honeycfa

Which one of the following structures is characterized by free entry and exit, a differentiated product, and price searcher behavior?

A) Oligopoly.

B) Pure competition.

C) Monopolistic competition.

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Monopolistic competition is another name for competitive price-searcher markets. There are a large number of independent sellers, each produces a differentiated product, each market has a low barrier to entry, and each producer faces a downward sloping demand curve.

honeycfa

Which one of the following is NOT a characteristic of monopolistic competition?

A) Low barriers to entry and exit.

B) A single seller.

C) Differentiated products.

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There are many sellers or producers who sell differentiated products that permit firms to attract customers without reducing price; and there are low barriers to entry.

honeycfa

Which of the following is least likely to be considered a feature that is common to both monopolistic competition and perfect competition?

A) Low or no barriers to entry.

B) Zero economic profits in the long run.

C) Extensive advertising to differentiate products.

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The only item listed in the question that monopolistic competition and perfect competition do not have in common is the use of advertising to differentiate their products. Extensive advertising is a key feature of monopolistic competition.

honeycfa

Which of the following is most likely to be considered a characteristic of monopolistic competition?

A) Differentiated products.

B) Inelastic demand curves.

C) High barriers to entry and exit.

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Differentiated products are a key characteristic of monopolistic competition. Although producers have downward sloping demand curves, they are typically elastic.

honeycfa

Which of the following most accurately describes why firms under monopolistic competition face elastic demand for their products?

A) The availability of many close substitutes.

B) Allocative efficiency.

C) High barriers to entry.

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The demand for products from firms competing in monopolistic competition is relatively elastic due to the availability of close substitutes. If a firm increases its product price, it will lose customers to firms selling slightly differentiated products at lower prices.