Monopolistically competitive firms are similar to monopolies in that they have:

5 answers
Question:

Monopolistically competitive firms are similar to monopolies in that they have:

Answers

1. Faces a downward-sloping demand curve  

BOTH MONOPOLIES AND MONOPOLISTICALLY COMPETITIVE FIRMS HAVE A DOWNWARD SLOPING DEMAND CURVE

2. Has marginal revenue less than price  

ONLY MONOPOLIES

3. Faces the entry of new firms selling similar products  

NEITHER, SINCE MONOPOLISTICALLY COMPETITIVE FIRMS OFFER DIFFERENTIATED PRODUCTS, NEW COMPETITORS WILL NOT OFFER SIMILAR PRODUCTS. MONOPOLIES HAVE THE ADVANTAGE OF BARRIER ENTRIES THAT PREVENT NEW FIRMS FORM ENTERING THE MARKET.

4. Earns economic profit in the long run  

ONLY MONOPOLIES, BECAUSE MARKET BARRIERS PREVENT NEW FIRMS FROM ENTERING THE MARKET.

5. Equates marginal revenue and marginal cost  

BOTH MONOPOLIES AND MONOPOLISTICALLY COMPETITIVE FIRMS MAXIMIZE ACCOUNTING PROFITS AT THIS POINT

6. Produces the socially efficient quantity of output

NEITHER

A. Faces the entry of new firms selling similar products.

A firm in monopolistic competition faces the entry of new firms selling similar products

B. Produces at the minimum average total cost in the long run.

A firm in perfect competition produces at the minimum average total cost in the long run

C. Equates marginal revenue and marginal cost.

Both a firm in monopolistic competition and a firm in perfect competition equate marginal revenue and marginal cost

D. Has marginal revenue less than price.

A firm in monopolistic competition has marginal revenue less than price

E. Faces a horizontal demand curve.

monopolistic competition firm must be operating on the elastic portion of its demand curve

F. Earns economic profit in the long run.

A monopoly firm earns economic profit in the long run

c. (i) and (ii) only

Explanation:

Monopolistic competition characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors.

A monopoly is a market situation in which there is only one seller of a product which has no close substitute. It is a market in which one firm has the prevailing power in the industry.

A firm in a monopolistically competitive market is similar to a monopoly in the sense that (i) they both face downward-sloping demand curves. (ii) they both charge a price that exceeds marginal cost.

The correct answer is c. both a monopoly and a competitive firm.

Explanation:

Monopolistic competition is an imperfect type of competition in which there is a high number of sellers in the market that have a certain power to influence the price of their product.

The products offered are characterized by having some differentiation and it is precisely this differentiation that makes these companies enjoy a certain market power, have a certain voice when it comes to setting their prices and are not merely "price-acceptors", as in the case of perfect competition. Therefore, the graphic representation of monopolistic competition will be that of the right, imperfect competition.

Answer 3

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