18 Questions
What types of non-price competition are monopolistically competitive firms actively involved in?
Advertising, promotion, free gifts, after-sales service
What is essential for a new firm entering a monopolistically competitive market?
Innovation and ability to attract consumers
What are the types of profit that a firm in the short run can possibly achieve?
Supernormal profit, normal profit, subnormal profit
What types of products did the text mention in the context of non-price competition for monopolistically competitive firms?
Samsung smartphone and Blackberry smartphone
What creates preference among consumers and fosters consumer loyalty in monopolistically competitive markets?
Non-price competition
What characterizes the entry of new firms into a monopolistically competitive market?
No restrictions if they are innovative and can attract consumers
Which of the following is a distinct feature of oligopoly?
Mutual interdependence among firms
What is the main reason for the existence of barriers to entry in an oligopolistic market?
To protect the market power of existing firms
Which of the following is NOT a potential barrier to entry in an oligopolistic market?
Absence of government regulations
What is price leadership in an oligopolistic market?
A pricing strategy where one firm sets the price, and others follow
What is the primary concern for consumers regarding new firms entering an oligopolistic market for products like cars or TVs?
Availability of after-sales service and support
Which of the following is a characteristic of an oligopolistic market?
Firms produce differentiated products
In a perfectly competitive market, firms earn _____ in the long run.
normal profits
Which of the following statements about monopolistic competition is true?
There are many sellers, and products are differentiated.
In a monopoly market, a firm's pricing power allows it to earn _____ in the long run.
supernormal profits
Which of the following is NOT a characteristic of monopolistic competition?
Identical products
In a perfectly competitive market, the equilibrium output of a firm ($Q_c$) is _____ than the equilibrium output of a monopolist ($Q_m$).
greater
Which of the following is an example of a monopolistically competitive market?
The market for instant noodles
Study Notes
Oligopoly
- Firms in an oligopolistic market are interdependent, meaning their decisions on price, output, advertisements, and marketing are influenced by their rivals.
- Price leadership occurs when one firm determines the price and other firms follow.
- Collusion is an agreement among producers to decide the price and output level.
- Barriers to entry include:
- Economies of scale, which allow established firms to lower prices below those of new rivals.
- The need for new firms to introduce their products and attract consumers through advertising, resulting in high production costs.
- The difficulty of providing extensive service networks for products like cars and TVs.
- Consumer loyalty to established brands due to variations in products.
- Non-price competition is used to attract buyers and create brand loyalty, including advertisements, promotions, free gifts, and after-sales service.
Monopolistic Competition
- A monopolistically competitive market has many sellers and buyers, with each firm producing a slightly different product.
- Characteristics of a monopolistically competitive market include:
- Many sellers and buyers, with no individual firm able to influence the market price.
- Close substitutes, with products differing in terms of brand name, quality, label, packaging, and design.
- No barriers to entry or exit, but new firms must be innovative and create a new product that can attract consumers.
- Profit maximization in a monopolistically competitive firm can result in supernormal profit, normal profit, or subnormal profit (loss) in the short run.
- In the long run, the perfectly competitive firm earns only normal profit, while the monopolist earns supernormal profit.
Test your understanding of the output and profit differences between perfect competition and monopoly market structures. Explore concepts like equilibrium output, normal profit, and supernormal profit.
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