ECON 1050 Chapter Notes - Chapter 14: Monopolistic Competition, Marginal Cost, Perfect Competition

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burgundywolf182

4 Dec 2016

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Monopolistic competition is a market structure in which: large number of firms compete, each firm produces a differentiated product, firms compete on product quality, price, and marketing. No one firm can influence the price of the price of a product because each firm supplies a small part of the total industry output. Each firm must be sensitive to average market price of the product, not another competitors price. Not possible for all firms to band up and raise price because there"s too many firms. Product differentiation is when a firm makes a product that is slightly different than the products of competitors. Quality is physical attributes that make a firm"s product distinct. Marketing that suits the price and quality to make product worth buying. Monopolistic competition has no barriers to prevent entry. Each firm in monopolistic competition produces the profit maximizing quantity just like a monopoly does. Profit maximizing might be loss minimizing in short run.

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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.

lavenderbat941

If I were to open a business, I would choose the monopolistic competitive market.

Under monopolistic competition, with low barriers to entry and low capital requirements, firms are free to enter into or exit from the industry at any time. In addition, in monopolistic competition, large numbers of sellers offer closely related but not homogeneous products. This is the reason why each firm has a limited share of the market and has limited control over the market price. Thus, changes in one firmâs output have only a slight impact on market price or it also means that firms in monopolistic competition are price setters rather than price takers. In the short run, firms can make excess economic profits. However, as barriers to entry are low, other firms have an incentive to enter the market, increasing the competition, until overall economic profit is zero.

In order to yield the greatest profit, a firm engaged in monopolistic competition will focus on product quality, location, service, and advertising, since the major tool of competition is product differentiation. For example, if I opened a restaurant, the restaurant would have a menu with different dishes and different prices to other restaurants nearby and the prices of the dishes also would depend on its location, the food ingredients, the food quality, and the speed of service. With the purpose of gaining profit for the restaurant, I would try to be dynamically efficient, innovative and develop new ways to attract and retain local custom as well as maintain cost efficiency, which could keep the cost below the average profit.

I need a peer reply for this discussion and it should be 250 at least

bronzefrog162

ECON 1050 Chapter Notes - Chapter 14: Monopolistic Competition, Marginal Cost, Perfect Competition

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