Exam 15: Monopolistic Competition

Using Table 15.1 above fill in the first two columns by identifying the number of firms and the types of products produced by each industry structure.

Critics of advertising argue that advertising by its very nature imposes a cost on society. Explain what these costs are.

Define horizontal differentiation.

What arguments can be made in favor of product differentiation and advertising?

Comment on the following statement: "The demand facing a firm in perfect competition is less elastic than the demand facing a firm in monopolistic competition."

Draw a graph showing the demand curve faced by a perfectly competitive firm. On the same graph, draw the demand curve faced by a monopolistically competitive firm.

What is behavioral economics?

Explain the strategy of product differentiation?

Many people have observed that retail gas stations tend to operate very closely to one another. Explain the logic behind having a gas station at each corner of an intersection.

It is often argued that gas stations operate inefficiently because they have "excess capacity" in the form of more pumping stations than they would otherwise need if they were operating under conditions of perfect competition. However, can you think of any reason why a gas station franchise owner would wish to install more pumps than he knows will rarely if ever be fully utilized at any one time? Can you explain the economic logic of this "apparent" wastefulness?

According to its advocates, what are four advantages product differentiation and advertising provide to consumers?