Question

3. Describe Monopolistic Competition Firms Behavior in regards to A.) Product Differentiation B.) Profit Margins C.) Brand Loyalty D.) Profit Maximization and E.) New Entrants to the Monopolistic Competitive Market.

4.) What is a Close Economy (definition)? Give an example of a closed economy nation. What is an Open Economy (definition)? Give an example of an open economy nation.

Answer 1

MONOPOLISTIC COMPETITION BEHAVIOR-

Monopolistic competition or imperfect competition is where in a market, sellers sell heterogeneous good and are not exact substitutes of each other.

(a) Product differentiation-

Product differentiation can be defined as the method of differentiating the products from each other. In monopolistic competition, firms produce differentiated goods. The firms try to differentiate their products from other products through taste, color, size, shape, and product type.

(b) Profit margins-

The firms under this competition make profits based on the curve of average revenue (AR).

(c) Brand Loyalty-

As the products are differentiated, firms in monopolistic competition try to create brand loyalty for their goods among consumers through advertising.

(d) Profit Maximization-

The firms in the monopolistic competition maximize its profits by producing the quantity of goods where marginal revenue becomes equal to the marginal cost.

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