Question
Why do firms in monopolistic competition have market power? Firms in monopolistic competition sell differentiated goods, and consumers have preferences for some firms' goods over
- Why do firms in monopolistic competition have market power?
Firms in monopolistic competition sell differentiated goods, and consumers have preferences for some firms' goods over those of others.
There are many firms in monopolistically competitive markets, and each is small relative to the overall market.
Firms in monopolistic compeitition have few barriers to entry and exit.
This is a common misconception. They don't.
2.Suppose a bakery's fixed cost is the rent it pays for its location in a strip mall. Since firms have no fixed costs in the long run, this means the bakery can continue operating in its current location for free after enough time has passed.
True
False
3.Which of the following is true about the long run in a competitive industry?
The long run supply curve will tend to be moreelasticthan any short run supply curve.
There aremorefirms operating in the long run than in the short run because firms have more time to enter the industry.
Yearly profits arelowerin the long run than in the short run.
Yearly profits arehigherin the long run than in the short run.
4.Suppose cowboy boots and leather vests are complements. If the price of cowboy boots increases significantly, what should we expect to happen to thesupply curvefor leather vests in the short run?
We expect the supply curve to shift left.
We expect the supply curve to shift right.
We shouldn't expect anything in particular to happen to the supply curve.
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