Quiz 6: Monopolistic Competition

A characteristic of monopolistic competition is:

• Competition is weaker than in a monopolistic market.

• Collusion plays an important role when there are many producers.

• Products are differentiated

• Entry and exit barriers are high

Monopolistic competitors can increase their prices (wr to a perfect competition) because:

• They face lower costs

• perate with increasing marginal costs

• They sacrifice part of their production

• They do not have a patent

Long run equilibrium in monopolistic competition implies:

• Firms have excess capacity

• Firms earn positive economic profits

• Firms produce at the minimum of the average total cost curve

• All of the other options

Short run profit maximization in monopolistic competition means: (where, MR is marginal revenue, MC is marginal cost, P is price and AVC is average variable cost)

• MR=MC

• MR<MC

• MC>P

• AVC=P

Which of the following companies find themselves in a monopolistic competition market:

• SuperClean dry cleaning

• Martina's Hair Salon

• Blimey Pub

• All of them