Monopolistic Competition

Definition of Economies of Scale

The cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Definition of A Homogenous Product

One that cannot be distinguished from competing products from different suppliers. In other words, the product has essentially the same physical characteristics and quality as similar products from other suppliers.

Because entry is easy and economic profits are eliminated in the long​ run, the result of monopolistic competition is efficient. Another problem with the above statement is A. monopolistically competitive firms prevent the efficient use of resources. B. antitrust laws often force monopolistically competitive firms to shut down. C. economic profits are not eliminated in the long run for a monopolistically competitive firm. D. None of the above.

A. monopolistically competitive firms prevent the efficient use of resources.

In a monopolistically competitive​ industry, at​ long-run equilibrium A. the average total cost curve is tangent to the demand curve. B. the marginal cost curve is tangent to the demand curve. C. all of the average total cost curve is above the demand curve. D. the bottom of the average total cost curve is below the marginal revenue curve. E. the bottom of the average total cost curve is below the demand curve.

A. the average total cost curve is tangent to the demand curve. At the output level where ATC and D are​ tangent, average cost just equals​ price, so profit is zero and there is no incentive for either entry of additional firms or exit by firms already in the industry.

One of the characteristics of a monopolistically competitive industry is easy entry of new firms and easy exit of existing firms. This means that A. if firms in the industry are making​ losses, some of them will​ exit, pushing each remaining​ firm's demand curve to the left. B. if firms in the industry are making positive​ profits, other firms will​ enter, pushing each​ firm's demand curve to the left. C. if firms in the industry are making​ losses, some of them will​ exit, pushing each remaining​ firm's average cost curve upward. D. if firms in the industry are making​ losses, some of them will​ exit, pushing each remaining​ firm's average cost curve downward. E. if firms in the industry are making positive​ profits, other firms will​ enter, pushing each​ firm's demand curve to the right.

B. if firms in the industry are making positive​ profits, other firms will​ enter, pushing each​ firm's demand curve to the left. As additional firms enter the​ industry, each firm gets a smaller share of the total market​ (i.e., the demand for its output shifts​ leftward).

All of the following are key characteristics of a monopolistically competitive industry except A. Large number of firms. B. A differentiated product. C. A homogeneous product. D. The existence of close substitutes.

C. A homogeneous product.

Which of the following is not one of the characteristics of a monopolistically competitive​ industry? A. No barriers to entry. B. A large number of firms. C. Large influence on market price. D. Product differentiation.

C. Large influence on market price.

In monopolistic​ competition, firms gain some degree of market power A. because there are no close substitutes for their products. B. because price has no effect on the quantity they sell. C. by differentiating their products from those of other firms in the industry. D. by virtue of their size. E. because there are so few firms in the industryI

C. by differentiating their products from those of other firms in the industry. In monopolistic competition firms achieve control over price by selling a product that is in some​ way(s) different from the close substitutes sold by other firms in the industry.

For a monopolistically competitive monopolistically competitive ​Firm, A. price is equal to marginal revenue because the firm can sell as much output as it chooses at the standardized market price. B. price is equal to marginal revenue because the firm must lower the price for each additional unit it wants to sell. C. marginal revenue is less than the price because the firm must lower the price for each additional unit it wants to sell. D. marginal revenue is less than the price because the firm can sell as much output as it chooses at the standardized market price.

C. marginal revenue is less than the price because the firm must lower the price for each additional unit it wants to sell. For a purely competitive​ firm, price is equal to marginal revenue because the firm can sell as much output as it chooses at the standardized market price. Because of​ this, total revenue will always increase by the amount of the price for each additional unit​ sold, so marginal revenue is equal to the price. For a monopolistically competitive firm to sell additional​ output, it must lower the price for each additional unit it wants to sell.​ Therefore, total revenue increases as more units are​ sold, but by less than the price since the decrease in price applies not only to the additional output but also to all previous output.

Because entry is easy and economic profits are eliminated in the long​ run, the result of monopolistic competition is efficient. One problem with the above statement is A. entry is not easy in a monopolistically competitive market. B. monopolistically competitive firms waste resources in differentiating their products. C. monopolistically competitive firms typically will not attain all the economies of scale available. D. government regulation in monopolistically competitive markets hinders​ firms' efficiency

C. monopolistically competitive firms typically will not attain all the economies of scale available.

For a monopolistically competitive industry in​ long-run equilibrium, A. there are no profits or losses. B. P​ = ATC. C. MR​ = MC. D. All of the above are true.

D. All of the above are true.

Definition of a Monopolistically Competitive

a common market structure where many competing producers sell products that are differentiated from one another (ie. the products are substitutes, but are not exactly alike). Examples of monopolistic competitive markets are restaurants, cereals, clothing and shoes.