Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?Group of answer choicesThe monopolistically competitive firm advertises.The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level.Monopolistic competition features many buyers.Monopolistic competition features many sellers.
Question
Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?Group of answer choicesThe monopolistically competitive firm advertises.The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level.Monopolistic competition features many buyers.Monopolistic competition features many sellers.
Solution
The unique feature of a monopolistically competitive firm when compared to an oligopoly is that monopolistic competition features many sellers.
Here's why:
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Advertising: Both monopolistically competitive firms and oligopolies can and often do advertise. Therefore, this is not unique to monopolistically competitive firms.
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Quantity of output: Both monopolistically competitive firms and oligopolies may produce a quantity of output that falls short of the socially optimal level. This is due to the fact that both types of market structures have some degree of market power, which allows them to restrict output and charge prices above marginal cost. Therefore, this is not unique to monopolistically competitive firms.
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Many buyers: Both monopolistically competitive markets and oligopolies typically have many buyers. Therefore, this is not unique to monopolistically competitive firms.
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Many sellers: This is where monopolistically competitive markets and oligopolies differ. Monopolistically competitive markets are characterized by many sellers, each of which is relatively small in relation to the overall market. On the other hand, oligopolies are characterized by a small number of large firms that dominate the market. Therefore, the presence of many sellers is a feature that is unique to monopolistically competitive firms when compared to oligopolies.
Similar Questions
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