Monopolistic Competition

Monopolistic competition is defined as a type of market structure where

• Many firms produce the good.

• Firms produce a homogeneous good.

• There are barriers to entry.

• Firms can earn positive profit in the long run.

In monopolistic competition

• Each firm's price can deviate from the average price of other firms.

• Each firm supplies a large part of the total market output.

• One firm's actions directly affect the actions of the other firms.

• Firms typically determine the amount they produce through agreements with competitors.

All of the following characteristics apply to monopolistic competition EXCEPT

• A large number of firms compete.

• Each firm produces the same identical product.

• Firms compete on product quality, price, and marketing.

• There are no barriers to enter or exit the industry.

Firms in monopolistic competition can achieve product differentiation by

• Expanding plant size.

• Exploiting economies of scale in production.

• Advertising special characteristics.

• Setting the price equal to average revenue.

The best example of a good sold in a monopolistically competitive market is

• Pizza.

• The local newspaper.

• Sewer services.

• Peaches.

In monopolistic competition, each firm's marginal revenue curve has a ________ and its demand curve has a ________.

• slope equal to zero; slope equal to zero

• slope equal to zero; negative slope

• negative slope; a slope equal to zero

• negative slope; negative slope

Firms in monopolistic competition have rivals that

• match their price increases.

• match their price decreases.

• agree on a common price.

• set their prices according to the demand curves they face.

Which of the following is ALWAYS true regarding a profit maximizing monopolistically competitive firm in short-run equilibrium?

• P = ATC.

• P = MR.

• MR = MC.

• MC = ATC.

In the above figure, if the firm is in monopolistic competition, it will produce

• 40 units.

• 60 units.

• Between 61 and 99 units.

• 100 units.

In the above figure, if the firm is in monopolistic competition, its price will be

• $1.

• $2.

• $3.

• $4.