ECON-101 Lecture Notes - Lecture 16: Monopolistic Competition, Market Power, Imperfect Competition

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amberchinchilla24

18 Mar 2016

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Thus, rather than being a price taker, each firm faces a downward-sloping demand curve. Highly elastic demand curve: free entry and exit: firms can enter or exit the market without restriction. Thus, the number of firms in the market adjusts until economic profits are driven to zero: because they are not homogenous goods anymore, they have market power no longer price takers. The monopolistically competitive firm in the short run: the monopolistically competitive firm follows a monopolist"s rule for profit maximization: It chooses the quantity at which marginal revenue equals marginal cost and then uses its demand curve to find the price consistent with that quantity: find mr

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25. One difference between perfect competition and monopolistic competition is A) firms in a perfectly competitive market produce similar but slightly different products. B) in perfect competition, the product produced has no close substitutes. C) monopolistic competition has barriers to entry, whereas perfect competition has none. D) a small number of firms compete in a monopolistically competitive market and a large number of firms compete in a perfectly competitive market. E) firms in monopolistic competition have some degree of market power.

1. Which of the following is a characteristic of pure monopoly?

A. close substitute products

B. barriers to entry

C. the absence of market power

D. "price taking"

2. An example of a monopoly would be

A. one of many U.S. wheat farmers

B. one of the few U.S. automakers

C. AT&T cell phone service

D. the local water company

3. In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?

A. monopoly

B. oligopoly

C. only perfect competition

D. only monopolistic competition

E. both perfect competition and monopolistic competition

4. Which of the following is the best example of a perfectly competitive market?

A. farming

B. diamonds

C. athletic shoes

D. soft drinks

E. electricity distribution

crimsonalligator541

1) A natural monopoly exists when:

a. A few firms collude to make one large firm

b. Firms enter the industry as a result of profit incentives

c. Economies of scale provide large cost advantages to having one firm produce the industry's output

d. Firms naturally maximize regardless of market structure

2) A(n) ____ is a single firm with ___, whereas a(n) ___ implies an industry with ____ firm(s) and ____ .

a. Monopoly; barriers to entry; oligopoly; few; no barriers to entry

b. Oligopoly; no barriers to entry; monopoly; many; easy entry and exit

c. Monopoly; barriers to entry; monopolistic competition; many; easy entry and exit

d. Monopolistic competitor; barriers to entry; monopoly; one; barriers to entry

3) In monopolistic competition:

a. Each firm produces a product identical to that of every other firm in the industry

b. Firms are aware of their strategic interdependence

c. Firms earn large economic profits in the long run

d. Firms earn zero economic profits in the long run

4) A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, like wheat farming, are alike in that:

a. There are many firms in each industry

b. Firms in both types of industries produce similar but not identical products

c. Barriers to entry in both industries are large

d. Firms in both types of industries produce identical products

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ECON-101 Lecture Notes - Lecture 16: Monopolistic Competition, Market Power, Imperfect Competition

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