ECON 1050 Chapter Notes - Chapter 14: Signalling Theory, Average Cost, Fixed Cost

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5 Dec 2017

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Econ chapter 14 notes and terms monopolistic competition. Monopolistic competition is a market structure in which: a large number of firms compete, each firm produces a differentiated product, firms compete on product quality, price, and marketing, firms are free to enter and exit the industry. Monopolistic competition has no barriers to prevent new firms from entering the industry in the long run. Examples of firms in monopolistic competition include: paint, lighting fixtures, furniture, electronics, bakeries, sporting and athletic goods, plastic bags, clothing, etc. There are two key differences between these two types of competition: Before we can conclude that something needs fixing, we must check out the available alternatives. The markup that drives a gap between price and mc in monopolistic competition arises from product differentiation: demand is not perfectly elastic because there are many substitutes. Product development is a costly activity, but it also brings additional revenue.

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12) Which of the following types of economic regulation is most likely to encourage firms to engage in cost cutting? A) entry and output restrictions B) rate of return regulation C) price cap regulation D) None of the above encourages cost cutting.

13) In monopolistic competition, firms compete on the basis of A) price only. B) price, quality, and marketing.
C) marketing only. D) quality and marketing, but not price.

14) Which of the following statements is FALSE concerning monopolistic competition? A) There are many firms. B) Firms sell a differentiated product. C) Each firm's actions influence rival firms. D) Firms are free to enter and exit.

If I were to open a business, I would choose the monopolistic competitive market.

Under monopolistic competition, with low barriers to entry and low capital requirements, firms are free to enter into or exit from the industry at any time. In addition, in monopolistic competition, large numbers of sellers offer closely related but not homogeneous products. This is the reason why each firm has a limited share of the market and has limited control over the market price. Thus, changes in one firmâs output have only a slight impact on market price or it also means that firms in monopolistic competition are price setters rather than price takers. In the short run, firms can make excess economic profits. However, as barriers to entry are low, other firms have an incentive to enter the market, increasing the competition, until overall economic profit is zero.

In order to yield the greatest profit, a firm engaged in monopolistic competition will focus on product quality, location, service, and advertising, since the major tool of competition is product differentiation. For example, if I opened a restaurant, the restaurant would have a menu with different dishes and different prices to other restaurants nearby and the prices of the dishes also would depend on its location, the food ingredients, the food quality, and the speed of service. With the purpose of gaining profit for the restaurant, I would try to be dynamically efficient, innovative and develop new ways to attract and retain local custom as well as maintain cost efficiency, which could keep the cost below the average profit.

I need a peer reply for this discussion and it should be 250 at least

bronzefrog162

1. A monopoly market structure is characterized by

a. large number of firms, standardized products, easy entry and exit.

b. large number of firms, differentiated products, easy entry and exit.

C. small number of firms, standardized or differentiated products, difficult entry.

d. one firm, a unique product without close substitutes, and impossible entry.

e. one firm, differentiated product, impossible entry.

2. Which of the following is not a characteristic of monopolistic competition?

a. Differentiated products

b. A downward-sloping demand curve for individual firms

c. Firms that are price makers

d. Impeded entry into the industry

e. A large number of firms

3. One factor that distinguishes oligopoly from other market structures is

a. the ease of entry into the market.

b. the interdependence of firms.

c. the slope of the demand curve.

d. the degree of product differentiation.

e. the amount of advertising expenditures.

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ECON 1050 Chapter Notes - Chapter 14: Signalling Theory, Average Cost, Fixed Cost

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