3.5.4 Monopolistic competition

• Monopolistic competition is characterized by many firms and high product differentiation
• How many firms typically exist in monopolistic competition?

  Many
• What happens to profit in the long run in monopolistic competition?

  Normal
• Low barriers to entry are a characteristic of monopolistic competition.

  True
• In monopolistic competition, firms produce at a lower output level than the socially optimal level
• What are common methods of non-price competition?

  Advertising and customer service
• Match the method of non-price competition with its example:

  Product Differentiation ↔️ Apple's innovative designs

  Advertising ↔️ Coca-Cola's marketing strategies

  Customer Service ↔️ Amazon's customer care services

  Loyalty Programs ↔️ Starbucks Rewards
• In monopolistic competition, firms earn positive economic profits in the short run but normal profits in the long run
• Monopolistic competition results in a deadweight loss for society.


  True
• Monopolistic competition involves a single firm in the market

  False
• In monopolistic competition, firms earn normal profits in the long run.
• Monopolistic competitors have significant pricing power

  False
• In monopolistic competition, firms achieve normal profits in the long run.
• The deadweight loss in monopolistic competition is smaller than in a monopoly


  True
• Product differentiation is a common example of non-price competition, where firms make their products unique.
• Non-price competition builds brand loyalty and sustainable competitive advantages


  True
• In the long run, firms in monopolistic competition earn normal profits due to low barriers to entry.
• Firms in monopolistic competition produce at the lowest point of their average cost curve

  False
• Monopolistic competition trades efficiency for product differentiation.
• Match the market structure with its long-run profit level:

  Perfect Competition ↔️ Zero profit

  Monopolistic Competition ↔️ Normal profit

  Monopoly ↔️ Supernormal profit
• What is the key characteristic of monopolistic competition?

  Differentiated products
• Barriers to entry in monopolistic competition are high.

  False
• Monopolistic competition has less pricing power than a monopoly.


  True
• Compared to perfect competition, monopolistic competition has product differentiation and some pricing power
• What is the profit-maximizing condition for a firm in monopolistic competition?

  MR = MC
• The deadweight loss in monopolistic competition is greater than in a monopoly.

  False
• Order the characteristics of monopolistic competition compared to perfect competition:

  1️⃣ Higher prices

  2️⃣ Lower output

  3️⃣ Positive profits in both short and long run
• What is the key characteristic of monopolistic competition regarding the products offered?

  Differentiated products
• What type of barriers to entry exist in monopolistic competition?

  Low barriers
• How does monopolistic competition differ from perfect competition in terms of product differentiation?

  Product differentiation exists
• What is the number of firms in monopolistic competition?

  Many firms
• Why do monopolistic competitors set a lower price compared to a monopoly?

  To compete with others
• What is the strategy where firms attract customers through means other than lowering prices?

  Non-price competition
• What is an example of non-price competition through advertising?

  Coca-Cola's marketing campaigns
• How does the short-run equilibrium in monopolistic competition differ from the long-run equilibrium in terms of price?

  Price decreases in long run
• What type of deadweight loss occurs in monopolistic competition compared to perfect competition?

  Smaller deadweight loss
• Why are firms in monopolistic competition not allocatively efficient?

  Price exceeds marginal cost
• What type of market structure has homogeneous products and no barriers to entry?

  Perfect competition