Monopolistic Competition & Oligopoly

Chapters 26 & 27

Terms in this set (...)

What is an assumption of the model of monopolistic competition?
None of these: There are significant barriers to entry in the market, Each firm sells an identical product, Consumers lack adequate information about the prices and qualities of products, There are only a few firms in the industry.
In monopolistic competition, firms
attempt to differentiate their products through advertising or trivial product changes.
Which of the following is not a characteristic of firms in a monopolistically competitive market?
Existence of large economies of scale
The market structure called monopolistic competition is named using both monopoly and perfect competition. Why?
There are many firms with easy entry and exit but each firm sells a unique product
What distinguishes monopolistic competition from perfect competition?
In monopolistic competition each firm sells a slightly different or unique product. That is not the case in perfect competition.
Monopolistic competition is similar to monopoly in that
each firm faces a downward-sloping demand curve.
Monopolistic competition is similar to perfect competition in that
entry into and exit from the market is easy.
In the context of market structure, the characteristic that best describes a monopolistically competitive market is
firms spend a great deal on advertising and promotion.
Because each firm in monopolistic competition produces a unique product,
each has a "mini" monopoly over its product.
Which of the following statements about the monopolistically competitive market in the long run is not true?
Its output level is greater than the output level corresponding to minimum ATC.
A monopolistically competitive market is characterized by
many firms selling similar but differentiated products.
Perfect competition and monopolistic competition are alike in all the following ways except
the type of product produced.
Which of the following statements is true?
In monopolistically competitive markets, economic profits will eventually lead to the entry of new firms.
In monopolistic competition, firms can continue to earn economic profits in the long run without the threat of entry from new firms.
In the spring of 2003, Coke introduced a new drink called Vanilla Coke. In the summer of 2003, Pepsi responded by marketing its own brand of Pepsi Vanilla. Such moves by firms are known as
product differentiation
Which of the following is an example of product differentiation?
Kelloggs introduces Cinnamon-Marshmallow Scooby-Doo cereal.
If economic losses exist in a monopolistically competitive market,
firms will exit the market and existing firms' demand curves will increase.
Compared to monopolistic competition, a perfectly competitive firm
produces at the minimum point of the ATC curve, is economically efficient, produces where P = MC, has a horizontal demand curve.
Successful product differentiation reduces the elasticity of demand for a firm's product and helps to build consumer loyalty in monopolistically competitive markets.
produces a greater amount of output at a lower price.
What characteristic is unique to oligopolistic firms?
A monopolistically competitive firm is efficient in long-run equilibrium.
What characteristic is unique to oligopolistic firms?
Interdependence of firms
The oligopoly market structure model is characterized by
few firms in an industry with barriers to entry.
The only uniform description of the behavior of an oligopolist that economists have been able to agree upon is
In oligopoly,
each firm's pricing and output decisions depend on those of its rivals.
Because of the strategic interdependence of firms, a useful model to describe oligopolistic behavior is
game theory.
Cooperation among firms
only occurs in oligopolistic industries.
A price-leadership oligopoly is one where
a dominant (and sometimes nondominant) firm in the market sets the price and other firms follow.