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Micro Economics

Notes Equilibrium: Condition when the firm has no tendency either to increase or to contract its

output.
Monopolistic competition: the form of imperfect competition that exists when there are many
producers or sellers of similar but differentiated goods or services.
Product differentiation: Differences among competing products.
Profi t: Difference between total revenue and total cost.

12.6 Self Assessment

State whether the following statements are true or false:
1. 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.

2. 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.

3. A firm under monopolistic competition does not enjoy monopoly profits in the long run

even though it charges monopoly price.
4. Selling costs cannot change, and create demand curves.

5. Monopolistic competition is identified by a few firms producing a slightly differentiated

product.
6. Under monopolistic competition the firm has not the ability to collude with respect to

price.
7. If a large number of firms are competing, the market could be monopolistic competition or

monopoly.

8. Both monopolistic competition and perfect competition have firms that are price takers.

9. Because of the number of firms in monopolistic competition no one firm can dominate the

market.
10. Identical product is a characteristic of monopolistic competition.
11. Product differentiation involves making a product that is completely different from the
products of competing fi rms.
Fill in the blanks:
12. In monopolistic competition the relative market share of all sellers are .........................
13. Under monopolistic competition, the demand or AR curve of an individual firm is a

gradually ....................... curve.

14. As the firm’s AR curve is falling, the price is ......................... than marginal revenue.
15. In the long run equilibrium output of the individual firm is ......................... than optimum

output.
16. The assumed demand curve is ......................... than the actual demand curve.

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