30 Questions
What is a characteristic of atomistic competition?
Many firms are operating in the market
What is the price elasticity of demand in a perfect competition market?
Infinite, 𝜖 = −∞
What happens to firms in a perfect competition market when the demand curve is flat?
They become price takers
What is the condition for a firm to operate at its Minimum Efficient Scale (MES)?
When the average cost curve is intersected by the marginal cost curve
What is the characteristic of a firm in a long-run perfect competition equilibrium?
It earns only normal profits
What is the relationship between the price and the average cost in a long-run perfect competition equilibrium?
P1 = AC1
What is the consequence of free entry-exit in a market?
Less efficient firms will leave the market
What assumption of perfect competition is challenged by the fact of product differentiation?
Products sold within an industry are homogeneous
Who published the book 'Economics of Imperfect Competition' in the 1930s?
Joan Robinson
What is the main characteristic of Monopolistic Competition, according to Edward Chamberlin?
Product differentiation is a common fact
What is meant by 'product differentiation' in the context of Monopolistic Competition?
Anything that makes buyers prefer one seller to another
What is the main objective of firms in a Monopolistic Competition market?
To maximize profits
What is the characteristic of the demand curve in the Monopolistic Competition model?
Downward sloping but very elastic
What happens to the individual demand curve as more firms enter the market?
It becomes tangent to the Average Cost curve
What is the characteristic of firms in the Long-run Monopolistic Competition equilibrium?
They produce below the Minimum Efficient Scale
What is the relationship between price and marginal cost in the Long-run Monopolistic Competition equilibrium?
P2 > MC2
What is the characteristic of the price determination in the Monopolistic Competition model?
The price is set as a mark-up over the marginal cost
What is the profit earned by firms in the Long-run Monopolistic Competition equilibrium?
Normal profits
What is the consequence of free entry-exit in a market?
Less efficient firms will leave the market
What is a characteristic of firms operating in monopolistic competition?
They produce below the minimum efficient scale
What is the implication of product heterogeneity in a monopolistic competition market?
Firms will produce differentiated products.
According to Chamberlin, what is the effect of product differentiation on society?
It is always welfare enhancing
According to Dixit and Stiglitz, what is the condition for the optimum level of product variety?
N* is smaller than N2.
What is the main difference between Chamberlin's and Dixit and Stiglitz's views on product differentiation?
Chamberlin thinks product differentiation is always good for society, while Dixit and Stiglitz think it has an optimum level
What is the title of the paper by Chamberlin (1950) referenced in the bibliography?
Product Heterogeneity and Public Policy.
What is the criterion used by Dixit and Stiglitz to evaluate the optimum level of product variety?
The society's total surplus, including consumer surplus and firms' profits
In what year was the paper 'When Product Variety Backfires' published?
2005
Which of the following sources provides information on the advantages and disadvantages of monopolistic competition?
Infobarrel (2012)
What is the possible outcome of the optimum level of product variety in monopolistic competition, according to Dixit and Stiglitz?
It might or might not coincide with Chamberlin's optimum level of product variety
What is the topic of the blog post by Isfahan (2013)?
Monopolistic Competition and Food
This quiz covers the concept of perfect competition in the short run, including the firm's individual demand curve, price takers, and price elasticity of demand.
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