Page 188 - DECO405_MANAGERIAL_ECONOMICS

Unit 11: Monopolistic Competition

11.6 Self Assessment Notes

1. State true or false for the following statements:
(a) In a monopolistic market, the demand for the product of one producer depends
upon the price and the nature of the products of his rivals.
(b) A firm in the long-run under monopolistic competition earns high profits like that
in perfect competition but only the price is higher and output lower.

(c) A firm under monopolistic competition does not enjoy monopoly profits in the
long run even though it charges monopoly price.
(d) Selling costs cannot change, and create demand curves.
(e) Monopolistic competition is identified by a few firms producing a slightly
differentiated product.
(f) Under monopolistic competition the firm has not the ability to collude with respect
to price.
(g) If a large number of firms are competing, the market could be monopolistic
competition or monopoly.

(h) Both monopolistic competition and perfect competition have firms that are price
takers.
(i) Because of the number of firms in monopolistic competition no one firm can dominate
the market.
(j) Identical product is a characteristic of monopolistic competition.
(k) Product differentiation involves making a product that is completely different from
the products of competing firms.

2. Fill in the blanks:
(a) In monopolistic competition the relative market share of all sellers are .....................
(b) Under monopolistic competition, the demand or AR curve of an individual firm is
a gradually ....................... curve.
(c) As the firm's AR curve is falling, the price is ......................... than marginal revenue.
(d) In the long run equilibrium output of the individual firm is ......................... than
optimum output.

(e) The assumed demand curve is ......................... than the actual demand curve.

11.7 Review Questions

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?

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