Monopolistic Competition and Oligopoly Quiz

Which of the following is a characteristic of monopolistic competition?

• Price-taking behavior

• Homogeneous products

• Free entry and exit

• Significant barriers to entry

In monopolistic competition, firms have:

• No control over price

• Perfect substitutes for their products

• Market power due to product differentiation

• Identical cost curves

In the long run, a firm in monopolistic competition:

• Earns economic profit

• Produces at minimum ATC

• Produces with excess capacity

• Has marginal revenue equal to price

A firm in monopolistic competition maximizes profit where:

• Price = marginal cost

• Marginal revenue = marginal cost

• Average total cost = price

• Price = average variable cost

A monopolistically competitive firm in long-run equilibrium will:

• Earn zero economic profit

• Produce at efficient scale

• Have MR above MC

• Face a perfectly elastic demand curve

Product differentiation in monopolistic competition leads to:

• Lower prices than perfect competition

• Greater efficiency

• Brand loyalty and some price-setting ability

• No deadweight loss

Compared to perfect competition, monopolistically competitive firms in the long run:

• Produce more

• Charge a lower price

• Operate at efficient scale

• Have higher average total cost

Excess capacity in monopolistic competition refers to:

• Over-utilization of resources

• Not producing at minimum ATC

• Overproduction

• Underemployment of labor

If a monopolistically competitive firm is earning a loss in the short run, it should:

• Shut down immediately

• Raise its price above MC

• Compare price with AVC to decide whether to shut down

• Increase its fixed costs

Advertising in monopolistic competition is used to:

• Eliminate competition

• Differentiate products and increase demand

• Increase marginal costs

• Lower average fixed cost