It is closer in spirit to a perfectly competitive market, but because of product differentiation, firms have some control over price. For example, consumer electronics can easily be physically differentiated. In long-run equilibrium monopolistic competition entails: A an efficient allocation of resources. D the marginal cost curve facing an existing firm shifts downwards. Why does a shift in perceived demand cause a shift in marginal revenue? Each firm wants to earn maximum profit.
D perfectly elastic demand curve. The profit-maximizing output for this firm will be: A 210. The demand curve faced by a perfectly competitive firm is perfectly elastic, meaning it can sell all the output it wishes at the prevailing market price. Which of the following statements is correct? Note that economic profits are not the same as ; a firm that posts a positive can have zero economic profit, since the latter incorporates. The equilibrium point for the firm is at price P and quantity Q and is denoted by point A. Critics of market-oriented economies argue that society does not really need dozens of different athletic shoes or breakfast cereals or automobiles. Oligopoly: definition; characteristics 89-112 6.
This uncertainty results from imperfect information: the average consumer does not know the precise differences between the various products, or what the fair price for any of them is. Because the products all serve the same purpose, there are relatively few options for sellers to differentiate their offerings from other firms'. Thus these rival firms will have no reason to react. In other words, large sellers selling the products that are similar, but not identical and compete with each other on other factors besides price. B both productive efficiency and allocative efficiency. Flag this QuestionQuestion 21ptsUnder monopolistic competition, firms produceidentical products. If the product is differentiated, we have a differentiated oligopoly.
If there are only two sellers, we have a duopoly. It will reduce the volume of output, prices will increase and the loss making situation will be converted into normal profit. As a matter of fact other factors on the basisof which the firms compete include advertising, product quality and other marketing strategies. More Elastic Demand: Under monopolistic competition, demand curve is more elastic. This new form involved one firm testing the waters by announcing a price change and then U.
The conductor and Tchaikovsky would have had three-years rather than 10-year jail sentences if they had not falsely confessed, but the scenario was such that, individually, false confession was rational. Perceived Demand for Firms in Different Competitive Settings. Advertising Year End Trends Report 2012. The final columns of show total cost, marginal cost, and average cost. The economic losses lead to firms exiting, which will result in increased demand for this particular firm, and consequently lower losses. B many producers of a differentiated product. Thus, a monopolistically competitive industry will produce a lower quantity of a good and charge a higher price for it than would a perfectly competitive industry.
In this case the price of the product of the firm is determined by its cost function,demand, its objective and certain government regulations, if there are any. However, because barriers to entry are low, other firms have an incentive to enter the market, increasing the competition, until overall economic profit is zero. And each firm determines its own price-output policy without considering the reactions of rival firms. The of monopolistic competition is elastic because although the firms are selling differentiated products, many are still close substitutes, so if one firm raises its price too high, many of its customers will switch to products made by other firms. C always produce differentiated products. C If there are short-run losses firms will leave the industry and the demand curves of the remaining firms will shift to the left. Oligopolistic competition occurs when entry and exit barriers are very high, thereby limiting the number of competitors.
C is a pure monopoly. It is quite popular in industries like cigarette industry. For, clearly, if each of two rivals makes equal efforts to attract the favour of the public away from the other, the total result is the same as it would have been if neither had made any effort at all. If your favorite multipurpose surface cleaner suddenly costs 20% more, you probably won't hesitate to switch to an alternative, and your countertops probably won't know the difference. C the demand curve facing an existing firm shifts to the right.
D have excess production capacity. In order to explain this characteristic of price rigidity i. D until economic profits are zero. B greater the degree of product differentiation. C normal profit is zero and price equals marginal cost.
In the long run a monopolistically competitive firm: A earns an economic profit. Consequently, the marginal revenue will be lower for each quantity sold—and the marginal revenue curve will shift to the left as well. We can conclude that this industry is: A a pure monopoly. Many of these differences are perceived, rather than true, and consumers and business lack perfect information about each other. Demand is not perfectly elastic because a monopolistic competitor has fewer rivals than would be the case for , and because the products are differentiated to some degree, so they are not perfect substitutes.