Micro: Monopolistic Competition

In a monopolistically competitive market, the product produced by each firm is __________ from the products produced by its rivals.

• differentiated
• substitutable
• unique
• identical

In a monopolistically competitive market, what type of differentiation can exist that convinces consumers the products are different even if physically identical?

• artificial differentiation
• perfect differentiation
• real differentiation
• substantial differentiation

What is the demand curve like for a monopolistically competitive firm?

• downward-sloping
• horizontal
• vertical
• upward-sloping

In the long run, what happens to profits for a monopolistically competitive firm?

• profits are driven to zero
• profits remain constant
• profits fluctuate
• profits increase

In the long run, does a monopolistically competitive firm operate at the most efficient point?

• no
• depends on the firm
• yes
• uncertain

In a monopolistically competitive market, how does the number of firms compare to perfect competition?

• large number of firms
• small number of firms
• medium number of firms
• variable number of firms

What rule do all types of firms in a monopolistically competitive market use to maximize profit?

• MR=MC rule
• MP=MC rule
• MR=TC rule
• MC=TC rule

What affects the ability to sustain profits in a monopolistically competitive market?

• ease of entry and exit
• government subsidies
• advertising budget
• product differentiation

What happens if a monopolistically competitive firm is making a profit in the short run?

• other firms will enter the industry
• the firm will lower costs
• the firm will increase prices
• the firm will expand production

What happens if a monopolistically competitive firm is losing money in the short run?

• some firms will leave the industry
• all firms will merge
• all firms will lower prices
• all firms will increase advertising