Question

1) All other things equal, firms with __________ will not change prices very often. low menu...

1) All other things equal, firms with __________ will not change prices very often.

low menu costs

high menu costs

price leadership

large network effects

market power

2)If new firms enter a monopolistically competitive industry, what happens to the demand for the product made by an existing firm?

demand will become more inelastic

demand will become perfectly elastic

demand will increase and become more elastic

demand will decrease and become more elastic

3) What is a characteristic seen in both perfect competition and monopolistic competition?

collusion among firms

many producers

firms selling identical products

barriers to entry

4) Consider perfect competition and monopolistic competition. In which market structure(s) will we see differentiated products?

Perfect competition

Monopolistic competition

Both of the above

None of the above

5)Consider perfect competition and monopolistic competition. In which market structure(s) will we see identical products being produced by all firms?

Perfect competition

Monopolistic competition

Both of the above

None of the above

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Homework Answers

Answer #1

Ans.1- (B)

A menu cost is the cost incurred by a firm through changing its price. If there is high menu cost firm will not want to change price too often .

Ans.2- (D)

When new firms enter a Monopolistically competitive industry, more substitutes are available for the same good so total demand will be divided between new and old firms leading to a lower demand for existing firms. Moreover, since more substitutes are available so demand will become more elastic.

Ans.3- (B)

There are many producers in both perfect competition and Monopolistically competitive industry.

Ans.4- (B)

Perfectly competitive firms produce homogeneous products whereas Monopolistically competitive firms produce differentiated products.

Ans.5- (A)

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