1. How is "efficiency" in economics measured? Evaluate the efficiency of purely competitive firms.

2. Perhaps the most important feature of the monopolistically competitive market is product differentiation. Identify a monopoly that exists due to this reason, and explain why?

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Trinidad TremblayLv2

23 Jun 2019

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The statements below are about monopolistic competition. Indicate whether each statement is true or false by moving the true or false labels to the appropriate boxes.

1. A monopolistically competitive firm may be able to distinguish itself from other firms by adjusting the physical attributes of its product, by offering a distinctive level of service, or by selecting a convenient location. 2. Product differentiation enables a monopolistically competitive firm to have some control over the price of its product. 3. In the long run each monopolistically competitive firm produces a level of output that results in allocative efficiency. 4. In the long run each monopolistically competitive firm produces a level of output that results in productive efficiency. 5. To maintain a competitive edge and earn economic profits, a monopolistically competitive firm has an incentive to improve its product. 6. Compared with purely competitive markets, under monoplistic competition consumers with a diversity of tastes can benefit from the opportunity to choose from a greater range of products and services. 7. In order to maximize its profits, each monopolistically competitive firm must determine the price of its product, how to differentiate its product, and how much it will spend on advertising.

1. A perfectly competitive firm, monopolistically competitive firm and monopoly firm produce at the output where marginal revenue equals marginal cost (MR = MC) but only the perfectly competitive firm achieves allocative efficiency. Explain why this is the case
2. Explain whether you agree or disagree with the following statement. âThe concept of diminishing returns refers to a firm's long-run average cost increasing as output increases.â
3. What three main assumptions need to be satisfied if a market is to be described as perfectly competitive? Explain why each of these assumptions is important.
4. What is moral hazard? Explain using an example.

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.