1. Determine whether each of the following statements is true or false. If a statement is false, indicate why.
2. Monopolistic competition is more like monopoly than perfect competition.
3. Firms that price discriminate charge a higher price for customers with more elastic demand.
4. Collusion is easier if there are a small number of firms in the industry and large barriers to entry. Explain why this statement is true.
5. Why is advertising so important for a monopolistically competitive firm?

1. Refer to the chart above. Explain why this firm would operate at q2. You might also refer to the charts on pp. 343-344 in your text before answering the following.
2. What price would it be getting at this level of output?
3. What if any is this firm's profit?
4. Is this firm operating in the short run or long run?
5. Denny's and other restaurants frequently offer senior citizen discounts; restaurants near retirement communities often offer early bird specials. Which of these would be examples of price discrimination? Explain each.
6. Explain why innovation and product development are necessary for monopolistically competitive firms in order to enjoy economic profits.
7. One form of collusion among firms is a cartel. What are the chief goals of forming a cartel?
8. Oil producing Arab countries formed a cartel in the early 1970's. Why didn't it succeed in the long run (pg. 360)?

1. Use Figure 13.1, which shows the demand curve, marginal revenue curve, and cost curves of Lite and Kool, Inc., a producer of running shoes in monopolistic competition. At what quantity and at what price will this firm operate?
2. Refer to Figure 13.1 above. Assuming that the firm produces at an average total cost of $35 a pair, what is its economic profit?