Micro Econs_Chap 14

Monopolistic competition is a market in which ________ firms produce ________ goods and services.

• many; identical

• many; differentiated

• few; differentiated

• few; identical

In monopolistic competition, a firm has some ability to affect the price for its product because of

• easy entry and exit.

• economic profits.

• product differentiation.

• many competitors.

Monopolistic competition differs from monopoly because in monopolistic competition

• firms maximize profits.

• firms set marginal revenue equal to marginal cost to maximize profit.

• firms are free to enter and exit.

• All of the answers are differences between monopoly and monopolistically competitive firms.

A monopolistically competitive firm and a perfectly competitive firm are alike because both types of firms

I.    face downward sloping demand curves.

II.  have marginal revenue curves that lie beneath their demand curves.

III. can make only zero economic profit in the long run.

• I and II

• I and III

• III only

• I only

Firms in monopolistic competition can achieve product differentiation by

• expanding plant size.

• exploiting economies of scale in production.

• advertising special characteristics.

• setting the price equal to average revenue.

A monopolistically competitive firm

• cannot make a positive economic profit in the long run because of entry.

• can make a positive economic profit in the long run because it sells a differentiated good.

• can make a positive economic profit in the long run because there are only a few firms in the industry.

• cannot make a positive economic profit in the long run because it sells a homogeneous good.

A monopolistically competitive firm is like a monopoly firm insofar as

• both face perfectly elastic demand.

• both earn an economic profit in the long run.

• both have MR curves that lie below their demand curves.

• neither is protected by high barriers to entry.

In monopolistic competition, the demand curve for a firm's product is negatively sloped because of

• barriers to entry.

• no barriers to entry.

• product differentiation.

• economies of scale.

A firm in monopolistic competition has some degree of price-setting power because

• in the long run it earns a normal profit.

• it can never earn less than normal profit.

• the price it charges is never more than its marginal cost.

• if it raises its price, the quantity it can sell will not decrease to zero.

Firms in monopolistic competition always will

• make an economic profit.

• set their price equal to their marginal cost.

• set their price above their marginal cost.

• produce at the minimum average total cost.