True or False: Because a monopolist is able to charge a higher price than a perfectly competitive firm, his marginal revenue is higher than what a perfectly competitive firm’s would be.
True or False: Because a monopolist is able to charge a higher price than a perfectly competitive firm, his marginal revenue is higher than what a perfectly competitive firm’s would be.
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1. Which of the following is a firm in a perfectly competitive market?
1) a local corn farmer
2) the Tennessee Valley Authority, a large electricity producer that serves areas of five states
3) pizza delivery
4) a grocery store
5) Kate Spade, fashion designer
2. Compare a perfectly competitive market with a monopolistically competitive market.
The markup the firm charges in a monopolistically competitive market is ___________ the markup charged by a firm in a perfectly competitive market.
The firm's excess capacity in a monopolistically competitive market is ___________ the firm's excess capacity in a firm in a perfectly competitive market.
The efficiency of a monopolistically competitive market is ___________ the efficiency of a perfectly competitive market.
| 1)greater than; less than; greater than |
| 2)greater than; greater than; less than |
| 3)less than; less than; greater than |
| 4)greater than; less than; equal to |
3. In the long run, how is price related to marginal cost in both perfect competition and in monopolistic competition?
| 1) The long-run price is driven to marginal cost in both competitive markets and markets that are monopolistically competitive. |
| 2 )Both markets can charge more than the marginal cost in the long run because products are differentiated in both markets. |
| 3) Products are identical in perfectly competitive markets, so a firm must charge less than the marginal cost in order to differentiate itself. This is not true in monopolistically competitive markets where firms can charge more than marginal cost. |
| 4) Because monopolistically competitive firms have market power, they set a price higher than marginal cost, while competitive firms cannot. |
4. Titleist has an advertising slogan is "The #1 ball in golf" Consumers can also buy generic golf balls. The manufacturers of generic golf balls do not engage in any advertising. Assume that the average total cost of producing Titleist and generic golf balls is the same.
Which producer has a stronger incentive to maintain quality control in the production of golf balls?
| 1) Titleist |
| 2) a manufacturer of generic golf balls |
