DeVry University, Chicago

ECON ECON312

chapter 12

1)What are the major features of monopolistic competition compared to pure competition and pure monopoly?

2. “Pure competition or pure monopoly industries will tend to be one-price industries. Monopolistic competition, however, is a multiprice industry.” Explain.

3. How does economic rivalry take place in monopolistic competition? Describe the different aspects of product differentiation and price competition.

4. What are types of firms that exemplify monopolistic competition?

5. A monopolistically competitive firm is producing 50 units of output in the short run where marginal cost is $3.00, average total costs are $5.00, price is $4.50, average variable cost is

$4.00, and marginal revenue is $3.00. How much profit is the firm making? What output recommendation would you make for the firm?

6. If monopolistically competitive firms have some control over their prices, why don’t they set price above average total cost so they will realize an economic profit in the long run?

7. What are two real-world complications with the long-run conclusion about the representative firm in the model of monopolistic competition?

8. Why do monopolistically competitive firms spend funds for product differentiation and advertising when this practice only adds to the firm’s costs?

9. Explain how monopolistically competitive producers try to improve on the condition of just breaking even in the long run. Is this improvement a benefit for consumers?

10. Explain why the economic analysis of monopolistic competition is so complex.

11. What are the basic characteristics of oligopoly? How does oligopoly compare with the other market structures?

12. Explain in nontechnical terms why oligopolistic prices may tend to be inflexible.

13. Describe the essential features of the kinked-demand model of oligopoly pricing.

14.  Explain the collusive pricing model of oligopoly behavior.

15. What obstacles might a group of oligopolists encounter in forming a cartel? A tacit understanding?

16. What is the price leadership model of oligopoly pricing and what are its tactics?

17. Why is there emphasis on nonprice competition in oligopoly?

18. Describe the positive and negative views of the economics of advertising.