Chapter 17 Monopolistic Competition

What does monopolistic competition have in common with perfect competition?

a large number of firms and freedom of entry and exit

A firm in monopolistic competition is similar to a firm in perfect competition because they both

can make only zero economic profit in the long run.

A firm in monopolistic competition ________ influence its price and ________ influence the market average price.

can; cannot

When weighing the efficiency of monopolistic competition, which of the following should be considered? i. the information provided by advertising ii. product variety iii. the extra cost of excess capacity

i, ii, and iii

A firm in monopolistic competition

might be selling a brand name product.

Even though monopolistic competition results in inefficiency, it does have which of the following benefits for society?

Product variety benefits consumers.

For a firm in monopolistic competition, innovation and product development are

necessary in order to have a chance of making at least a short-run economic profit.

To maintain their economic profits, firms in monopolistic competition must continually engage in

product development and marketing.

One reason a company advertises is to

signal consumers that its product is high quality.

When the Herfindahl-Hirschman Index for an industry is

very small, the industry can be perfectly competitive.

Firms in monopolistic competition determine the profit-maximizing level of output by producing

where marginal revenue equals marginal cost.