Monopolistic Competition

Flashcards covering key concepts in monopolistic competition as outlined in the chapter.

What is monopolistic competition?

A market situation in which a large number of firms produce similar but not identical products.

What are the key characteristics of a monopolistically competitive industry?

Large number of small firms, differentiated products, easy entry and exit, advertising and sales promotion.

What does product differentiation refer to?

The distinguishing of products by brand name, color, and other minor attributes.

In monopolistic competition, how does the demand curve behave?

The firm's demand curve slopes downward, giving it some control over the price it charges.

What is the long-run implication for economic profits in monopolistic competition?

Economic profits will tend toward zero due to new firm entry and competition.

Why are brand names important in monopolistic competition?

Because they serve as valuable private property, contributing to firm profitability and consumer recognition.

What are 'search goods'?

Products whose quality can be evaluated before purchase, like clothing or music.

What are 'experience goods'?

Products that must be consumed to evaluate their quality, such as soft drinks or movies.

What type of advertising is intended to induce purchase?

Persuasive advertising.

What occurs in the short-run equilibrium for a monopolistic competitor?

It is possible to make economic profits or losses in the short run.

What happens to a monopolistic competitor in the long run?

Price adjusts to equal average total cost, resulting in zero economic profit.

How does advertising function in a monopolistically competitive market?

It can increase demand, differentiate products, and potentially lead to increased profits.