Question 1

Comment on the following statement. "Monopolistically competitive firms will still produce in the short run even if the demand curve is below their average variable cost curve because the firms still maintain a degree of market power."

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Question 2

Explain the characteristics of monopolistic competition. Explain how price and output are determined in monopolistic competition. Illustrate your answer with a graph.

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Question 3

Comment on the following statement: "The demand facing a firm in perfect competition is less elastic than the demand facing a firm in monopolistic competition."

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Question 4

Explain why demand for a monopolistically competitive firm's product is more elastic than the demand curve that a monopolist faces.

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Question 5

Explain what should happen to the demand curve of monopolistically competitive firms as consumers increasingly perceive their products to be more like commodities. What industrial structure does this lead to?

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Question 6

Draw a graph showing the demand curve faced by a perfectly competitive firm. On the same graph, draw the demand curve faced by a monopolistically competitive firm.

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Question 7

Compare perfect competition and monopolistic competition. In what ways are they similar? In what ways are they different?

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Question 8

Using Figure 15.1, identify which demand curve would belong to that of a purely competitive firm and which would belong to a monopolistically competitive firm and explain your reasoning.

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Question 9

It is often argued that gas stations operate inefficiently because they have "excess capacity" in the form of more pumping stations than they would otherwise need if they were operating under conditions of perfect competition. However, can you think of any reason why a gas station franchise owner would wish to install more pumps than he knows will rarely if ever be fully utilized at any one time? Can you explain the economic logic of this "apparent" wastefulness?

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Question 10

If you travel to Mexico you will often see currency exchange businesses along the way as you approach the border. Even though each of these businesses is essentially "selling" the same product (i.e. Mexican pesos) how is it that some of them are able to charge more for the peso than others?

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Question 11

Comment on the following statement and evaluate it. "Differentiating a product separates you from your competitors so the market will see you as delivering unique benefits. But you don't want to be too different."

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Quiz 15: Monopolistic Competition