Which of the following statements correctly identifies a difference between monopoly and monopolistic competition?

Choose 1 answer:

A There are many buyers in monopoly, but there are only a few buyers in monopolistic competition.
(B) The demand curve is downward sloping in monopoly, but not in monopolistic competition.
(C) There are barriers to entry in monopoly, but not in monopolistic competition.
(D) There is only one firm in monopoly, but there are a few firms in monopolistic competition.
(E) The monopoly firm charges a markup, but a monopolistically competitive firm does not.

Question

Which of the following statements correctly identifies a difference between monopoly and monopolistic competition?

Choose 1 answer:

A There are many buyers in monopoly, but there are only a few buyers in monopolistic competition.
(B) The demand curve is downward sloping in monopoly, but not in monopolistic competition.
(C) There are barriers to entry in monopoly, but not in monopolistic competition.
(D) There is only one firm in monopoly, but there are a few firms in monopolistic competition.
(E) The monopoly firm charges a markup, but a monopolistically competitive firm does not.

Accepted Answer

∻Solution∻ ### Question 1: Nash Equilibrium in a Duopoly ‖ a ⋮ Definition of Nash Equilibrium: A Nash equilibrium occurs when each firm chooses the best strategy given the strategy chosen by the other firm. ‖ ‖ b ⋮ Application to Prairie Glen and Mountain View: In the context of Prairie Glen and Mountain View selling flavored fizzy water, a Nash equilibrium would be a set of pricing or production strategies where neither firm can increase its profit by unilaterally changing its strategy. ‖ ‖ c ⋮ Example: If both firms decide to set a high price, and neither can increase profit by lowering the price while the other keeps it high, this is a Nash equilibrium. ‖ ### Question 2: Impact of Violating a Collusive Agreement ‖ a ⋮ Definition of Collusion: Collusion occurs when firms in a duopoly agree to set prices or output levels to maximize joint profits. ‖ ‖ b ⋮ Impact of Violation: If one firm, say Mike's Munchies, violates the collusive agreement by lowering its price, it can temporarily increase its market share and profits. However, this can lead to a price war, reducing industry profits in the long run. ‖ ‖ c ⋮ Example: If Mike's Munchies lowers its price, Frida's Foods may respond by also lowering its price, leading to lower profits for both firms. ‖ ### Question 3: Difference Between Monopoly and Monopolistic Competition ‖ a ⋮ Correct Answer: The correct answer is (C) There are barriers to entry in monopoly, but not in monopolistic competition. ‖ ‖ b ⋮ Explanation: In a monopoly, high barriers to entry prevent other firms from entering the market, allowing the monopolist to maintain market power. In monopolistic competition, there are low barriers to entry, leading to many firms in the market. ‖ ∻Answer∻ ⚹ The correct answer is (C) There are barriers to entry in monopoly, but not in monopolistic competition. ⚹ ∻Key Concept∻ ⚹ Barriers to Entry ⚹ ∻Explanation∻ ⚹ In a monopoly, high barriers to entry prevent other firms from entering the market, allowing the monopolist to maintain market power. In monopolistic competition, there are low barriers to entry, leading to many firms in the market. ⚹◊What factors determine the shape of the demand curve in a monopoly market compared to monopolistic competition?⍭ Generate me a similar question◊

Sia