Perfect Competition: Short Run Firm
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Questions and Answers

What is a characteristic of atomistic competition?

  • A single firm has the power to influence the market price
  • Firms have imperfect information
  • Many firms are operating in the market (correct)
  • There are barriers to entry for new firms

    • What is the price elasticity of demand in a perfect competition market?

  • Infinite, 𝜖 = −∞ (correct)
  • Zero, 𝜖 = 0
  • Unit elastic, 𝜖 = 1
  • Relatively elastic, 𝜖 > 1

    • What happens to firms in a perfect competition market when the demand curve is flat?

  • They have a monopoly
  • They become price takers (correct)
  • They become price makers
  • They experience a decrease in revenue

    • What is the condition for a firm to operate at its Minimum Efficient Scale (MES)?

    <p>When the average cost curve is intersected by the marginal cost curve</p> Signup and view all the answers

    What is the characteristic of a firm in a long-run perfect competition equilibrium?

    <p>It earns only normal profits</p> Signup and view all the answers

    What is the relationship between the price and the average cost in a long-run perfect competition equilibrium?

    <p>P1 = AC1</p> Signup and view all the answers

    What is the consequence of free entry-exit in a market?

    <p>Less efficient firms will leave the market</p> Signup and view all the answers

    What assumption of perfect competition is challenged by the fact of product differentiation?

    <p>Products sold within an industry are homogeneous</p> Signup and view all the answers

    Who published the book 'Economics of Imperfect Competition' in the 1930s?

    <p>Joan Robinson</p> Signup and view all the answers

    What is the main characteristic of Monopolistic Competition, according to Edward Chamberlin?

    <p>Product differentiation is a common fact</p> Signup and view all the answers

    What is meant by 'product differentiation' in the context of Monopolistic Competition?

    <p>Anything that makes buyers prefer one seller to another</p> Signup and view all the answers

    What is the main objective of firms in a Monopolistic Competition market?

    <p>To maximize profits</p> Signup and view all the answers

    What is the characteristic of the demand curve in the Monopolistic Competition model?

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

    What happens to the individual demand curve as more firms enter the market?

    <p>It becomes tangent to the Average Cost curve</p> Signup and view all the answers

    What is the characteristic of firms in the Long-run Monopolistic Competition equilibrium?

    <p>They produce below the Minimum Efficient Scale</p> Signup and view all the answers

    What is the relationship between price and marginal cost in the Long-run Monopolistic Competition equilibrium?

    <p>P2 &gt; MC2</p> Signup and view all the answers

    What is the characteristic of the price determination in the Monopolistic Competition model?

    <p>The price is set as a mark-up over the marginal cost</p> Signup and view all the answers

    What is the profit earned by firms in the Long-run Monopolistic Competition equilibrium?

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

    What is the consequence of free entry-exit in a market?

    <p>Less efficient firms will leave the market</p> Signup and view all the answers

    What is a characteristic of firms operating in monopolistic competition?

    <p>They produce below the minimum efficient scale</p> Signup and view all the answers

    What is the implication of product heterogeneity in a monopolistic competition market?

    <p>Firms will produce differentiated products.</p> Signup and view all the answers

    According to Chamberlin, what is the effect of product differentiation on society?

    <p>It is always welfare enhancing</p> Signup and view all the answers

    According to Dixit and Stiglitz, what is the condition for the optimum level of product variety?

    <p>N* is smaller than N2.</p> Signup and view all the answers

    What is the main difference between Chamberlin's and Dixit and Stiglitz's views on product differentiation?

    <p>Chamberlin thinks product differentiation is always good for society, while Dixit and Stiglitz think it has an optimum level</p> Signup and view all the answers

    What is the title of the paper by Chamberlin (1950) referenced in the bibliography?

    <p>Product Heterogeneity and Public Policy.</p> Signup and view all the answers

    What is the criterion used by Dixit and Stiglitz to evaluate the optimum level of product variety?

    <p>The society's total surplus, including consumer surplus and firms' profits</p> Signup and view all the answers

    In what year was the paper 'When Product Variety Backfires' published?

    <p>2005</p> Signup and view all the answers

    Which of the following sources provides information on the advantages and disadvantages of monopolistic competition?

    <p>Infobarrel (2012)</p> Signup and view all the answers

    What is the possible outcome of the optimum level of product variety in monopolistic competition, according to Dixit and Stiglitz?

    <p>It might or might not coincide with Chamberlin's optimum level of product variety</p> Signup and view all the answers

    What is the topic of the blog post by Isfahan (2013)?

    <p>Monopolistic Competition and Food</p> Signup and view all the answers

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