Monopolistic competition and Oligopolies

Question 1

What is monopolistic competition?

Answer 1

A market in which many firms sell a differentiated product and have some control over price 
Large Number of Firms
Small market share
Ignore other firms
Collusion impossible

Question 2

What are the three important types of product differentiation?

Answer 2

Style, Location and Quantity

Question 3

Short Run: Economic Profit (possible or no?)

Answer 3

The firm in monopolistic competition determines its profit-maximizing output in the same way as a single price monopoly.
In the short run, the firm can earn economic profits.

Question 4

The key difference between monopoly and monopolistic competition lies in the long run.
Why?

Answer 4

Economic profit attracts new entrants.
As new firms enter the industry, the firm’s demand curve and marginal revenue start to shift leftward.
The profit-maximizing quantity and price fall.

Question 5

Where is the capacity output?

Answer 5

The bottom of the u shape of the ATC curve

Question 6

What are the two oligopoly models?

Answer 6

Traditional and game theory

Question 7

The kinked demand curve model is based on the assumption that each firm believes that:

Answer 7

If it raises its price, others will not follow.
If it cuts its price, so will the other firms.
These beliefs mean that the firm’s demand curve is kinked.