Chapter 12 Flashcards
If there are many firms in an industry producing goods that are similar but slightly different, this is an example of
monopolistic competition
Which of the following is not characteristic of monopolistic competition?
firms with zero control over price
The combined market share of the top four firms in a monopolistically competitive industry will typically be in the range of
20 to 40 percent.
Each producer in monopolistic competition has
some market power
The demand curve faced by a monopolistically competitive firm is
downward-sloping
One of the main differences between an oligopolistic firm and a monopolistically competitive firm is that a monopolistically competitive firm
is relatively independent; an oligopoly is interdependent.
Monopolistically competitive firms have a “monopoly” element to them because
brand loyalty gives them a captive audience.
Product differentiation occurs when
buyers perceive differences in the products of several companies.
The main difference between perfect competition and monopolistic competition is the
degree of product differentiation.
Brand loyalty usually makes the demand curve for a product
less price-elastic.
Brand loyalty
exists even when products are virtually identical.
When a monopolistically competitive firm advertises, it is attempting to increase
the demand and decrease the price elasticity of demand for its product.
Firms in a monopolistically competitive market will
use the profit-maximizing rule MC = MR
If a monopolistic competitor is maximizing profit, it is producing at a point where marginal cost
is less than price.
Entry into a market characterized by monopolistic competition
is frequent because barriers to entry are low.
In monopolistic competition, a firm’s demand curve is tangent to the ATC curve in the long run because
entry eliminates economic profit, and exit eliminates losses.
When new firms enter a monopolistically competitive industry, ceteris paribus, the
market price decreases.
Which of the following characterizes monopolistic competition?
zero long-run profit
Which of the following is not true about a monopolistic competitor?
It can earn economic profits in the long run.
Which of the following characterizes the difference between oligopoly and monopolistic competition?
Monopolistically competitive firms experience zero long-run economic profit; oligopolists may experience positive long-run economic profit.
