ECON101 Lecture : Chapter 14 - Monopolistic Competition.docx

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peachotter364

15 Dec 2013

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Corey Van De Waal

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ECON101 Full Course Notes

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Firms compete on a product quality, price and marketing. Firms are free to enter and leave the industry. When there are a lot of competing firms. Each firm has a small market share therefore limited market power to influence its product"s price. Each firm is sensitive to the average market price, but they do not pay attention to the actions of others. Therefore no one directly affect the actions of others. Conspiring to fix prices (or collusion) is impossible. Perfect differentiation happens when a firm makes a product that is slightly different from the products of competing firms. Product differentiation allows firms to compete in 3 areas: quality, price, and marketing. Demand for each individual product (by firm) is downward sloping creates a tradeoff between price and quality. A firm must market its product marketing is in two forms: advertising and packaging. There are no barriers to entry so firms cannot make an economic profit in the long run.

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.

Homework help

12) Which of the following types of economic regulation is most likely to encourage firms to engage in cost cutting? A) entry and output restrictions B) rate of return regulation C) price cap regulation D) None of the above encourages cost cutting.

13) In monopolistic competition, firms compete on the basis of A) price only. B) price, quality, and marketing.
C) marketing only. D) quality and marketing, but not price.

14) Which of the following statements is FALSE concerning monopolistic competition? A) There are many firms. B) Firms sell a differentiated product. C) Each firm's actions influence rival firms. D) Firms are free to enter and exit.

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.

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ECON101 Lecture : Chapter 14 - Monopolistic Competition.docx

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