4.3-Monopolistic Competition

Question 1

What is monopolistic competition?

Answer 1

A market structure characterized by many firms selling similar but not identical products.

Question 2

True or False: In monopolistic competition, firms have some degree of market power.

Answer 2

True

Question 3

Fill in the blank: Monopolistic competition is a blend of _______ and _______ competition.

Answer 3

monopoly, perfect

Question 4

What are the key characteristics of monopolistic competition?

Answer 4

Many firms, product differentiation, free entry and exit, and some control over price.

Question 5

Which of the following is a feature of monopolistic competition? A) Homogeneous products B) Price takers C) Product differentiation D) Barriers to entry

Answer 5

C) Product differentiation

Question 6

What role does advertising play in monopolistic competition?

Answer 6

It helps firms differentiate their products and build brand loyalty.

Question 7

True or False: Firms in monopolistic competition can earn long-run economic profits.

Answer 7

False

Question 8

What happens to economic profits in the long run in monopolistic competition?

Answer 8

They tend to zero due to the entry of new firms.

Question 9

Define ‘product differentiation’.

Answer 9

The process of distinguishing a product from others to make it more attractive to a specific target market.

Question 10

Short answer: How do firms compete in a monopolistically competitive market?

Answer 10

Through product differentiation, advertising, and pricing strategies.

Question 11

What is the demand curve like for a firm in monopolistic competition?

Answer 11

Downward sloping, reflecting some degree of market power.

Question 12

True or False: Monopolistic competition results in allocative efficiency.

Answer 12

False

Question 13

What is the primary reason for inefficiency in monopolistic competition?

Answer 13

Firms do not produce at the minimum average cost.

Question 14

Fill in the blank: In monopolistic competition, firms operate where _______ equals _______.

Answer 14

marginal cost, marginal revenue

Question 15

What is the relationship between price and marginal cost in monopolistic competition?

Answer 15

Price is greater than marginal cost.

Question 16

What is an example of a product in a monopolistically competitive market?

Answer 16

Restaurants, clothing brands, or hair salons.

Question 17

Short answer: What are barriers to entry in monopolistic competition?

Answer 17

They are low, allowing new firms to enter the market easily.

Question 18

True or False: Monopolistic competition leads to excessive advertising.

Answer 18

True

Question 19

What is the long-run equilibrium condition for a firm in monopolistic competition?

Answer 19

Firms earn zero economic profits.

Question 20

What is the impact of new entrants in a monopolistically competitive market?

Answer 20

They decrease the market share and profits of existing firms.

Question 21

Which market structure has the most significant product differentiation?

Answer 21

Monopolistic competition

Question 22

Fill in the blank: The market structure that combines features of monopoly and competition is called _______.

Answer 22

monopolistic competition

Question 23

True or False: In the short run, firms in monopolistic competition can make supernormal profits.

Answer 23

True

Question 24

What is the effect of product differentiation on the demand curve?

Answer 24

It makes the demand curve more elastic.

Question 25

Short answer: Why do firms in monopolistic competition have some control over prices?

Answer 25

Due to product differentiation, they face a downward-sloping demand curve.

Question 26

What happens to the price level in monopolistic competition when firms enter the market?

Answer 26

The price level decreases.

Question 27

Fill in the blank: Monopolistic competition is characterized by _______ and _______ of products.

Answer 27

many firms, differentiation

Question 28

What is the primary goal of firms in monopolistic competition?

Answer 28

To maximize profits.

Question 29

True or False: Monopolistic competition leads to productive efficiency.

Answer 29

False

Question 30

Define 'allocative efficiency'.

Answer 30

A situation where resources are allocated in a way that maximizes total consumer and producer surplus.

Question 31

What is a key disadvantage of monopolistic competition compared to perfect competition?

Answer 31

Higher prices and lower output.

Question 32

Short answer: How do firms in monopolistic competition respond to a decrease in demand?

Answer 32

They may lower prices or reduce output.

Question 33

What is the significance of brand loyalty in monopolistic competition?

Answer 33

It allows firms to maintain higher prices despite competition.

Question 34

Fill in the blank: The presence of _______ allows firms to charge a price above marginal cost in monopolistic competition.

Answer 34

product differentiation

Question 35

What does the term 'excess capacity' refer to in monopolistic competition?

Answer 35

The situation where firms produce below their minimum efficient scale.

Question 36

True or False: Monopolistic competition is more efficient than perfect competition.

Answer 36

False

Question 37

What is the primary reason for the inefficiency in monopolistic competition?

Answer 37

Firms do not produce at the lowest average total cost.

Question 38

Short answer: How can government intervention affect monopolistic competition?

Answer 38

By regulating prices or promoting competition.