Page 196 - DECO101_MICRO_ECONOMICS_ENGLISH
P. 196

Unit 12: Monopolistic Competition




          12.7 Review Questions                                                                 Notes

          1.   Which of the following are examples of product differentiation in monopolistic competition
               and why?
               (a)   new and improved packaging
               (b)  lower price

               (c)   acceptance of more credit cards than the competition
               (d)   location of the retail store
          2.   What will happen as a result of the increase in the degree of product differentiation among
               the products sold in a monopolistically competitive industry?

          3.   What would happen as a result in a case where a monopolistically competitive seller can
               convince buyers that his/her product is of better quality and value than products sold by
               rival fi rms?
          4.   What single circumstance in monopolistic competition best explains the nature of the
               industry’s relatively elastic demand curve in the market?

          5.   Think and answer – does the insurance industry have monopolistic competition – why/
               why not?
          6.   If all firms in a monopolistic competitive industry were to merge would that fi rm produce

               as many different brands or just one brand?
          7.   “In the long run, there is no difference between monopolistic competition and perfect
               competition.” – true, false, or ambiguous. Discuss this statement with respect to the
               following:
               (a)   The price charged to consumers - true
               (b)   The average total cost of production - false

               (c)  The efficiency of the market outcome - ambiguous

               (d)  The typical fi rm’s profit in the long run hide problem- true

          8.   Do airlines fit into the concept of monopolistic competition? Why or why not?
          9.   Why or why should not be the monopolistic competition regulated?
          10.   If the market became competitive, what would happen to output and price?

          11.   Discuss the main features of monopolistic competition. Complement your answer with
               real world example.

          12.   Suppose a monopolistic firm has average revenue functions in three markets as follows:
                 P  = 63 - 4Q          where Q , Q  and Q  are quantities sold
                  1        1                  1  2    3
                 P  = 105 - 5Q         in three markets.
                           2
                  2
                 P  = 75 - 6Q 3
                  3
                 The total cost function is C = 20 + 5 Q, where Q = Q  + Q  + Q .
                                                          1   2   3

               Find out the profit maximising output and price in the three markets. Also estimate demand
               elasticities.
          13.   If all the brand names of essential drugs are abandoned, what will be the impact on the
               society?





                                           LOVELY PROFESSIONAL UNIVERSITY                                   191
   191   192   193   194   195   196   197   198   199   200   201