1215

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

A) Allocative efficiency.

B) The availability of many close substitutes.

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.

1215

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) Extensive advertising to differentiate products.

C) Zero economic profits in the long run.

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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.

1215

A market that is characterized by monopolistic competition is least likely to feature:

A) a small number of independent sellers.

B) low barriers to entry.

C) sellers that produce a differentiated product.

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In monopolistic competition, there is a large, not small, number of independent sellers.

1215

Under which type of market structure are the production and pricing alternatives of a firm most affected by the decisions of its competitors?

A) Monopolistic competition.

B) Oligopoly.

C) Perfect competition.

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An oligopoly market structure is characterized by a small number of firms producing similar or differentiated products, with a high degree of interdependence among competitors. Each firm’s optimal price and output are strongly affected by the pricing and output decisions of its competitors.

1215

The type of economic market that features a large number of competitors offering differentiated products is best characterized as:

A) perfect competition.

B) oligopoly.

C) monopolistic competition.

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Monopolistic competition is used to describe markets where there are a large number of competitors producing differentiated products.

In perfect competition all firms produce identical products. In an oligopoly there is a small number of firms.