The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
-Why is a firm in a monopolistically competitive industry considered a "mini" monopoly?
A)There are large number of sellers in the market.
B)Each firm in monopolistic competition is a price taker.
C)The product of each firm is unique in some way or the other.
D)Each firm faces a perfectly elastic demand curve.
E)There exists a large number of close substitutes of the products.

Question

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
  D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
-Why is a firm in a monopolistically competitive industry considered a "mini" monopoly?
A)There are large number of sellers in the market. 
B)Each firm in monopolistic competition is a price taker. 
C)The product of each firm is unique in some way or the other. 
D)Each firm faces a perfectly elastic demand curve. 
E)There exists a large number of close substitutes of the products.

Quizplus · Accepted Answer

A firm in a monopolistically competitive industry is considered a "mini" monopoly because the product of each firm is unique in some way or the other, leading to some degree of market power and the ability to set prices above marginal cost. However, this market power is limited by the presence of close substitutes, which makes the demand curve downward sloping but still relatively elastic compared to a pure monopoly. Therefore, a firm in a monopolistically competitive industry can earn short-run economic profits, but these profits will be competed away in the long run as new firms enter the market or existing firms improve their products to better compete with each other.

The Figure Given Below Shows the Cost and Revenue Curves