Review Questions

5. What is the relationship between product differentiation and monopolistic competition?

6. How is the perceived demand curve for a monopolistically competitive firm different from the perceived demand curve for a monopoly or a perfectly competitive firm?

7. How does a monopolistic competitor choose its profit-maximizing quantity of output and price?

8. How can a monopolistic competitor tell whether the price it is charging will cause the firm to earn profits or experience losses?

9. If the firms in a monopolistically competitive market are earning economic profits or losses in the short run, would you expect them to continue doing so in the long run? Why?

10. Is a monopolistically competitive firm productively efficient? Is it allocatively efficient? Why or why not?

11. Will the firms in an oligopoly act more like a monopoly or more like competitors? Briefly explain.

12. Does each individual in a prisoner’s dilemma benefit more from cooperation or from pursuing self-interest? Explain briefly.

13. What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits?

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