Monopolistic Competition Quiz

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Questions and Answers

In monopolistic competition, what characterizes each firm's product?

  • Each firm's product is at least somewhat different from every other firm's product (correct)
  • Each firm's product is of higher quality than every other firm's product
  • Each firm's product is cheaper than every other firm's product
  • Each firm's product is identical to every other firm's product

What characterizes an oligopolistic industry?

  • It is composed of a single firm selling a unique product in a specific market
  • It is composed of numerous small firms selling similar products in the same market
  • It is composed of a few large firms selling similar products in the same market (correct)
  • It is composed of numerous small firms selling identical products in different markets

What happens to economic profits in long-run equilibrium under monopolistic competition?

  • Economic profits decrease due to the downward-sloping demand curve
  • Free entry eliminates economic profits by forcing the firm's demand curve into a position of tangency with its average cost curve (correct)
  • Economic profits increase due to the downward-sloping demand curve
  • Economic profits remain constant regardless of market conditions

How do firms in an oligopoly often behave towards their rivals' decisions?

<p>Carefully watch the major decisions of its rivals and often plans counterstrategies (C)</p> Signup and view all the answers

What are the different models of oligopoly behavior mentioned in the text?

<p>Ignore interdependence and maximize profits, form a cartel, and engage in price leadership (B)</p> Signup and view all the answers

Flashcards

Monopolistic Competition

An industry structure where each firm offers a somewhat different product.

Oligopolistic Industry

An industry characterized by a few large firms selling similar products.

Long-run Equilibrium in Monopolistic Competition

Economic profits are eliminated due to free entry, aligning demand with average costs.

Oligopoly Behavior

Firms closely monitor and strategize around rivals' decisions.

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Models of Oligopoly Behavior

Includes ignoring interdependence, forming cartels, and price leadership.

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