Exam 14: Oligopoly and Monopolistic Competition

Differentiate between oligopoly and monopolistic competition on the basis of the number of firms and the degree of product differentiation.

There are a few ship manufacturers in Polonia,and each firm faces a downward-sloping demand curve.The ship-building industry in Polonia will fall under a(n)________ market structure.

The following figure shows the cost curves (average total cost,ATC; marginal cost,MC)of a firm that operates in a monopolistic competition market,as well as the demand (D)facing the firm and its marginal revenue (MR).In the long-run,this firm's MR curve will ________.

Scenario: Two firms, Firm 1 and Firm 2, make differentiated products and compete in a duopoly market. The firms do not have a fixed cost. Firm 1's cost is $30 per unit, while Firm 2's cost is $25 per unit. (So they are the marginal cost and the average total cost). There are 1,000 consumers in this market. The demand is divided between the two firm in the following way: • If Firm 1's price is less than twice Firm 2's price, then everyone buys from Firm 1. • If Firm 1's price is more than twice Firm 2's price, then everyone buys from Firm 2. • If Firm 1's price is equal to twice Firm 2's price, then half of the consumers buy from Firm 1 and the other half buy from Firm 2. -Refer to the scenario above.Suppose Firm 2 sets the price at $25.If Firm 1 sets its price above $50,then its profit is ________.If Firm 1 sets its price above $30 and below $50,then its profit is ________.If Firm 1 sets its price below $30,then its profit is ________.