Question

1. True or False? Why?

a. A monopolistically competitive market is efficient in its long -run equilibrium because all firms in the market earn a zero economic profit.

b. Department stores are monopolistically competitive because stores differ in the amount of customer service they provide.

c. In the long run, monopolistically competitive firms charge consumers higher prices than monopoly firms.

d. An oligopoly is an industry with just one firm.

e. An oligopoly the actions of one firm has a perceptible affect on the other firms.

f. Mergers can sometimes be good for a market by allowing firms to take advantage of economies of scale.

g. The merger of two firms selling close substitutes may lead to higher prices.

Answer 1

a)

False statement:

Although All firms earn zero economic profit over the long, it does not mean that these firms operate at an efficient level. these firms do not satisfy the condition of P = MC.

b)

Answer: True statement.

These stores provide differentiated services,

c)

False statement.

The demand curve in monopolistically competitive market is less steep relative to the monopoly market. Hence, it does not change price higher than monopoly.

d)

False statement.

There few dominant firms in oligopoly market. Number of firm ranges from 2 to 10.

e)

True statement.

There is very high dependencies in an oligopoly market.

f)

True statement.

Merges lead to the economies of scale in the market which are not possibles when firms operate separately.

g)

True statement.

Such merges increase monopoly price, hence prices would rise.