ECON 1B03 Lecture Notes - Lecture 14: Joseph Schumpeter, Demand Curve, Monopolistic Competition

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31 May 2016

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ECON 1B03 Full Course Notes

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Pure monopolies and perfectly competitive industries are the two extremes of market structures. Monopolistic competition is a common form of industry structure in canada with: a large number of firms, no barriers to entry, product differentiation (some degree of market power is achieved through this) An example of this competition is the restaurant business. Each produces a slightly differentiated product and attempts to distinguish itself in consumers" minds and entry to the market is not blocked. The distinctive feature of monopolistic competition and oligopoly from monopoly is that firms cannot influence market price by virtue of their size. Instead, they gain control over the price by differentiating their product slightly. Goods" substitutes are available in monopolistic competition. A concentration ratio is the percentage of total industry sales accounted for by the largest 4 (cr4) or 8 (cr8) firms in it. Shows if industries are or aren"t dominated by a small number of firms.

Related Questions

25. One difference between perfect competition and monopolistic competition is A) firms in a perfectly competitive market produce similar but slightly different products. B) in perfect competition, the product produced has no close substitutes. C) monopolistic competition has barriers to entry, whereas perfect competition has none. D) a small number of firms compete in a monopolistically competitive market and a large number of firms compete in a perfectly competitive market. E) firms in monopolistic competition have some degree of market power.

A major difference between monopolistic competition and perfect competition is:

a. there are barriers to entry in monopolistic competition. There are no barriers to entry in perfectly competitive markets.

b. monopolistically competitive firms sell differentiated products. Perfectly competitive firms sell identical products.

c. government regulation restricts the ability of monopolistically competitive firms to change their prices. Perfectly competitive firms face no price regulation.

d. the market demand curve in a monopolistically competitive market slopes downward. The market demand curve in a perfectly competitive market is horizontal

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1) A natural monopoly exists when:

a. A few firms collude to make one large firm

b. Firms enter the industry as a result of profit incentives

c. Economies of scale provide large cost advantages to having one firm produce the industry's output

d. Firms naturally maximize regardless of market structure

2) A(n) ____ is a single firm with ___, whereas a(n) ___ implies an industry with ____ firm(s) and ____ .

a. Monopoly; barriers to entry; oligopoly; few; no barriers to entry

b. Oligopoly; no barriers to entry; monopoly; many; easy entry and exit

c. Monopoly; barriers to entry; monopolistic competition; many; easy entry and exit

d. Monopolistic competitor; barriers to entry; monopoly; one; barriers to entry

3) In monopolistic competition:

a. Each firm produces a product identical to that of every other firm in the industry

b. Firms are aware of their strategic interdependence

c. Firms earn large economic profits in the long run

d. Firms earn zero economic profits in the long run

4) A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, like wheat farming, are alike in that:

a. There are many firms in each industry

b. Firms in both types of industries produce similar but not identical products

c. Barriers to entry in both industries are large

d. Firms in both types of industries produce identical products

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ECON 1B03 Lecture Notes - Lecture 14: Joseph Schumpeter, Demand Curve, Monopolistic Competition

ECON 1B03 Full Course Notes

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