Chapter 17

Question 1

What are the characteristics of monopolistic competition?

Answer 1

• Many Sellers.
• Low barriers to entry (free entry and exit).
• Slight product differentiation

Question 2

What does the demand curve of a monopolistic competitive market look like?

Answer 2

It is downward sloping and slightly elastic.

Question 3

What is the definition of monopolistic competition?

Answer 3

A large number of firms selling similar but different products

Question 4

What are some examples of monopolistic competitiors?

Answer 4

• Nike vs. Adidas (shoe market)
• Pepsi vs. Coke (soda market)
• McDonalds vs. Burger king. (fast food.)

Question 5

What are the features by which one can differentiate monopolistic competitiors?

Answer 5

• Style.
• Texture
• taste.
• features.
• Location (Buying milk at the convenient store vs. grocery store.)

Question 6

T/F differentiated products do not use advirtisement?

Answer 6

• false they do use lots of advertisement.

Question 7

What is the market power?

Answer 7

Market power is the loyalty that is generated through advertisement and allows firms raise and maintain price above the level that would prevail under competition

Question 8

what is point to which monopolistic competitively firms will produce up to?

Answer 8

• Up until the point where MR = MC.

Question 9

What is the equation for total revenue (TR)?

Answer 9

TR = P x Q

Question 10

What is the equation for Total Costs (TC) ?

Answer 10

TC = AC x Q

Question 11

What is the equation for profit?

Answer 11

Profit = TR - TC

Question 12

Describe the differences in the graphs of the Short run vs. the long run?

Answer 12

The long run results in normal profit as a result of the demand curve shifting back.

Question 13

What is marginal revenue and costs?

Answer 13

MR: the change in revenue associated with producing one more unit.
MC: the costs associated with producing one more unit.

Question 14

What is the point in which firms in the long run of monopolistically competitive environments produce?

Answer 14

These firms produce up until the point where P=AC.

Question 15

does the short run or long run earn a “zero profit” ?

Answer 15

• long run

Zero Profit: a firm is earning the same as it would if its resources were employed in the next best alternative.

Question 16

Firms in monopolistically competitive environments charge …..(above or below)….marginal costs?

Answer 16

Above marginal costs.

Question 17

Who produces a larger quantity firms in monopolistically competitive environments or in perfectly competitive environments?

Answer 17

• Competitive firms produce a larger quantity.

Question 18

What environment has price searchers and which environment has price takers?

Answer 18

• Perfectly competitive markets: price takers.

- Monopolistic competitive markets: price searchers.

Question 19

What is the point up until perfectly competitive firms produce?

Answer 19

• up until the minimum average costs.

Question 20

Describe the demand curve a perfectly competitive firm?

Answer 20

It is perfectly elastic.

-P = MR

Question 21

Why are costs higher in monopolistically competitive environments?

Answer 21

1. ) The greater variety of product selection.

2. ) Advertising.(be tentative with this choice.)

Question 22

what does product differentiation mean literally and in more realistic terms?

Answer 22

Realistically: products are have differences.
Literally: companies are able to charge P > MC.