces at a quantity where price is set

A. equal to marginal cost, in the short run.B. equal to marginal cost, both in the short run and in the long run.C. equal to average cost, in the long run.D. equal to average cost, both in the short run and in the long run.


Explanation:

41. Perfect competition displays _____________________ because the social benefits of additional production, as measured by the price that people are willing to pay, are in balance with the ____________ to society of that production.

A. allocative efficiency; total costsB. economic efficiency; total revenuesC. allocative efficiency; marginal costsD. economic efficiency; marginal revenues


Explanation:

Category: Remember

42. In a monopolistically competitive market, the rule for maximizing profit is to set MR = MC, which means

A. price is higher than marginal revenue.B. price is equal to marginal revenue.C. price is equal to marginal cost.D. price is lower than marginal revenue.


Explanation:

43. When P > MC in a monopolistically competitive market, that industry will most likely produce ______________________ than would be found in a perfectly competitive industry.

benefits to society of providing additional quantity as measured by the price that people are willing to pay exceeds the marginal costs to society of producing those units.

A. a higher quantity of a good and charge a lower priceB. the price that people are willing to pay is lower C. a lower quantity of a good and charge a higher priceD. the price people are willing to pay is not more


Explanation:

44. When entry occurs in a monopolistically competitive industry,

A. the perceived demand and marginal revenue curves for each firm will shift to the right.B. the perceived demand and marginal revenue curves for each firm will shift to the left.C. the perceived demand curve for each firm will shift to the right.D. the marginal revenue curves for each firm will shift to the right.


Explanation:

45. When entry occurs in a monopolistically competitive industry,

A. marginal costs to society exceed the price people are willing to pay.B. price is equal to marginal revenue gained by society.C. the marginal revenue curve will shift to the left.D. a smaller quantity will be demanded at any given price.


Explanation:

46. When exit occurs in a monopolistically competitive industry the

A. perceived demand and marginal revenue curves will shift to the right.B. perceived demand and marginal revenue curves will shift to the left.C. perceived demand curve will shift to the left.D. marginal revenue curve will shift to the left.


Explanation:

47. In the framework of monopolistic competition, the way advertising works can be perceived as

A. causing a firm's perceived demand curve to become more elastic.B. causing a firm’s perceived demand curve to become more inelastic.C. causing demand for the firm’s product to increase.D. causing both b and c to occur.


Explanation:

48. In the framework of monopolistic competition, advertising works because it causes

A. the steeper perceived demand curve to become flatter.B. perceived demand curve to shift to the left.C. perceived demand curve to shift to the right.D. a steeper perceived demand curve, as well as c above.


Explanation:

49. A successful advertising campaign may allow competing monopolists to

A. sell a greater quantity.B. charge a higher price.C. increase its profits.D. do all of the above.


Explanation:

50. If each of two competing monopolists undertakes equal advertising efforts to attract consumers away from the other, the total result is

A. they will both increase market share.B. they will simply neutralize one another's efforts.C. they will both lose market share.D. they will both improve their industrial position.


Explanation:

51. A monopolistically competitive industry does not display ____________________ in either the short-run, when firms are making _______________, nor in the long-run, when firms are earning ________________ .

A. allocative efficiency; profits and losses; negative profitsB. productive efficiency; profits and losses; zero profitsC. productive and allocative efficiency; profits and losses; zero profitsD. productive and allocative efficiency; profits and losses; negative profits


Explanation:

Category: Remember

52. Which of the following is a question economists have struggled to address with only partial success?

A. Whether monopolistic competition provides optimal productive or allocative efficiency?B. Whether a market-oriented economy produces the optimal amount of variety?C. Does a market-orientated economy provide productive or allocative efficiency?D. Does a monopolistically competitive industry displays allocative efficiency in the short run?


Explanation:

53. If oligopolists compete hard against each other,

A. they end up acting very much like imperfect competitors.B. costs for all are driven up.C. zero profits result for all.D. they end up acting very much like monopolistic competitors.


Explanation:

54. Which of the following would most likely create the setting for an oligopoly?

A. government grants Alex, Trent, and Alyse each a patent for their respective molybdenum based electric car batteries

B. market demand is two or more times less than quantity needed to produce at the minimum of the AC curveC. market demand is two or more times more than quantity needed to produce at the minimum of the MC curveD. insurmountable technological difficulty associated with producing similar products acts as an effective barrier to entry


Explanation:

55. If oligopolistic firms banded together with the intention of acting like a monopoly, it would likely result in their being able to

A. divide up the monopoly level of profit amongst themselves.B. hold down output in the short-run.C. charge a higher price in the short-run.D. both b and c above are correct.


Explanation:

56. The desire of businesses to __________________________, so that they can raise the prices that they charge and earn higher profits, has been well-understood by economists for a long time.

A. compete with each otherB. engage in free market activitiesC. maximize profits for social benefitD. avoid competing with each other


Explanation:

Category: Remember

57. How can parties who find themselves in a prisoner’s dilemma situation avoid the undesired outcome and cooperate with each other?

A. one oligopoly can physically beat up another oligopoly B. by seeking alternatives to create pressure for members to keep output up and prices upC. find effective ways to penalize firms who do not cooperateD. sign legally enforceable contracts setting out their mutual agreement to act like a monopoly


Explanation:

58. In the framework of an oligopoly, what strategy can work like a silent form of cooperation?

A. always match other cartel firms' price cuts, but don’t match price increasesB. always match other cartel firms' price increases, but don’t match price cutsC. immediately match price increasesD. legally enforceable agreements


Explanation:

59. If one firm operating in an oligopoly raises its price and other firms do not do so,

A. the sales of the firm with the higher price will decline slightly.B. the egos of all the top executives will eventually lead to cooperation at that higher price.C. the sales of the firm that increased its price will decline sharply.D. the firm with the increased price will have its higher profits sustained through cooperation.


Explanation:

60. The single most common form of competition in the U.S. is

A. perfect competition among firms with differentiated products.B. monopolistic competition among firms with differentiated products.C. oligopolistic competition in a certain market with similar products.D. perfect competition because it displays product and allocative efficiencies.


Explanation:

Category: Remember

61. The following table shows the demand curve and cost information for a firm that is a monopoly.

Price

Quantity

TC

$10 0 $500$9 200 $1,00

0

$8 400 $1,600

$7 600 $2,500

$6 800 $4,000

What quantity should they produce to maximize their profits?

A. 200 unitsB. 400 unitsC. 600 unitsD. 800 units


Explanation:

62. The table below shows the demand curve and cost information for a firm that is a monopoly. Price Quanti

tyTC

$1,000

0 $500

$800 5 $1,200

$600 10 $3,100

$400 15 $7,000

$200 20 $11,500

If they maximize their profits, what price will they charge?

A. $800B. $600C. $400D. $200


Explanation:


Price

Quantity

TC

$30 0 $10,200

$26 1,000 $11,000

$22 2,000 $12,000

$18 3,000 $15,000

$14 4,000 $22,000

If they maximize their profits, what will their revenue equal?

A. $16,000B. $32,000C. $54,000D. $56,000


Explanation:


Price

Quantity

TC

$30 0 $500$25 50 $600$20 100 $1,35

0$15 150 $2,30

0$10 200 $3,40

0

If they maximize their profits, what will their profits equal?

A. $650B. $1,250C. $2,000D. $2,250


Explanation:

65. Mary competes in a monopolistically competitive market. Suddenly, 5 new firms enter the market, causing her perceived demand curve to shift. The following tables show her original and new demand curves and her cost information.

Assume that Mary can only choose from the quantities of output given in the table. By how much will the quantity that she produces change after the new firms enter the market?

A. increase by 5B. decrease by 5C. increase by 10D. decrease by 10


Explanation:

66. Bob competes in a monopolistically competitive market. Suppose some new firms enter the market, causing his perceived demand curve to shift. The following tables show his demand curves, before and after the change, and his cost information.

Assume that Bob can only choose from the quantities of output given in the table. By how much will his profit change after these new firms enter the market?

A. his profits will not changeB. decrease by $9,000C. increase by $11,000D. decrease by $11,000


Explanation:

67. Joe owns a restaurant. Many of the restaurants that he competes with recently closed, shifting his perceived demand curve. The following 2 tables show his old and new perceived demand curves.

Assume that Joe can only choose from the

Original Demand CurvePrice Quanti

tyTC

30 0 $13025 10 $14020 20 $26015 30 $45010 40 $660New Demand CurvePrice Quanti

tyTC

25 0 $13020 10 $14015 20 $26010 30 $4505 40 $660


tyTC

$33 0 $20,000$32 1,000 $30,000$31 2,000 $45,000$30 3,000 $70,000$29 4,000 $100,00

0New Demand CurvePrice Quanti

tyTC

$30 0 $20,000$29 1,000 $30,000$28 2,000 $45,000$27 3,000 $70,000$26 4,000 $100,00

0


tyTC

$20 0 $1,000$18 100 $1,100$16 200 $2,000$14 300 $4,000$12 400 $7,000New Demand CurvePrice Quanti

tyTC

$25 0 $1,000$23 100 $1,100$21 200 $2,000$19 300 $4,000$17 400 $7,000

quantities of output given in the table. By how much does the price that he charges change after the restaurants leave the market?

A. increase by 3B. decrease by 3C. increase by 4D. decrease by 4


Explanation:

68. Sam owns an antique store in Boston. Many of his competitors left the market, causing his perceived demand curve to change. The following 2 tables show his old and new perceived demand curves.

Assume Sam can only choose from the quantities of output given in the table. By how much will the quantity that he sells change as a result of his competitors leaving the market?

A. it will stay the sameB. increase by 10C. decrease by 10D. increase by 5

Answer: Reference:

Explanation:

69. A monopolistic competitor has the following information about cost and demand.

Quantity

Price ($)

Total Revenue ($)

Marginal Revenue ($)

Total Cost ($)

Marginal Cost ($)

Average Cost($)

0 25 0 25 30 — —2 24 48 23 35 2.5 17.54 23 92 21 45 5 11.256 22 132 19 60 7.5 108 21 168 17 77 8.5 9.6310 20 200 15 100 11.5 1012 19 228 13 126 13 10.514 18 252 11 165 19.5 11.7916 17 272 9 210 22.5 13.1318 16 288 7 260 25 14.4420 15 300 5 320 30 16


tyTC

$1,000 0 $3,000$900 10 $3,300$800 20 $4,500$700 30 $7,000$600 40 $12,000New Demand CurvePrice Quanti

tyTC

$1,100 0 $3,000$1,000 10 $3,300$900 20 $4,500$800 30 $7,000$700 40 $12,000

If this industry was perfectly competitive, what price would the good sell for?

A. $15B. $19C. $21D. $23


Explanation:


Quantity

Price ($)

Total Revenue ($)


Total Cost ($)

Marginal Cost ($)

Average Cost($)

0 25 0 25 30 — —2 24 48 23 35 2.5 17.54 23 92 21 45 5 11.256 22 132 19 60 7.5 108 21 168 17 77 8.5 9.6310 20 200 15 100 11.5 1012 19 228 13 126 13 10.514 18 252 11 165 19.5 11.7916 17 272 9 210 22.5 13.1318 16 288 7 260 25 14.4420 15 300 5 320 30 16

What will the firm’s profits equal in the short run?

A. 0B. $91C. $102D. $228


Explanation:

71. A monopolistic competitor has the following information on cost and demand.

Quantity

Price ($)

Total Revenue ($)


Total Cost ($)

Marginal Cost ($)

Average Cost($)

0 25 0 25 30 — —2 24 48 23 35 2.5 17.54 23 92 21 45 5 11.25

6 22 132 19 60 7.5 108 21 168 17 77 8.5 9.6310 20 200 15 100 11.5 1012 19 228 13 126 13 10.514 18 252 11 165 19.5 11.7916 17 272 9 210 22.5 13.1318 16 288 7 260 25 14.4420 15 300 5 320 30 16

What will the firm’s profits equal in the long run?

A. $0B. $91C. $102D. $228


Explanation:


Quantity

Price ($)

Total Revenue ($)


Total Cost ($)

Marginal Cost ($)

Average Cost($)

0 15 0 15 175 — —5 14 70 13 180 1 3610 13 130 11 190 2 1915 12 180 9 207 3.4 13.820 11 220 7 225 3.6 11.2525 10 250 5 250 5 1030 9 270 3 290 8 9.6735 8 280 1 335 9 9.5740 7 280 -1 385 10 9.6345 6 270 -3 465 16 10.3350 5 250 -5 565 20 11.3

If this industry was perfectly competitive, what price would the good sell for?

A. $8B. $9C. $10D. $11


Explanation:


Quantity

Price ($)

Total Revenue ($)


Total Cost ($)

Marginal Cost ($)

Average Cost($)

0 15 0 15 175 — —5 14 70 13 180 1 3610 13 130 11 190 2 1915 12 180 9 207 3.4 13.820 11 220 7 225 3.6 11.2525 10 250 5 250 5 1030 9 270 3 290 8 9.6735 8 280 1 335 9 9.5740 7 280 -1 385 10 9.6345 6 270 -3 465 16 10.3350 5 250 -5 565 20 11.3

Then, in the long run equilibrium, the firm will sell this good at what price?

A. $5B. $7C. $10D. $14


Explanation:


Quantity

Price ($)

Total Revenue ($)


Total Cost ($)

Marginal Cost ($)

Average Cost($)

0 15 0 15 175 — —5 14 70 13 180 1 3610 13 130 11 190 2 1915 12 180 9 207 3.4 13.820 11 220 7 225 3.6 11.2525 10 250 5 250 5 1030 9 270 3 290 8 9.6735 8 280 1 335 9 9.5740 7 280 -1 385 10 9.6345 6 270 -3 465 16 10.3350 5 250 -5 565 20 11.3

What will this firm’s profits equal in the short run?

A. -$55

B. $0C. $250D. $280


Explanation:


Quantity

Price ($)

Total Revenue ($)


Total Cost ($)

Marginal Cost ($)

Average Cost($)

0 15 0 15 175 — —5 14 70 13 180 1 3610 13 130 11 190 2 1915 12 180 9 207 3.4 13.820 11 220 7 225 3.6 11.2525 10 250 5 250 5 1030 9 270 3 290 8 9.6735 8 280 1 335 9 9.5740 7 280 -1 385 10 9.6345 6 270 -3 465 16 10.3350 5 250 -5 565 20 11.3

What will this firm’s profits equal in the long run?

A. -$55B. $0C. $250D. $280


Explanation:

Essay Questions

1. Briefly discuss how differentiated products in a monopolistic competitive framework can arise.

Reference:

Explanation: In a monopolistic competitive framework, differentiated products can arise from characteristics of the good or service, location from which the product is sold, intangible aspects of the product, and perceptions of the product.

2. Briefly compare and contrast the perceived demand curve for a monopolistically competitive firm and a perfectly competitive firm.

Reference:

Explanation: The perceived demand curve for a monopolistically competitive firm is downward sloping, which shows that unlike a perfectly competitive firm with its flat perceived demand curve, a monopolistically competitive firm is not a price-taker, but rather chooses a combination of price and quantity.

3. Briefly compare and contrast the perceived demand curve for a monopolistic competitor and a monopolist.

Reference:

Explanation: The perceived demand curve for a monopolistic competitor is flatter than the perceived demand curve for a monopolist, because if a monopolistic competitor raises price it will lose some customers to the competition, while a monopolist does not face any competition.

4. Briefly explain what quantity a profit-maximizing monopolistic competitor will seek, as well as why or why not this type of competitive firm is productively efficient.

Reference:

Explanation: A profit-maximizing monopolistic competitor will seek out the quantity where marginal revenue is equal to marginal cost. A monopolistically competitive firm is not productively efficient, because it does not produce at the minimum of its average cost curve.

5. Briefly explain whether a monopolistically competitive firm is allocatively efficient or not and why.

Reference:

Explanation: A monopolistically competitive firm is not allocatively efficient, because it does not produce where P = MC, but instead produces where P > MC.

6. Briefly contrast the level that a monopolistically competitive firm will tend to produce at and the price it will charge with that of a perfectly competitive firm.

Reference:

Explanation: A monopolistically competitive firm will tend to produce a lower quantity at a higher cost and to charge a higher price than a perfectly competitive firm.

7. Briefly describe what an oligopoly is, as well as the circumstances that could allow oligopolists to earn their highest profits.

Reference:

Explanation: An oligopoly is a situation where a few firms sell most or all of the goods in a market. Oligopolists would earn their highest profits if they can band together as a cartel and act like a monopolist by reducing output and raising price.

8. Briefly compare and contrast the incentives found in perfect competition with those found in imperfect competition.

Reference:

Explanation: Perfect competition has powerful incentives for efficiency, flexibility, and responsiveness. But the profits to be derived from imperfect competition encourage variety and innovation, whether in the form of monopolistic competition, monopoly, or oligopoly.

9. List at least five examples of some intangible aspects that differentiate products.

Reference:

Explanation: Some intangible aspects may be 1) promises like a guarantee of satisfaction; 2) promise of money back refund; 3) a reputation for high quality; 4) services like free delivery, 5) offering a loan to purchase the product; 6) lower service fees; or, 7) extended warranty on parts or service

10. Identify and briefly discuss the ways to conceive how advertising works in the framework of monopolistic competition.

Reference:

Explanation: In the framework of monopolistic competition there are two ways to conceive of how advertising works: either advertising causes a firm’s perceived demand curve to become more inelastic (that is, it causes the perceived demand curve to become steeper); or advertising causes demand for the firm’s product to increase (that is, it causes the firm’s perceived demand curve to shift to the right). In either case, a successful advertising campaign may allow a firm to sell either a greater quantity or to charge a higher price, or both, and thus increase its profits.

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