Answer to Question #184991 in Microeconomics for James

Question

QUESTION 4

Oligopolies are characterized by high barriers to entry with firms choosing pricing, output, and other decisions strategically based on:

1. The public’s interest.
2. Decisions of the other firms in the market.
3. The needs of the consumers.
4. The wants of the consumers.
5. Their predictions about past events. 

QUESTION 5

Intangible aspects of a differentiated product may be:

1. Services like free delivery.
2. The price of the product.
3. The quality of the product itself.
4. The quantity of the product itself.
5. The prices charged to other consumers. 

QUESTION 6

Product differentiation:

1. Can only be accomplished by producing a better quality product.
2. May occur in the minds of buyers.
3. Is a purely positive concept.
4. Cannot be normative.
5. All of the above.

QUESTION 7

The monopolistic competitor can:

1. Never earn a profit.
2. Lower its price to gain more customers.
3. Raise its price to without losing all of its customers.
4. Both answers A and B above.
5. Both answers B and C above.

Answer 1

ANSWERS.

4 Decisions of other firms in the market.

Explanation.

Oligopolists can be stuck between two temptations; they can either collaborate with other firms and work as a single monopoly or they can individually compete with other firms in the market in order to gain profits.

5 Services like free delivery.

Explanation.

Firms can try to offer services like free delivery for their products in order to make them look different from their competitors. This is one of the intangible aspects to differentiate their products from other firms.

6 May occur in the minds of buyers.

Explanation.

Product differentiation occurs in the minds of buyers, for example, advertising has the potential to influence these intangible preferences. for instance, buyers may prefer Johny walker alcoholic drink over Tusker not because they can notice the differences but from the product advertisements.

7 Both answers B and C above.

Explanation.

Any consumer will opt not to buy the product at all if a monopolistic competitor increases its price, while others will choose to buy a similar product from another company. If a monopolistic competitor increases its price, it can lose more customers than a perfectly competitive company, but not as many as a monopoly that raises its prices. This explains why a monopolistic competitor's demand curve is not linear, but rather downward-sloping.