Evaluating Market Outcomes in Monopolistic Competition

The video explores monopolistic competition, focusing on market outcomes, efficiency, and comparisons with perfect competition. It discusses productive and allocative efficiency, short and long run outcomes, and the role of product differentiation in consumer choice. The video concludes with implications for innovation and investment in monopolistic markets.

What is a key characteristic of monopolistic competition that affects market outcomes?

• High barriers to entry

• Product differentiation

• Single seller

• Perfect information

What does productive efficiency imply for a firm?

• Minimizing costs

• Minimizing prices

• Maximizing output

• Maximizing revenue

Allocative efficiency is achieved when:

• Price equals marginal cost

• Price equals average cost

• Price is less than marginal cost

• Price is greater than marginal cost

In the short run, a firm making supernormal profits in monopolistic competition is:

• Productively efficient

• Allocatively efficient

• Productively inefficient

• Allocatively efficient

What happens to firms in monopolistic competition in the long run?

• They make supernormal profits

• They exit the market

• They incur losses

• They make normal profits

How does monopolistic competition compare to perfect competition in terms of efficiency?

• More productively efficient

• Equally efficient

• Less allocatively efficient

• More allocatively efficient

What is a potential benefit of product differentiation in monopolistic competition?

• Higher barriers to entry

• Reduced market power

• Increased consumer choice

• Lower production costs

Why might firms in monopolistic competition have an incentive to innovate?

• To reduce consumer choice

• To decrease product variety

• To gain brand loyalty

• To increase market barriers

What is a potential outcome of innovation in monopolistic competition?

• Decreased product variety

• Closer to efficiency outcomes

• Higher production costs

• Reduced consumer surplus

What is a challenge firms face when differentiating products in monopolistic competition?

• Reducing product variety

• Lowering prices

• Creating identical products

• Monopolizing a niche market