# Monopolistic Competition and Oligopoly MC

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question
Mutual interdependence means that a firm's
behavior is affected by other firms' actions
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Suppose that entry of firms into the industry changes this firm's demand schedule from columns 1 and 3 to columns 2 and 3. Maximum economic profit will decrease to
\$35 find TR for all based on Price (2) and Quantity (3) find EP by Subtracting TC from TR so EP=TR-TC the largest EP is the maximum economic profit
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In monopolistic competition, a firm has a limited degree of "price making" ability. This means that the firm will
Set price above marginal cost
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In which industry is monopolistic competition most likely to be found?
Retail
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The consumer wifi service providers market is best described as a
Differentiated oligopoly
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excess capacity implies
productive inefficiency
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If columns 1 and 3 are this firm's demand schedule, the profit maximizing level of output will be
4 units based on price (1) and quantity (3) find TR Next, find EP by TR-TC highest number EP gives profit maximizing level then find corresponding output
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What will be the economic profit or loss for this monopolistically competitive firm at the level of profit-maximizing level of output
find TR then EP and largest number give profit maximizing
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Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to
Shift to the right
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In an oligopolistic market there is likely to be
neither allocative nor productive efficiency
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One difference between monopolistic competition and pure competition is that
there is some control over price in monopolistic competition
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Under oligopoly if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will
decided to increase ads even if it means a reduction in profits
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If curve (2) represents ATC and line (3) represents demand, then curve (1) and line 4 would be
MC and MR
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in the long run, the representative firm in monopolistic competition tends to have
excess capacity
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If columns 1 and 3 are this firms demand schedule, then economic profit will be
80 find TR find EP=TR-TC
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At long run equilibrium in monopolistic competition there is
neither allocative nor productive efficiency
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A monopolistically competitive industry is like a purely competitive industry in that
neither industry has significant barriers to entry
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In which market model is there mutual interdependence
oligopoly
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monopolistic competitive firms are productively inefficiency because production occurs where
average total cost is not at its lowest causing DWL
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mutual interdependence means that each firm in an oligopoly
considers the reactions of its rival when it determines its pricing policy
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Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because
product differentiation allows each firm some degree of monopoly power
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Under monopolistic competition, entry to the industry is
more difficult than under pure competition but not nearly as difficult as under pure monopoly
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A major distinction between a monopolistically competitive firm and an oligopolistic firm is that
a recognized interdependence exists between firms in one industry and not in the other
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in which set of market models are there the most significant barriers
oligopoly and pure monopoly
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In monopolistic competition there is an under-allocation of resources at the profit-mamimizig level of output which means that
Price is greater than MC
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At the profit maximizing level of output, marginal revenue is
find TR find EP based on largest Ep then find the MR \$4
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The long run equilibrium price and output for this firm will be
A and D where demand = lowest ATC so P=ATC = normal profits
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A cartel is
a formal agreement among firms to collude
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This firm is
in short run equilibrium but not long run
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The downward sloping demand curve of a monopolistic competitor