CH 12: Monopolistic Competition

Question 1

What are the characteristics of Monopolistic competition?

Answer 1

differentiated product,
Large n.o of sellers,
advertising,
easy entry and exit
Price makers

Question 2

What are the forms of differentiation?

Answer 2

By style and type
By location
by quality

Question 3

What are the features of industries with differentiated product?

Answer 3

Competition among sellers
Value in diversity

Question 4

At what point does the monopolistic competition produce a product?

Answer 4

When MC=MR

Question 5

How efficient is the monopolistic competition market?

Answer 5

Monopolistic competition is neither allocative or productive efficient.

Question 6

What are the benefits of product variety?

Answer 6

Motivate firms to earn economic profit.
Consumers have a wide range of option
Product improvement results in high demand

Question 7

What does the demand curve look like for a monopolistic competition firm?

Answer 7

Highly but not perfectly elastic.

Question 8

What will happen to demand if new firms enter the market?

Answer 8

Demand curve will shift to the left because each firm has large number of substitutes.

Question 9

What will happen to demand if firms leave the market?

Answer 9

Demand curve will shift to the right

Question 10

Why does monopolistic competition firms only earn normal profit in the long run?

Answer 10

Easy entry and exit of firms result in normal profit being earned.