Section13

Question 1

What is monopolistic competition?

Answer 1

Many firms selling products that are similar but not identical.

Question 2

What are the attributes of monopolistic competition?

Answer 2

• Many sellers: Compete for the same group of customers.
• Product differentiation: Products are slightly different; firms face downward-sloping demand curves.
• Free entry and exit: Firms enter/exit freely, leading to zero economic profits in the long run.
• Cross-price elasticities: Large but not infinite.

Question 3

How does monopolistic competition behave in the short run?

Answer 3

Firms choose quantity and price like a monopoly, leading to potential profits or losses.

Question 4

What happens when firms make short-run economic profits?

Answer 4

Encourages new firms to enter:

• Increases number of products.
• Shifts incumbent firms’ demand curves left, reducing profits.

Question 5

What happens when firms face short-run economic losses?

Answer 5

Encourages firms to exit:

• Reduces number of products.
• Shifts remaining firms’ demand curves right, increasing profits.

Question 6

What characterizes monopolistic competition in the long run?

Answer 6

Firms earn zero economic profit due to free entry and exit, with price equal to average total cost.

Question 7

How does monopolistic competition differ from perfect competition?

Answer 7

Two key differences:

• Mark-up over marginal cost: Price exceeds marginal cost, creating deadweight loss.
• Excess capacity: Firms operate below optimal production level.

Question 8

What are the critiques of advertising in monopolistic competition?

Answer 8

• Manipulates tastes.
• Impedes competition by exaggerating product differences.
• Promotes consumerism with high ecological footprints.

Question 9

What are the defenses of advertising in monopolistic competition?

Answer 9

• Provides consumer information.
• Increases competition through variety.
• Signals product quality to consumers.

Question 10

What is the ecological footprint in the context of consumerism?

Answer 10

Measures the land area needed for a society’s consumption and waste absorption, reflecting environmental impact.

Question 11

How does consumerism relate to sustainability issues?

Answer 11

Consumerism drives higher consumption, innovation, and ecological footprints, often conflicting with sustainable development goals.

Question 12

What role do consumers play in sustainable development?

Answer 12

Consumers drive sustainable production and are central to reducing ecological footprints.