module 12 study set

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monopolistic competition
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monopolistic competition
like perfect competition, a monoplististically competitive industry is an industry in which enry and exit is easy and many firms are the norm. in contrast a perfectly competitive frim each firm produces a slighly diffrent version of a product these give rise to some market power. A monoplistically competitive industry can charge higher prices than their competitor and not lose any customers
Monopolistic Competition Characteristics
large number of firms in market, firms provide differentiated products, firms are able to easily enter or exit the market
competition among sellers
entry by more producers reduces the quantity each existing producer sells
value diversity
consumers gain from the increased diversity of products
profit maximization
-produce quanity (q1) at which MR=MC
-monopoly firms set price (p1) according to demand
short run profit loss
one can easily enter or exit the market
-new entrants mean fewer customers for the original firms:D and MR shift left
- new demand curve is flatter, representing the more elastic demand as a result of more competition
long run equilibrium
the process of entry or exit is complete - remaining firms earn zero economic profit
advertisting
when a firm advertises a product, it is trying to shift the DC for the product to the right and make it more inelastic. if the firm is sucessful it will sell more of the product at every price and able to increase price it charges without losing as many customers
- advertising also increase firms costs
- if the increase in revenue that results from advertising is greater than increase in costs, the firms profits will rise.
Which of the following is never true when monopolistic competition arises in a specific market? a) each firm has a differentiated product.
the firms take prices as given.
Perfect competition and monopolistic competition are similar in that both market structures include:
no barriers to entry
Abby operates a small deli downtown. The deli industry is monopolistically competitive. In the long run, Abby will produce where:marginal revenue equals marginal cost.Which of the following is TRUE of firms in both perfect competition and monopolistic competition?Long-run economic profits are equal to zero.Below are drawn cost curves for a monopolistically competitive firm. What is the profit?Profit = (P - ATC)*q = (16-12)*20=80In response to the situation represented by the figure, as we move to the long run equilibrium, we would expect:-some of the firms that are currently in the market to exit. - the demand for this firm's product to increase, assuming this firm does not exit. -this firm's profit to move from its current value toward zero.the demand schedule of a monopolistically competitive firm when compared to the demand schedule of a perfectly competitive firm isless price elastic.The demand facing a monopolistically competitive firm is ________ a perfectly competitive firm and ________ a monopolistic firm.less elastic than; more elastic thanA significant difference between perfect competition and monopolistic competition is that a) a perfectly competitive firm is a price searcher, while a monopolistic competitive firm is a price taker.a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product.The number of sellers in a perfectly competitive market is ___________, the number of sellers in a monopolistic competitive market is ____________, and the number of sellers in an oligopoly ismany; many; fewThere ___________ barriers to entry in a perfectly competitive market. There ____________ barriers to entry in monopolistic competition. There ____________ barriers to entry in oligopoly. There ____________ barriers to entry in monopoly.are no; are no; are; areWhen ________ for a monopolistically competitive firm, the firm is in long-run equilibrium.MR = MC and P = ATCThe relationship between a monopolistic competitive firm's marginal revenue curve and its demand curve is that themarginal revenue curve lies below the demand curve and both are downward sloping.Generally, the monopolistic competitor is in long run equilibrium whenMR = MC and P = ATC.A significant difference between perfect competition and monopolistic competition is that:a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product.Which of the following statements is true about monopolistically competitive firms?Unlike perfectly competitive firms, monopolistically competitive firms are able to raise their prices without losing all of their customers.Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?Price is equal to marginal cost.Which of the following is not a characteristic of oligopoly?There are few buyers.Larson's Italian Ice is a monopolistically competitive firm. If Larson's is losing money in the short run, which of the following is most likely to occur?Losing money so some existing firms will be leaving the market, causing the demand for Larson's to increase (shift to the right).which of the following is NEVER true when monopolistic competition arises in a specific market?the firm takes price as givenA profit maximizing firm in a monopolistic competitive market behaves much like a ___________ in the short run. Unlike a monopolistic firms product, a monopolistically competitive firms product __________. Compared to a perfectly competitive firm, the demand schedule a monopolistically competitive firm faces is _____________.monopolist, new close substitutes, less price elasticIf firms in a monopolistically competitive industry are making profits, in the short run__________.new firms will enter the market