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Homework answers / question archive / The difference between monopolistic competition and perfect competition is that In perfect competition there are many buyers and sellers
The difference between monopolistic competition and perfect competition is that In perfect competition there are many buyers and sellers. In perfect competition there are high barriers to entry. Monopolistic competitive firms can earn economic profit in the long run. In monopolistic competition, firms products are differentiated. Question 2 (2 points) The four-firm concentration ratio in an industry is 35%. This industry can best be described as Perfect Competition Monopolistic Competition Oligopoly Monopoly
Question 3 (2 points) If a monopolistic competition advertises successfully, we expect Demand for the firm's product to increase. The price elasticity of demand for the firm's product to decrease. The profit maximizing price to increase. All of the above. Question 4 (2 points) If monopolistic competitors earn economic profit in the short run, we expect More firms to enter the market. Prices in the market to rise. The price elasticity of demand to lower. Companies to continue earning economic profit in the long run.
Question 5 (2 points) Advertising by monopolistic competition can be efficient if It helps solve information problems in the market. It convinces people to buy something they otherwise wouldn't. It allows firms to charge higher prices. Advertising can never improve efficiency in the market. Question 6 (2 points) A strategy that firms will follow no matter what other companies do is called a Nash equilibrium. Trigger strategy. Dominant strategy. Conditional strategy.
ANSWER 1 : (d) In monopolistic competition, firm's products are differentiated.
Product differentiation is one of the features of monopolistic competition, where products are differentiated from each other on the basis of quality or brand.
ANSWER 2 : (b) Monopolistic competition
The four firm concentration ratio is the percentage of value of sales accounted for by the four largest firms in the industry. A ratio of less than 40% is an indication of monopolistic competition.
Answer 3 : (d) All of the above
When a monopolistic competition advertises successfully, we expect the demand for its product to increase, a decrease in the price elasticity of demand for the product and an increase in the profit maximising price.
ANSWER 4 : (a) More firms to enter the market
In short run, monopolistic competition acts like a monopoly and are price makers. They raise the price in order to earn economic profit in short run. Because of the possibility of large profits in short run and relatively low barriers to entry, markets in monopolistic competition are very attractive to new future entrants.
ANSWER 5 : (c) It allows firm to charge a higher price
Advertising is commonly used by firms in monopolistic competition in order to create product differentiation and earn some degree of market control. Advertising is considered to be efficient only if it allows the firm to charge a higher price for the product.
ANSWER 6 : (c) Dominant strategy
In game theory, a dominant strategy is a optimal option for a firm among all other available strategies. The firms follow the dominant strategy no matter what other companies do.