Monopolistic Competition: Differences and Long Run Equilibrium

The video discusses the differences between perfect and monopolistic competition, focusing on product differentiation and the lack of perfect substitutes in monopolistic competition. It explains how firms maximize profits in the short run and how market dynamics lead to long run equilibrium. The video also addresses the inefficiencies in monopolistic competition compared to perfect competition, raising questions about the value of competition.

What is a key characteristic of monopolistic competition that differentiates it from perfect competition?

• Firms sell identical products.

• Firms sell slightly different products.

• The average revenue curve is horizontal.

• There are significant barriers to entry.

In the short run, what happens when firms in a monopolistic competition market earn supernormal profits?

• Firms exit the market due to losses.

• Existing firms merge to form a monopoly.

• New firms enter the market with slightly different products.

• The demand curve becomes perfectly elastic.

What is the result of new firms entering a monopolistic competition market in the short run?

• The demand curve for existing firms shifts inward.

• The demand curve for existing firms shifts outward.

• Existing firms become monopolies.

• Supernormal profits increase for existing firms.

In the long run, what type of profit do firms in monopolistic competition typically earn?

• Monopoly profit

• Economic loss

• Normal profit

• Supernormal profit

Why are firms in monopolistic competition considered allocatively inefficient?

• Price equals marginal cost.

• They produce at maximum capacity.

• Price does not equal marginal cost.

• They operate at the minimum of their average cost curve.