Question

Answer the following questions.

1. Which of the following is a key difference between firms in a perfectly competitive industry and firms in a monopolistically competitive industry? (Choose only one)

a) A monopolistically competitive firm does not face entry from other firms.

b) A monopolistically competitive firm does not have the exact same product as other firms.

c) A monopolistically competitive firm does not choose a level of output where marginal cost is equal to marginal revenue.

d) A monopolistically competitive industry does not have a large number of sellers.

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2. Which of the following statements is correct? (Choose only one)

a) A perfectly competitive firm does not attempt to maximize profit.

b) A monopolistically competitive firm is guaranteed to make more than normal profits in the long run.

c) A monopolistically competitive firm faces competition from only a few firms.

d) A perfectly competitive firm does not face a downward-sloping demand curve.

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3. Oligopoly differs from monopolistic competition in that oligopoly (Choose only one)

a) the firms are not mutually interdependent with regard to price

b) the firms have relatively easy entry.

c) has many firms, whereas monopolistic competition has few firms.

d) has few firms, whereas monopolistic competition has many firms.

Answer 1

1. The key difference between the perfect competition and the monopolistic competition is that the monopolistic competition has the differentiated products while the perfectly competitive firms has identical products. The differentiated products in the monopolistic competition gives them a little market power.

Ans: b). A monopolistic competition does not have the exact same product as other firms.

2. The perfectly competitive firm obviously tries to maximize the profits so there is no question in that, in the monopolistic competition there is many sellers and buyers so the third option is incorrect also. The products in the perfect competition are identical so the should be facing a perfectly elastic demand curve and that would horizontal to the 'X' axis. So the firm does not have a downward sloping demand curve.

Ans: d). A perfectly competitive firm does not face a downward sloping demand curve.

3. In oligopoly there are only few firms and there is legal or natural barriers to entry as well. In the monopolistic competition there are many sellers in the market so the

Ans: d). has few firms ,where as monopolistic competition has many firms.