Micro Chapter 13

The difference between monopolistic competition and pure competition is that in comparison to pure competition, monopolistic competition has more firms, no product differentiation, no price control, and relatively easy but not barrier-free entry. fewer firms, product differentiation, some price control, and relatively easy but not barrier-free entry. more firms, product differentiation, some price control, and barrier-free entry. fewer firms, product differentiation, some price control, and barrier-free entry.

The difference between monopolistic competition and pure monopoly is that in comparison to monopolistic competition, pure monopoly has at least one competitor, a patented product, little price control, and few entry barriers. at least one firm, a patented product, some price control, and few entry barriers. one firm, a unique product, price control, and entry barriers. one firm, a patented product, some price control, and entry barriers.

Product differentiation describes registered differences in product characteristics. is usually nonexistent. provides an advantage in the market. only occurs when there is brand loyalty.

Firms will enter a monopolistically competitive industry when there are normal profits. This will shift demand to the left, reducing the market share and the economic profit. normal profits. This will shift demand to the right, reducing the market share and the economic profit. economic profits. This will shift demand to the left, reducing the market share and the economic profit. any profits. This will shift supply to the right, increasing the market share and the profit.

"Monopolistic competition is monopolistic up to the point at which consumers become willing to buy close-substitute products and competitive beyond that point." This statement recognizes that products of monopolistically competitive firms are usually preferred by consumers, giving them monopoly power; however, consumers will seek substitutes if the price is too high, making them competitive. may be preferred by consumers, giving them monopoly power; however, consumers will seek substitutes if the price is too high, making them competitive. may or may not be viewed as different from the product of a monopoly. have to be limited in supply for the firm to experience monopoly power.

"Competition in quality and service may be just as effective as price competition in giving buyers more for their money." This statement is true when all firms charge a similar price. when quality and price are consistent across products. if producers face similar costs. if consumers value quality and service more than a lower price.

Monopolistically competitive firms frequently prefer nonprice to price competition because nonprice competition shifts both the demand and MC curves upward to the right. this results in a smaller output, a higher price, and more economic profits. price competition can lead to lower economic profit or even loss. the decrease in demand allows the firm to raise its price with less fear of losing customers.

In monopolistically competitive industries, economic profits are competed away in the long run; hence, there is no valid reason to criticize the performance and efficiency of such industries. In monopolistically competitive industries economic profits might be diminished and there will be productive inefficiency. economic profits might be diminished, but there will be productive efficiency. economic profits might be increased, but there will be productive inefficiency. economic profits might be increased and there will be productive efficiency.

"In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits." This statement is false since P < MC, but the lack of available close substitutes pushes the price of the average firm up until it equals ATC. false since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC. true since P < MC, but the lack of available close substitutes pushes the price of the average firm up until it equals ATC. true since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC.

There might be a temptation to cheat on the collusive agreement because each firm could increase its profit even more by secretly charging less than the agreed upon price. increase its profit even more by secretly charging more than the agreed upon price. lower its cost by secretly charging less than the agreed upon price. increase market share even more by secretly charging less than the agreed upon price.

The kinked-demand curve for oligopolists assumes that rivals will match price increases but ignore price cuts. match price cuts and price increases. match price cuts but ignore price increases. not match price cuts or price increases.

There is a gap in the oligopolist's marginal-revenue curve because the cost of production changes abruptly. the price drops abruptly. the slope of the demand curve changes abruptly. the price rises abruptly.

The kinked-demand curve explains price rigidity in oligopoly because firms will not agree to a given price. firm revenue will fall as the price falls. firms agree to a given price. firms expect any change in price will lower revenue and profit.

Shortcomings of the kinked-demand model include a lack of explanation for how the initial price is set. the allowance for collusion. the allowance for price leadership. a lack of explanation for how the final price is set.

Price collusion occurs in oligopolistic industries because price competition results in economies of scale. price competition can lower revenue for all firms. costs are similar among firms. price competition results in diseconomies of scale.

Assess the economic desirability of collusive pricing. Collusive pricing is economically desirable from the oligopoly's viewpoint because it results in monopoly profits. Collusive pricing is economically desirable from society's viewpoint because it is a capital drain. Collusive pricing is not economically desirable from society's viewpoint because the price equals average total cost. Collusive pricing is not economically desirable from the oligopoly's viewpoint because it cannot control entry.

This is because price leadership is an agreement, whereas price fixing is not. a registered arrangement subject to oversight, whereas price fixing is not. not a registered arrangement subject to oversight, whereas price fixing is. not an agreement, whereas price fixing is.

Advertising is an important aspect of monopolistic competition and oligopoly because brand distinction encourages consumer loyalty, increasing profits. there is product homogeneity in these industries. price changes are not allowed. there are significant substitution possibilities in these industries.

Advertising promotes efficiency and benefits consumers by providing information about new products, reducing the number of firms in the industry, and raising the average revenue. providing information about new products, increasing sales and output, and lowering average total cost. helping consumers determine their preferences and limiting the number of products firms have to produce. helping consumers determine their preferences and increasing the number of products firms have to produce.

Which of the following statements is true? Persuasive advertising can be important in encouraging new entry into the industry. Persuasive advertising can increase brand loyalty, encouraging new entry into the industry. Excessive advertising can decrease brand loyalty, encouraging new entry into the industry. Persuasive advertising can be excessive, creating a barrier to entering the industry.