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In monopolistic competition, many firms

create differentiated products

Monopolistic Competition is characterized by

a large number of firms and low entry barriers

In Monopolistic Competition, entry to industry is

more difficult than under pure competition, but not nearly as difficult as pure monopoly

The Monopolistic Competition model assumes

firms will engage in non-price competition

non-price competition

advertising product promotion and changes in the real or perceived characteristics of a product

Monopolistic Competition have ____ demand curves

highly elastic

Monopolistic Competition firms may realize either profits or losses in the short run, but realize _____ in the long run

normal profits

Monopolistic Competition in the short run

a profit maximizing firm sets it's price above marginal cost

Monopolistic Competition in the long run

a profit maximizing firm sets it's price about marginal cost and will be equal to average total cost (ATC); new firms will enter industry until economic profits are zero

Excess Capacity

refers to the amount by which actual production falls short of the minimum ATC output

Monopolistic Competitive Industries are inefficient because

they are over populated with firms whose plants are under utilized

Oligopoly indicates ____ firms with either ______ or ______ products

few; homogeneous; differentiated

Oligopoly industries are characterized

as a few dominate firms and substantial entry barriers

Homogeneous Oligopoly

exist where a small number of firms are producing virtually identical products

Examples of Homogeneous Oligopoly

The copper, aluminum, cement and industrial alcohol industries

Differentiated Oligopoly

exists where a small number of firms are producing goods that differ in terms of quality and design

Examples of Differentiated Oligopoly

automobile, household appliance, and automobile tire industries are examples

Oligopoly is difficult to analyze because

the price and output decision for any one firm depends on the reactions of it's rivals

Mutual Interdependence

each oligopolistic firm must consider the reactions of it's rivals when it determines it's price policy

Inter-industry competition

in some markets the producers of a particular product might face competition from product produces by other industries

The likelihood of a Cartel being successful

is greater when cost and demand curves of various participants are very similar

Cartels are difficult to maintain in the long run because

individual members may find it profitable to cheat on agreements

Cartels are in violation

of the U.S. antitrust laws

The economic inefficiencies of Monopolistic Competition may be offset by the fact that

consumers have a number of variations of the product from which to choose

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