question archive The statements below are about monopolistic competition
The statements below are about monopolistic competition
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The statements below are about monopolistic competition. Indicate whether each statement is true or false.
1. A monopolistically competitive firm may be able to distinguish itself from other firms by adjusting the physical attributes of its product, by offering a distinctive level of service, or by selecting a convenient location.
2. Product differentiation enables a monopolistically competitive firm to have some control over the price of its product.
3. In the long run, each monopolistically competitive firm produces a level of output that results in allocative efficiency.
4. In the long run, each monopolistically competitive firm produces a level of output that results in productive efficiency.
5. To maintain a competitive edge and earn economic profits, a monopolistically competitive firm has an incentive to improve its product.
6. Compared with purely competitive markets, under monoplistic competition, consumers with a diversity of tastes can benefit from the opportunity to choose from a greater range of products and services.
7. In order to maximize its profits, each monopolistically competitive firm must determine the price of its product, how to differentiate its product, and how much it will spend on advertising.
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1.
True. Product differentiation is an essential practice of a monopolistically competitive firm. Businesses in monopolistically competitive market make differences between the goods of their rivals and their products. This practice can be achieved through after sales service, branding, performance, and quality of service.
2.
True. Product differentiation enables monopolistic competitive companies to increase the price without losing loyal clients.
3.
False. Monopolistic competitive businesses are allocative inefficient because the price is greater than the marginal cost. (P > MC).
4.
False. Monopolistic competitive businesses are productive inefficient they do not run at the lowest point of the average cost curve.
5.
True. Improving the quality of product enables a monopolistic competitive firm to draw more clients.
6.
False. Purely competitive markets have more sellers than monopolistic competition markets. Thus, consumers have a wide variety of choice under purely competitive markets than the monopolistic competition.
7.
True. Price, advertising, quantity, and product differentiation plays an important role in profit maximization of monopolistic competition firms.
