ECON 001 Lecture Notes - Lecture 13: Monopolistic Competition, Demand Curve, Marginal Revenue

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12 Jun 2018

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Chapter 16 Monopolistic Competition

I. Features of Monopolistic Competition

1. Many small firms in the industry

2. Each firm will produce a slightly differentiated product (slightly unique, product will

have close substitutes)

3. Free entry into the industry, in long-run economic profit will equal zero.

II. Price and Output Under Monopolistic Competition

A. Demand Curve under Monopolistic Competition

Properties of Demand Curve under MC

1. Demand curve is going to be downward sloping since firm produces a unique good)

2. Demand curve is relatively flat since products just slightly differentiated many close

substitutes

3. In order to solve one more unit, price must go down on goods

Key Point: Like monopoly, marginal revenue curve will be below demand curve for a

monopolistically competitive industry.

Key Point: Price and output of monopolistically competitive firm is determined in the same

manner as a monopoly.

III. Monopolistic Competition in Long Run

●Presence of profits will attract new firms into the industry

●New firms will produce different unique good, but will be close substitute to existing

good

●Consumers will have more options. Demand less of existent foods (shift in demand

curve to the left). Curve will continue shifting left until no more profits

Key Point: In long run, monopolistically competitive firm will produce where price = ATC @

profit maximizing quantity (where demand curve is tangent to ATC curve)

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Document Summary

Price and output under monopolistic competition: demand curve under monopolistic competition. Properties of demand curve under mc: demand curve is going to be downward sloping since firm produces a unique good, demand curve is relatively flat since products just slightly differentiated many close substitutes. In order to solve one more unit, price must go down on goods. Key point: like monopoly, marginal revenue curve will be below demand curve for a monopolistically competitive industry. Key point: price and output of monopolistically competitive firm is determined in the same manner as a monopoly. Presence of profits will attract new firms into the industry. New firms will produce different unique good, but will be close substitute to existing. Demand less of existent foods (shift in demand good curve to the left). Curve will continue shifting left until no more profits.

Related Questions

A. A competitive firm

can consider only its location in setting the price.
must base its competitive price on product differentiation.
has the ability to set its own price.
must accept the price determined by the intersection of the market supply and demand curves.
has no supply curve.

B. If a firm is making an economic profit, then

the factors of production are being paid their opportunity costs.
there will be no change in the number of firms if the industry is perfectly competitive.
the factors of production are being paid less than their opportunity costs.
the factors of production are being paid more than their opportunity costs.
the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

marginal revenue is greater than price.
the elasticity of demand is constant.
marginal revenue decreases when the price decreases.
marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

shut down because economic profits are negative.
continue to produce as long as P > AVC.
continue to produce because accounting profits are positive.
set a higher price for its output.
set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

the marginal revenue curve.
perfectly inelastic.
always equal to marginal cost.
the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

monopolistic
oligopolistic
monopolistically competitive
perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

total revenue will fall if the price increases.
total revenue will be unchanged if the price increases.
total revenue will rise if the price increases.
the total supply will increase by an equal amount if demand increases.
the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

monopoly.
perfect competition.
theories of consumer behavior.
imperfect competition.
the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

perfect competition
monopolistic competition
oligopoly
monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

economic profits are zero.
TR > TC.
TR < TC.
P = AVC.
normal profits are zero.

brownlouse308

1. A monopoly market structure is characterized by

a. large number of firms, standardized products, easy entry and exit.

b. large number of firms, differentiated products, easy entry and exit.

C. small number of firms, standardized or differentiated products, difficult entry.

d. one firm, a unique product without close substitutes, and impossible entry.

e. one firm, differentiated product, impossible entry.

2. Which of the following is not a characteristic of monopolistic competition?

a. Differentiated products

b. A downward-sloping demand curve for individual firms

c. Firms that are price makers

d. Impeded entry into the industry

e. A large number of firms

3. One factor that distinguishes oligopoly from other market structures is

a. the ease of entry into the market.

b. the interdependence of firms.

c. the slope of the demand curve.

d. the degree of product differentiation.

e. the amount of advertising expenditures.

lavenderbat941

Homework help and study guide help, all multiple choice

A monopolist:

A) can sell as much as it wants at the chosen price because it is the only seller.

B) can increase the price only if it is willing to decrease the quantity sold.

C) can increase the price and the quantity sold at the same time.

D) is not restricted by the law of demand.

A monopolistically competitive firm:

A) produces where marginal revenue equals marginal cost and charges the price consumers are willing to pay as given by the demand curve.

B) produces where marginal cost equals average total cost and charges the price consumers are willing to pay as given by the demand curve.

C) chooses price and quantity based on where the marginal cost curve meets the demand curve.

D) chooses price and quantity based on where the average total cost curve meets the demand curve.

21) Oligopoly is A) like a monopoly because there are barriers to entry. B) like perfect competition because oligopoly firms all sell homogeneous goods. C) like monopolistic competition because oligopoly firms all sell differentiated goods D) like perfect competition because there are many firms in the industry
ECON 1102 (Microeconomics) Test 4 (043015)

In ________ market structure, a firm's output depends ________.

A) an oligopoly; only on its own marginal revenue and marginal cost curves

B) a monopolistically competitive; in part on its competitors' price and quantity decisions

C) an oligopoly; in part on its competitors' price and quantity decisions

D) a monopolistically competitive; only on its marginal revenue curve

ECON 001 Lecture Notes - Lecture 13: Monopolistic Competition, Demand Curve, Marginal Revenue

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