Review of Monopolistic Competition

These flashcards cover key concepts related to monopolistic competition, including firm behavior, profit maximization, and market characteristics.

What is the main characteristic of monopolistic competition?

Many firms compete by selling similar, but not identical, products.

What happens to economic profit in the long run for a monopolistically competitive firm?

It tends to zero as new firms enter the market.

How can a monopolistically competitive firm maximize profit in the short run?

It should produce until marginal revenue equals marginal cost (MR = MC).

What are the two types of efficiency discussed in relation to perfect competition?

Productive efficiency and allocative efficiency.

How does advertising benefit a monopolistically competitive firm?

It increases demand and helps differentiate products, allowing for higher prices.

What is the effect of product differentiation in monopolistic competition?

It enables firms to charge higher prices due to perceived uniqueness.

What is an example of a firm in the third wave coffee industry?

Blue Bottle Coffee.

What is brand management?

Actions taken to maintain the differentiation of a product over time.

Why do firms in monopolistic competition not achieve allocative efficiency?

Because they produce where price does not equal marginal cost.

What can firms do to avoid zero economic profit in the long run?

Innovate to reduce costs or enhance product perception through marketing.