Monopolistic Competition Quiz

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Questions and Answers

What is monopolistic competition?

  • A type of monopoly where there is only one producer in the market
  • A type of perfect competition with few producers competing against each other
  • A type of imperfect competition with many producers competing against each other (correct)
  • A type of oligopoly where there are only a few producers in the market

What makes products sold by companies in monopolistic competition imperfect substitutes?

  • They are complementary to each other
  • They are differentiated from one another (correct)
  • They are identical to each other
  • They are substitutes for each other

What do companies in monopolistic competition do with spare capacity?

  • They use it to produce more products
  • They give it away for free
  • They sell it to other companies
  • They maintain it (correct)

When does monopolistic competition fall into government-granted monopoly?

<p>When there is a coercive government present (A)</p> Signup and view all the answers

What industries are often modeled using the theory of monopolistic competition?

<p>Restaurants, cereals, clothing, shoes, and service industries in large cities (A)</p> Signup and view all the answers

Who is considered the 'founding father' of the theory of monopolistic competition?

<p>Edward Hastings Chamberlin (B)</p> Signup and view all the answers

What are the characteristics of monopolistically competitive markets?

<p>Product differentiation and many companies (B)</p> Signup and view all the answers

What types of products do monopolistically competitive companies sell?

<p>Products that have real or perceived non-price differences (C)</p> Signup and view all the answers

Why are monopolistically competitive companies inefficient?

<p>Because they foster advertising (B)</p> Signup and view all the answers

Flashcards

Monopolistic Competition

A type of imperfect competition where many producers compete, selling differentiated products.

Imperfect Substitutes

They are differentiated from one another, offering unique features or branding.

Spare Capacity

They maintain it to accommodate unexpected increases in demand.

Government-Granted Monopoly

When a coercive government is present, which can create artificial barriers to entry.

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Industries Using Monopolistic Competition

Restaurants, cereals, clothing, shoes, and service industries in large cities.

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Founding Father of Monopolistic Competition

Edward Hastings Chamberlin is considered the founding father of the theory.

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Characteristics of Markets

Product differentiation and the presence of many companies.

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Products Sold by Companies

Products that have either real or perceived non-price differences.

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Inefficient Companies

Because they foster advertising, which can lead to higher costs without necessarily providing additional value to consumers.

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Study Notes

Monopolistic competition of differentiated products that are not perfect substitutes

  • Monopolistic competition is a type of imperfect competition with many producers competing against each other.
  • Products sold by these companies are differentiated from one another, making them imperfect substitutes.
  • Companies maintain spare capacity and ignore the impact of their own prices on the prices of other companies.
  • Monopolistic competition falls into government-granted monopoly when in the presence of a coercive government.
  • Models of monopolistic competition are often used to model industries such as restaurants, cereals, clothing, shoes, and service industries in large cities.
  • The "founding father" of the theory of monopolistic competition is Edward Hastings Chamberlin.
  • Monopolistically competitive markets have the following characteristics: product differentiation, many companies, freedom of entry and exit, independent decision making, market power, imperfect information, and inefficiency.
  • MC companies sell products that have real or perceived non-price differences.
  • There are many companies in each MC product group, giving each company a small market share.
  • Each MC company independently sets the terms of exchange for its product.
  • MC companies have some degree of market power, although relatively low, and face a downward sloping demand curve.
  • Monopolistically-competitive companies are inefficient, foster advertising, and are allocative-inefficient.

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