Market Structure Review Quiz

The model of monopolistic competition has three basic assumption: There are a large number of relatively​ (a)   firms none of which have sufficient​ (b)   power to greatly affect its competitors. There are very few, if any​ (c)   to entry or exit from the industry. All firms produce slightly​ (d)   products.

• small
• market
• barriers
• heterogeneous
• large
• firm
• protection
• homogenous

The final assumption means that​ (a)   competition is a major feature in monopolistically competitive industries. Hence, the existence of loyalty means that firms have, to a certain extent, control over the prices of their products. All firms face downwards sloping​ (b)   curve, which is relatively price​ (c)   as there are many (albeit slightly differentiated) substitutes. Examples of businesses in such market structures might included: restaurants, hair salons, and clothes retailers.

• non-price
• demand
• elastic
• price
• marginal revenue
• inelastic

It is possible for monopolistically competitive firms to earn a profit or a loss in the short-run, depending on the nature of its​ (a)   costs. For example, this diagram shows a ​ (b)   making firms because at the profit maximizing (or the loss-minimizing) level of output, average​ (c)   exceeds average​ (d)   (price).

• average
• loss
• costs
• revenue
• marginal
• profit
• product

However, just like in perfect competition, any​ (a)   profits made by existing firms would attract new entrants due to the very low entry barriers. Similarly, any losses would result in a ​ (b)   market supply as there are very few, if any, barriers to exit. Hence, under the model of monopolistic competition, only​ (c)   profitis made in the long-run.

• abnormal
• lower
• normal
• loss
• greater

The demand curve of a monopolistically competitive is less price elastic than that of a perfectly competitive firm.

• True

• False

Firms in monopolistic competition supply differentiated, but similar products.

• True

• False

In the long-run, monopolistically competitive firms make normal profits.

• True

• False

Non-price competition is a feature of both oligopoly and monopolistic competition

• True

• False

The use of trademarks and branding are common features of monopolistic competition

• True

• False

Normal profit arises when:

• P = AC

• P < AC

• P > AC

• P = MC