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1.Why is it that firms can earn profits in the long run inmonopoly and oligopoly but not in monopolistic competition andperfect competition?

2. As an industry moves from being a monopoly to a monopolisticallycompetitive one (due to the entry of new competitors as themonopoly's patents expire, for example), what happens to theelasticity of the demand curve facing the firm? Why?

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Kritika Krishnakumar
Kritika KrishnakumarLv10
28 Sep 2019
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Related questions

1 How does monopolistic competition differ from the pure competition in its basic characteristics? From pure monopoly? Explain fully what product differentiation may involve. Please explain how the entry of firms into its industry affects the demand curve facing a monopolistic competitor and how that, in turn, affects its economic profit.

2 "Competition in quality and service may be just as effective as price competition in giving buyers more for their money." Do you agree? Why? Explain why monopolistically competitive firms frequently prefer nonprice to price competition.

3 Critically evaluate and explain:
a. In monopolistically competitive industries, economic profits compete away in the long run; hence, there is no valid reason to criticize such industries' performance and efficiency.
b. In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits.

1a. Compare the characteristics of monopoly, oligopoly, and monopolistic competition. 

1b. Compare the demand curves for Monopoly (M), Oligopoly (O), and Monopolistic Competition (MC) in terms of their steepness and elasticity. What about their characteristics might make cause this to occur? 

1c. Firms experience losses, normal profits, and economic profits. Explain why M and O tend to experience economic profits in the long run. 

1d. Explain why MC can experience economic profits in the short run but not the long run. 

1e. Compare MC and pure competition in terms of normal profits in the long run. Why must this occur? (10)

 

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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