Powerpoint Chapter 12 - Monopolistic Competition

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Last updated 10:02 AM on 2/26/25
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13 Terms

1
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What are the key characteristics of Monopolistic Competition?

  • Relatively large number of sellers

  • Product Differentiation

  • Easy entry and exit

  • Nonprice Competition

2
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What is an example of nonprice competition?
Advertising.
3
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How is industry concentration measured in Monopolistic Competition?

By the 4-Firm Concentration Ratio and Herfindahl Index

4
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What is the formula for the 4-Firm Concentration Ratio?
Output of four largest firms divided by total output in the industry.
5
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What is the formula for the Herfindahl Index?

(%S1)2 + (%S2)2 + (%S3)2 + … + (%Sn)2

6
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What is the condition for a firm in Monopolistic Competition to produce efficiently in the short run?
Produce where Marginal Revenue (MR) equals Marginal Cost (MC).
7
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What occurs in the long run for firms in Monopolistic Competition?
Only a normal profit is achieved.
8
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What is the condition for productive inefficiency in Monopolistic Competition?
Price (P) is greater than Minimum Average Total Cost (ATC).
9
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What indicates allocative inefficiency in Monopolistic Competition?
Price (P) is greater than Marginal Cost (MC).
10
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How does Monopolistic Competition benefit consumers?
By offering a greater array of choices and better products.
11
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What impact does a higher minimum wage have on big hamburger chains?
It does not affect them much as they are capital intensive.
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Why might mom and pop restaurants be more negatively affected by a higher minimum wage?
They are labor intensive and may struggle to cover increased costs.
13
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Demand curve in Monopolistic Competition

Is highly elastic.