37 What is one way in which monopolistic competition differs

37. What is one way in which monopolistic competition differs from perfect competition? a. In monopolistically competitive markets there are barriers to entry b. In monopolistically competitive markets all firms can eventually earn economic profits. c. In monopolistically competitive markets each of the sellers offers a somewhat different product. n monopolistically competitive markets strategic interactions between firms are vitally important. d. I 38. When a profit-maximizing firm in a monopolistically competitive market chargesa price higher than marginal cost, what must be the case? a. It must be losing money. b. It is violating Canadian competition policy c. There is a deadweight loss, but it is exactly offset by the benefit of excess capacity d. It is enjoying a markup over marginal cost. 39. What causes the deadweight loss that is associated with a monopolistically competitive market? a. b. c. d. excessive advertising costs price exceeding marginal cost price being equal to marginal cost price falling short of marginal cost in order to increase market share 40. For markets characterized by oligopoly, what do we know? The oligopolists are best off cooperating and behaving like a monopolist. Collusive agreements will always prevail. Collective profits are always lower with cartel arrangements than they are without cartel arrangements. Pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market. a. b. c. d. 41. How do equilibrium prices in markets characterized by oligopoly compare with those in monopolies and perfectly competitive markets? a. They are higher than in monopoly markets and higher than in perfectly competitive markets. b. They are higher than in monopoly markets and lower than in perfectly competitive markets. c. They are lower than in monopoly markets and higher than in perfectly competitive markets. d. They are lower than in monopoly markets and lower than in perfectly competitive markets. / 12

Solution

37. c in monopololistic market products sold are somewhat different.

38. c there is deadweight loss, but it is exactly offset by excess capacity.

39. b.price exceeding marginal cost due to monopoly power.

40. c.

41. c they are lower than in monopoly market due to high competition but higher than perfectly competitive markets because products in perfectly competitive markets are perfect substitute of each other.