Econ Chapter 10

Question 1

Monopolistic Competition

Answer 1

A market structure with many firms selling differentiated products

Question 2

Three Characteristics of Monopolistic Competition

Answer 2

1) Product Differentiation
2) Many Sellers
3) Free Entry

Question 3

Four Characteristics of Product Differentiation

Answer 3

1) Physical Difference
2) Prestige
3) Location
4) Service

Question 4

Three Step Method for Monopolistic Competition

Answer 4

1) Find where MR = MC and go straight down to find q*
2) At q* go straight up to demand curve and across to find P, once P is found determine total revenue TR = P x Q
3) Find total cost by going straight up from q* to ATC curve to find ATC per unit. Find TC by TC = ATC x Q

Question 5

What happens when Firms enter the industry

Answer 5

• Demand curve shifts left (Decreases)

- Increase elasticity due to more substitutes

Question 6

What happens when Firms exit the industry

Answer 6

• Demand curves shift right (increase)

- More inelastic

Question 7

Excess Capacity

Answer 7

When a firm produces below the level where average total cost is minimized