Market Structure Concepts.
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A. Equilibrium in monopolistically competitive markets requires that firms be operating at the minimum point on the long-run average cost curve.
B. A high ratio of distribution cost to total cost tends to increase competition by widening the geographic area over which any individual producer can compete.
C. The price elasticity of demand tends to fall as new competitors introduce substitute products.
D. An efficiently functioning cartel achieves a monopoly price/output combination.
E. An increase in product differentiation tends to increase the slope of firm demand curves.
Next:
Would the following factors increase or decrease the ability of domestic auto manufacturers to raise prices and profit margins? Why?
A. Decreased import quotas
B. Elimination of uniform emission standards
C. Increased automobile price advertising.
D. Increased import tariffs (taxes)
E. A rising value of the dollar, which has the effect of lowering import car prices.
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Answer A: FALSE
In the long run in monopolistically competitve markets firms do not operate at the minimum of the average cost curves. They operate at a little higher point. Some people argue that this is the price consumers have to pay for product differentiation.
Answer B: FALSE
Higher distribution cost would mean that the producers will tend to restrict to their narrow geographic area. Thus it will not make economic sense for them to increase competition by widening their distribution area.
Answer C: FALSE
The more the number of substitutes, ...
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