Imperfect Competition Overview
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Questions and Answers

What is the total revenue when selling 10 books at a price of $10 each?

  • $200
  • $50
  • $100
  • $150 (correct)

    • What does the formula for profit indicate when average total cost (ATC) equals price (P)?

  • Total revenue exceeds total costs.
  • Profit is maximized.
  • Profit equals zero. (correct)
  • There is a loss.

    • If the average total cost (ATC) is $20 and the price is also $20, what is the profit for selling 10 units?

  • $0 (correct)
  • $10
  • $200
  • $50

    • Given that quantity (Q) is 10 and the total cost (TC) is equal to $200, what is the average total cost (ATC) per unit?

    <p>$20</p> Signup and view all the answers

    How would a change in the selling price from $10 to $15 impact total revenue when selling 10 books?

    <p>Total revenue would increase to $200.</p> Signup and view all the answers

    How does monopolistic competition differ from perfect competition?

    <p>Monopolistic competition includes product differentiation.</p> Signup and view all the answers

    What is a shared characteristic of both monopolistic competition and perfect competition?

    <p>Freedom of entry and exit.</p> Signup and view all the answers

    Which of the following statements is true regarding monopolistic competition?

    <p>It does not consider the output levels of competitors.</p> Signup and view all the answers

    In monopolistic competition, product differentiation is primarily used to:

    <p>Create a competitive advantage over similar products.</p> Signup and view all the answers

    Which of the following best describes firms in a monopolistic competition market?

    <p>There is a large number of firms producing unique products.</p> Signup and view all the answers

    What is a significant advantage of monopolistic competition over perfect competition?

    <p>Increased product variety available to consumers.</p> Signup and view all the answers

    Which of the following is NOT a characteristic of monopolistic competition?

    <p>Product homogeneity.</p> Signup and view all the answers

    What factor most influences price setting in monopolistic competition?

    <p>Market demand for differentiated products.</p> Signup and view all the answers

    What characterizes monopolistic competition?

    <p>It consists of many small firms.</p> Signup and view all the answers

    What is an example of an industry that typically features oligopoly?

    <p>Airlines</p> Signup and view all the answers

    Which of the following best describes product differentiation?

    <p>Firms create unique products and set their own prices.</p> Signup and view all the answers

    What do firms engage in to attract customers in imperfect competition?

    <p>Non-price competition</p> Signup and view all the answers

    What is indicated by a high level of industrial concentration?

    <p>A few firms hold a significant share of the market.</p> Signup and view all the answers

    In which market structure do firms set their own prices?

    <p>Monopolistic competition</p> Signup and view all the answers

    Non-price competition can involve which of the following?

    <p>Advertising and product quality</p> Signup and view all the answers

    Imperfect competition can be defined as:

    <p>A market structure with a few firms having significant market power.</p> Signup and view all the answers

    Which of these industries is NOT typically associated with monopolistic competition?

    <p>Airlines</p> Signup and view all the answers

    What happens when market demand shifts in an imperfectly competitive market?

    <p>Firms adjust their output levels.</p> Signup and view all the answers

    What is the shape of the demand curve in a monopolistic market?

    <p>Downward sloping</p> Signup and view all the answers

    In a monopolistic market, profit is maximized where marginal revenue equals what?

    <p>Marginal cost</p> Signup and view all the answers

    What happens to firm profits in the short run if new firms enter a monopolistic market?

    <p>Profits decrease due to increased competition</p> Signup and view all the answers

    What does excess capacity in a monopolistic market imply about production levels?

    <p>Firms operate below their maximum output</p> Signup and view all the answers

    In the long run, what happens to demand in a monopolistic market as more firms enter?

    <p>Demand decreases</p> Signup and view all the answers

    At what output level does marginal cost equal average total cost in a monopolistic market?

    <p>At the break-even point</p> Signup and view all the answers

    If the average total cost (ATC) touches the demand curve at a certain quantity, what does this indicate?

    <p>Normal profit</p> Signup and view all the answers

    What characterizes firm entry into a monopolistic market in the long run?

    <p>Decrease in economic profit</p> Signup and view all the answers

    What do monopolistic firms aim to achieve by differentiating their products?

    <p>Increase market share</p> Signup and view all the answers

    Which condition must a monopolistic firm meet to maximize profit?

    <p>Price must exceed average total cost</p> Signup and view all the answers

    What is the result of a downward sloping demand curve for monopolistic firms?

    <p>Firms must lower prices to sell more</p> Signup and view all the answers

    In a monopolistic market, how does the long-run equilibrium differ from perfect competition?

    <p>Firms earn zero economic profit</p> Signup and view all the answers

    What is a key feature of monopolistic competition regarding product differentiation?

    <p>Products are considered close substitutes</p> Signup and view all the answers

    Under what condition is a monopolistically competitive firm most likely to expand its production?

    <p>When it can increase product differentiation</p> Signup and view all the answers

    Study Notes

    Imperfect Competition

    • Imperfect competition falls between perfect competition and monopolies
    • Monopolistic Competition: Many small firms, e.g., restaurants, hair salons
    • Oligopoly: A few large firms, e.g., airlines
    • Industrial Concentration: Measures market power distribution among firms; a few firms control a large share of the market.
    • Product Differentiation: Firms offer unique products; firms can adjust their prices
    • Firms adjust output based on demand shifts
    • Firms need to stand out from the competition with quality and advertising

    Similarities Between Monopolistic and Perfect Competition

    • Freedom of entry and exit
    • Do not consider the outputs of other firms

    Monopolistic Competition-Graphically

    • Works like a monopoly but demand is downward sloping (DC)
    • Short Run: Produce where marginal cost equals marginal revenue
    • Long Run: Firms may earn 0 profit; excess capacity; demand shifts to touch the average total cost curve
    • Note: The provided image shows a graph illustrating the profit-maximizing point (where MR=MC) and calculates the profit based on price (P) and average total cost (ATC).

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    Description

    Explore the nuances of imperfect competition, which includes monopolistic competition and oligopolies. Understand how firms differentiate their products, adjust output based on demand, and what this means for market dynamics. This quiz also highlights similarities between perfect competition and monopolistic competition.

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