ECON 1050 Chapter Notes - Chapter 14: Monopolistic Competition, Product Differentiation

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7 Dec 2015

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Each firm has a small market share and so limited market power to influence the price of it"s product. Each firm is sensitive to the average market price but pays no attention to the actions of others. So no one firm"s actions directly affect the actions of others. Collusion or conspiring to fix prices is impossible. A firm in monopolistic competition practices product differentiation if the firm makes a product that is slightly different from the products of competing firms. Product differentiation enables firms to compete in three areas: quality, price, and marketing: Because firms produce differentiated products, the demand for each firm"s product is downward sloping. But there is a tradeoff between price and quality. Because products are differentiated, a firm must market its product. Monopolistic competition is a market structure in which: Firms compete on product quality, price, and marketing. Firms are free to enter and exit the industry.

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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.

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.

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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ECON 1050 Chapter Notes - Chapter 14: Monopolistic Competition, Product Differentiation

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