Question

1. When monopolistic competitive firms differ in terms of their performance, economic integration generates winners and losers. True or False?

2. In the monopolistic competition model the optimal price that each firm establishes in the market
options:

	All of the other answers are correct.
	is above the marginal cost.
	is above the marginal revenue of the firm.
	decreases with the number of firms that enter the market.

Answer 1

ANS

True, as monopolistic firms are the firms that which have a similar commodity or goods or services which they offer in the market. The goods or services offered by the firm in the market are similar but are not perfect substitues of each other. This means that differences in goods and services are not having any major difference but can be differentiated on the basis of color,size or shape etc. Like the burger of burger king and Mc Donalds are not the perfect substitute of each other. If the monopolistic competitive firms differ in terms of their performance then there will be difference in the goods and if there is difference then the economic integration generates winners and losers.

ANS

Option C. decreases with the number of firms that enter the market. As the price in monopolistic firm is decided with the consideration of the price of other firms goods as the goods are similar to each other and the high price can cause drain in customers of the firm which is having higher price to the one having lower price. So if more firs enter in the monopolistic competition then the price will reduce. Option B and C are not right because a monopolistic firm should charge a price where MC = MR.