Chapter 13

Monopolistic competition means

• a market situation where competition is based entirely on product differentiation and advertising.

• a large number of firms producing a standardized or homogeneous product.

• many firms producing differentiated products.

• a few firms producing a standardized or homogeneous product.

Under monopolistic competition, entry to the industry is

• completely free of barriers.

• more difficult than under pure competition but not nearly as difficult as under pure monopoly.

• more difficult than under pure monopoly.

• blocked.

Monopolistic competition resembles pure competition because

• both industries emphasize nonprice competition.

• in both instances firms will operate at the minimum point on their long-run average total cost curves.

• both industries entail the production of differentiated products.

• barriers to entry are either weak or nonexistent.

Which of the following is not a basic characteristic of monopolistic competition?

• the use of trademarks and brand names

• recognized mutual interdependence

• product differentiation

• a relatively large number of sellers

Nonprice competition refers to

• competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.

• price increases by a firm that are ignored by its rivals.

• advertising, product promotion, and changes in the real or perceived characteristics of a product.

• reductions in production costs that are not reflected in price reductions.

The restaurant, legal assistance, and clothing industries are each illustrations of

• countervailing power.

• homogeneous oligopoly.

• monopolistic competition.

• pure monopoly.

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from

• the likelihood of collusion.

• high entry barriers.

• product differentiation.

• mutual interdependence in decision making.

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

• former does not seek to maximize profits.

• latter recognizes that price must be reduced to sell more output.

• former sells similar, although not identical, products.

• former's demand curve is perfectly inelastic.

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

• former has fewer barriers to entry into the industry.

• latter recognizes that price must be reduced to sell more output.

• latter’s demand curve is perfectly elastic.

• latter differentiates its product.

A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from

• a relatively large number of firms, and the monopolistic element from product differentiation.

• product differentiation, and the monopolistic element from high entry barriers.

• a perfectly elastic demand curve, and the monopolistic element from low entry barriers.

• a highly inelastic demand curve, and the monopolistic element from advertising and product promotion.