Entry into monopolistic competition is:
Answer(s): D
Choice "d" is correct. The characteristics of monopolistic competition include:· Numerous firms with differentiated products.· Ease of entry - few barriers.· Firms exact some influence over price and market.· Non-price competition is frequent and critical.Choice "a" is incorrect. Monopolistic competition has a few obstacles. A market with no obstacles is in perfect competition.Choice "b" is incorrect. Significant obstacles are characteristic of oligopoly. Choice "c" is incorrect. Significant capital requirements represent a significant barrier to entry, which is characteristic of oligopoly.
In markets that are imperfectly competitive, such as monopoly and monopolistic competition, firms produce at an output where:
Choice "d" is correct. Firms produce up to the point where marginal cost equals marginal revenue, whether the markets are perfectly competitive or imperfectly competitive. Choice "a" is incorrect. Very close, but it's actual marginal revenue, not price. It is assumed that revenue is not fixed on a unit basis.Choice "b" is incorrect. Beyond the point of average costs being minimized, marginal cost will rise. Still, it will make sense to increase production until marginal cost equals marginal revenue. Choice "c" is incorrect. Marginal revenue, not price, as revenue is assumed to vary on a per unit basis, and not average cost, since it will increase profits to expand production until marginal revenue equals marginal cost.
Monopolistic competition is characterized by:
Answer(s): A
Choice "a" is correct. Monopolistic competition is characterized by a relatively large number of sellers who produce differentiated products. There are few barriers to entry and firms exert some influence over the price and the market. Best examples are brand name consumer products. Choice "b" is incorrect. Relatively few sellers with differentiated products would indicate an oligopoly.Choice "c" is incorrect. One company would be a monopoly, two an oligopoly. Choice "d" is incorrect. A relatively large number of sellers and a standardized product indicates perfect competition.
An industry that is oligopolistic would be best characterized by:
Answer(s): B
Choice "b" is correct. Oligopoly market conditions are characterized by:· Few firms in the market· Significant barriers to entry· Differentiated products· Fixed (or semi fixed) prices· Kinked demand curvesChoice "a" is incorrect. This is an example of monopoly. Choice "c" is incorrect. Horizontal demand curves represent demand that is perfectly price elastic (buyers will only pay one price for any quantity of a product). This occurs in perfectly competitive markets.Choice "d" is incorrect. This is characteristic of perfect competition, as there are no barriers to entry ("size doesn't matter") in perfect competition.
The kinked demand curve is associated with:
Choice "d" is correct. The demand curve for any individual oligopolist is kinked sharply downward. This occurs because, in oligopoly market conditions, the other firms in the market will match any price reduction so they do not lose market share but will not match any price increase of an individual firm.Therefore, for the individual firm attempting to raise its prices beyond equilibrium, consumers will quickly buy from other firms in the market and demand will drop off sharply creating a kinked demand curve.Choices "a", "b", and "c" are incorrect, per the above Explanation.
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