Question

11.Which of the following is not a true statement about oligopoly and monopolistic competition?

1. Entry and exit is easy in monopolistically competitive firms but it is not easy in oligopoly firms.
2. In the long run, monopolistically competitive firms do not earn economic profits, but oligopoly firms might in many situations.
3. Both types of firms have a marginal revenue function that lies below the demand function.
4. The tit for tat strategy applies to both market forms.

Answer 1

D. The tit for tat strategy applies to both market forms.

Explanation :

There are many firms in monopolistic competition and free entry and exit. In oligopoly there are few firms and entry is not easy. In long run monopolistically competitive firm earns zero economic profit but oligopoly can earn positive economic profit in long run in some situations.

Both kind of firm has some market power so they face downward sloping demand curve and marginal revenue curve is below the demand curve.

Tit for tat is the game theory strategy and that can not be apply on monopolistically competitive firms because there are many firms. It only apply for oligopoly.