Monopolistic Competition Analysis

Additional firms will enter the industry.

As the number of firms increases, the prices charged decrease.

The equilibrium occurs when price equals average cost.

<p>Firms have an incentive to enter the industry.</p> Signup and view all the answers

<p>A firm assumes it can differentiate its product from that of competitors.</p> Signup and view all the answers

<p>Trade increases market size, which decreases average costs.</p> Signup and view all the answers

<p>As the number of firms increases, an individual firm's sales are expected to decrease.</p> Signup and view all the answers

<p>'Q' represents an individual firm's sales.</p> Signup and view all the answers

<p>Firms have an incentive to exit the industry.</p> Signup and view all the answers

<p>Increased variety enhances consumer welfare.</p> Signup and view all the answers

<p>As the average price charged by competitors increases, a firm's sales are expected to increase.</p> Signup and view all the answers

<p>The average cost increases as the number of firms increases.</p> Signup and view all the answers

<p>The PP curve shows price decreases with more firms, while the CC curve shows average cost increases with more firms.</p> Signup and view all the answers

<p>'b' is a constant that represents the responsiveness of a firm's sales to its price.</p> Signup and view all the answers

<p>An increase in total sales decreases the average costs for each firm.</p> Signup and view all the answers

<p>Firms may charge similar prices due to symmetric characteristics, such as facing the same demand and cost functions.</p> Signup and view all the answers

<p>It leads to lower average costs as firms can produce more.</p> Signup and view all the answers

<p>Six firms.</p> Signup and view all the answers

<p>$8,750.</p> Signup and view all the answers

<p>$8,000.</p> Signup and view all the answers

<p>2.5 million automobiles.</p> Signup and view all the answers

<p>Ten firms.</p> Signup and view all the answers

<p>250,000 automobiles.</p> Signup and view all the answers

<p>Larger market sizes typically support more firms.</p> Signup and view all the answers

<p>An integrated market provides consumers with a wider range of choices and allows firms to produce more at lower prices.</p> Signup and view all the answers

<p>Intra-industry trade involves two-way exchanges of similar goods, and it is significant because it enhances variety and lowers prices while allowing firms to benefit from economies of scale.</p> Signup and view all the answers

<p>Smaller countries tend to gain more from market integration due to their ability to consolidate production and effectively utilize economies of scale.</p> Signup and view all the answers

<p>About 25–50% of world trade is classified as intra-industry trade.</p> Signup and view all the answers

<p>Intra-industry trade is more prevalent in advanced industrial nations because they have industries that depend on skilled labor, technology, and physical capital.</p> Signup and view all the answers

<p>For a monopolistic firm, marginal revenue is always less than the price.</p> Signup and view all the answers

<p>Marginal cost is the cost of producing an additional unit of output, and it is significant because a monopolistic firm will maximize profit where marginal revenue equals marginal cost.</p> Signup and view all the answers

<p>As output increases, average cost decreases due to internal economies of scale.</p> Signup and view all the answers

<p>The shaded rectangle represents the monopoly's profits, calculated as the difference between price and average cost times the quantity sold.</p> Signup and view all the answers

<p>Fixed costs are expenses that do not change with output levels, contributing to total costs as F + c(Q).</p> Signup and view all the answers

<p>In this equation, A represents the maximum quantity demanded and B indicates how much demand decreases with an increase in price.</p> Signup and view all the answers

<p>A monopolistic firm determines its profit-maximizing output level by producing where marginal revenue equals marginal cost.</p> Signup and view all the answers

<p>Average cost declines as output increases due to the effects of internal economies of scale.</p> Signup and view all the answers

<p>The worst-performing firms are forced to exit the market, while the best-performing firms expand and take advantage of new sales opportunities.</p> Signup and view all the answers

<p>Firm 1, with a lower marginal cost, sets a lower price and produces more output, resulting in higher operating profits than Firm 2.</p> Signup and view all the answers

<p>Operating profits decrease as a firm's marginal cost increases, and firms with marginal costs above a certain threshold cannot operate profitably.</p> Signup and view all the answers

<p>Only a subset of firms export because exporters are usually larger and more productive, with lower marginal costs, making it profitable to do so despite trade costs.</p> Signup and view all the answers

<p>Firm 2 does not choose to export due to the trade cost being higher than the potential profits, making export unprofitable.</p> Signup and view all the answers

<p>The highest performing industries were Metalworking Machinery and Inorganic Chemicals, both scoring 0.97.</p> Signup and view all the answers

<p>Increased competition leads to the exit of low-performing firms and expansion of high-performing firms, thus improving overall industry performance.</p> Signup and view all the answers

<p>A firm's ability to operate profitably depends on keeping marginal costs below a certain threshold; if costs exceed this threshold, the firm cannot sustain profitability.</p> Signup and view all the answers