Homework 16: Monopolistic Competition

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When firms in monopolistic competition are making an economic​ profit, firms will

enter the​ industry, and demand will decrease for the original firms.

In monopolistically competitive​ industries,

entry and exit push economic profits toward zero.

In monopolistic​ competition, in the long run firms have

excess capacity.

When firms in monopolistic competition incur an economic​ loss, some firms will

exit the​ industry, and demand will increase for the firms that remain.

Monopolistic competition differs from monopoly because in monopolistic competition

firms are free to enter and exit.

Which of the following is NOT true of monopolistic​ competition?

firms produce a good that is a perfect substitute for their​ competitors' goods.

Firms in which type of market earn zero economic profit in the long​ run?

perfect competition and monopolistic competition

Brand name aspirin is chemically identical to store brand aspirin.​ Yet, consumers often prefer the brand name product to the store brand product. This preference is an example of

product differentiation

The​ Firefox, Internet​ Explorer, and Opera browsers are an example of​ ________.

product differentiation

Which characteristic is associated with monopolistic​ competition?

product differentiation

Brand name drugs are chemically identical to their generic counterparts.​ Yet, consumers often prefer the brand name product to the generic product. Making consumers think that a brand name drug differs from its generic counterpart is an example of

product differentiation.

Brand names are an example of

product differentiation.

The key feature of monopolistic competition that distinguishes it from perfect competition is

product differentiation.

A firm is said to have excess capacity when it produces the amount of output

smaller than that which minimizes average total cost.

Monopolistic competition is a market in which​ ________ firms produce​ ________ goods and services.

​many; differentiated

Monopolistic competition is a market structure in​ which:

-Firms are free to enter and exit the industry. -Firms produce a differentiated product.

A product that is a close substitute but not a perfect substitute for the products of the other firms is called

a differentiated product.

Firms in monopolistic competition can achieve product differentiation by

advertising special characteristics.

For a firm in monopolistic​ competition, the marginal cost curve intersects the average total cost curve

at the minimum average total cost.

A monopolistically competitive firm is like a monopoly firm insofar as

both have MR curves that lie below their demand curves.

A monopolistically competitive firm is like a perfectly competitive firm insofar as

both make zero economic profit in the long run.

How is a monopolistically competitive firm similar to a perfectly competitive​ firm?

both will observe entry into the industry if economic profit is positive

Firms in monopolistic competition charge prices that are​ ________ those of the other firms in the market.

close to

In monopolistic competition in the long​ run, firms​ ________.

make a normal profit and have excess capacity

In a monopolistically competitive market there are

many firms

Which of the following is a characteristic of monopolistic​ competition?

many firms

In monopolistic​ competition, there are

many firms making a differentiated product.

The profit maximizing condition for a firm in monopolistic competition is to produce so that

marginal cost equals marginal revenue.

In monopolistic​ competition, in the short run a firm maximizes its profit by selecting an output at which marginal cost equals

marginal revenue.

In monopolistic​ competition, when firms make an economic​ profit,

new firms enter the industry so that the price falls and the economic profit eventually falls to zero.

If firms in a monopolistically competitive industry are earning an economic​ profit, then

new firms will enter the industry.


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