Question

the typical firm in the United States economy

(x) has some degree of market power.

(y) sells its product for a price that is equal to the marginal cost of producing the last unit.

(z) is imperfectly competitive.

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (y) only

2. Which of the following statements is (are) correct?

(x) Monopolistic competitive markets consist of many sellers with differentiated products.

(y) Product differentiation occurs when firms create product differences with the use of style, color, quality, service and location.

(z) The presence of product differentiation for each firm allows each firm to sell a unique product that is a close substitute for the product that each of the other firms is producing.

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (z) only

3. Which of the following statements about monopolistic competitive markets is (are) correct?

(x) The market consists of many sellers that can easily enter or exit the industry since there is an absence of any significant barriers to entry.

(y) The "monopoly" in monopolistically competitive markets is most likely a result of product differentiation and that differentiation is the reason that monopolistic competitive firms face downward sloping demand and marginal revenue curves like a monopoly firm.

(z) The use of the word "competition" in the name of the market structure called "monopolistic competition" refers to the fact that monopolistically competitive firms are large in number for a particular market and there is easy entry and exit in that market just like in a competitive market.

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (y) only

Answer 1

(1) (C)

In the US, the typical firm is imperfectly competitive, so has some market power and faces a downward sloping demand curve.

(2) (A)

All options are correct. Product differentiation makes firm demand curves downward sloping.

(3) (A)

All options are correct.