Monopolistic Competition: Market Structure and Firm Performance

Firms in a monopolistic competitive market are unlikely to affect their rivals to any great extent because:

• They sell homogeneous products

• There are only a few firms in the market

• Each firm has an insignificant market share and acts independently

• The government regulates all prices

How do the revenue curves of a monopolistically competitive firm compare to those of a monopoly?

• They are steeper in gradient

• They are gentler in gradient

• They are identical in every aspect

• They are horizontal

How is the equilibrium output determined in a monopolistically competitive firm that maximizes its profit in the short run?

• MC= MR

• MC + MR

• MC> MR

• MC< MR

Which of the following best describes subnormal profits for a monopolistically competitive firm in the short run?

• Total revenue is less than total cost at equilibrium output.

• Total revenue is greater than total cost at equilibrium output.

• Total revenue equals total cost at equilibrium output.

• Marginal cost is less than average cost at equilibrium output.

What happens to the demand curves of firms in a monopolistically competitive industry when some firms exit the market due to subnormal profits?

• The demand curves shift to the left and become more price elastic.

• The demand curves shift to the right and become less price elastic.

• The demand curves remain unchanged.

• The demand curves shift to the right and become more price elastic.

Which of the following is an example of a non-pricing strategy that a monopolistically competitive firm might use?

• Lowering prices below cost

• Advertising

• Engaging in a price war

• Price fixing

Which of the following non-pricing strategies involves creating a unique image or identity for a product in the minds of consumers?

• Innovation

• Branding

• Price competition

• Limit pricing

Why does increased product differentiation lead to fewer competitors for a monopolistically competitive firm?

• Because differentiated products are more easily substituted.

• Because consumers perceive the product as less substitutable.

• Because it lowers the firm's costs.

• Because it increases the price elasticity of demand.

Which of the following is an example of diversification in the context of monopolistic competition?

• A firm selling the same product in all markets

• A firm reducing its prices to attract more customers

• A firm beginning to sell its chilli based on a unique recipe to diversify its source of revenue

• A firm increasing its advertising budget

Which of the following best describes the expenditure on non-pricing strategies by monopolistic competitive firms in the long run?

• They spend heavily on large-scale advertising campaigns.

• Their expenditure is of a smaller scale compared to oligopolistic firms.

• They do not spend on any non-pricing strategies.

• Their expenditure is larger than that of oligopolistic firms.