35. Which of the following satatements is false concerning monopolistic competit

Question

35. Which of the following satatements is false concerning monopolistic competition?

a.marginal revenue is less than average revenue

b.firms product sightly different products

c.there is absence of nonprice competition

d.the firm faces a downward-sloping demand curve

e.price equals average total cost in the long run

36. A firm using advertising differs from a firm not using advertising in that the firm using advertising:

a.will give complete and accurate information to consumers

b.will have a demand curve that must shift to the right

c.will always obtain lower ATC

d.will always be able to obtain an increase in output

e.may find that advertising results in higher ATC

37.advertising:

a.always increases prices

b.reduces prices

c.is not practiced in a perfectly compettiive market

d.leads to greater efficiency

e.leads to greater inefficiency

Explanation / Answer

35. c. there is absence of nonprice competition

Monopolistic competition refers to a market situation in which there are large number of buyers and sellers. The sellers sell closely related or differentiated products but not identical product. The products are close substitutes of each other. Product differentiation is the most important feature of monopolistic competition. Each firm under monopolistic competition enjoys the monopoly over the brand of the commodity and thus the firm has the control over the price of the commodity. Under monopolistic competition, MR < AR and AR and MR curve slope downwards and MR curve lies below AR curve. But these curves are more elastic. Example: Firms producing different brands of shampoos like Sunsilk, Pantene, Head & Shoulders, Dove etc. Monopolistic competition combines the features of monopoly and perfect competition.

36. b.will have a demand curve that must shift to the right

Demand curve will shift rightward when firm provide advertisement of its product because people have more information about the product.

37. c.is not practiced in a perfectly compettiive market

Perfect Competition is a form of market structure in which there is free entry and exit of firms and firms are selling homogeneous and identical products in the market. Firms under this form of market are price takers rather than price makers. Industry determines the equilibrium price from the demand and supply curve intersection. Sellers can sell any unit of commodity at that price and firms does not have any price control over the commodity. If one seller try to charge higher price then it will lose all his customers because all firms are selling similar products in every respect like color, shape, brand, etc.

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