1. Which of the following is/are TRUE regarding monopolistic competition? I. few

Question

1. Which of the following is/are TRUE regarding monopolistic competition? I. few sellers II. free entry III. product differentiation
A) III only
B) I and III only (incorrect answer)
C) II and III only
D) I, II, and III

2. A market with many firms, a differentiated product, and little to no barriers to entry is a _____ market.
A) perfect competition (incorrect answer)
B) monopolistic competition
C) oligopoly
D) monopoly

3. Monopolistically competitive firms create:
A) zero deadweight loss.
B) a small deadweight loss.
C) a large deadweight loss. (incorrect answer)
D) negative deadweight loss.

4. Why might the benefits of monopolistic competition outweigh the inefficiencies?
A) Monopolistic competition has higher deadweight loss than monopoly.
B) In monopolistic competition, firms do not produce at their minimum average cost.
C) In monopolistic competition, firms do not price at marginal cost. (incorrect answer)
D) If we had perfect competition instead of monopolistic competition, we would not have all the variety and innovation that we have today

Explanation / Answer

1 Ans is C
Monopolistic competition has a lot of firms with product differenciation and no barriers to entry or exit.

2.Ans is B
Monopolistic competition has a lot of firms with product differenciation and no barriers to entry or exit.

3.Ans is B
Monopolistic competition creates deadweight loss and inefficiency

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