Read the following scenario.

Imagine a firm in monopolistic competition. A firm in monopolistic competition produces a product that you are familiar with, such as clothing and food. A monopolistic competition is a market in which:

• many firms compete
• each firm produces a product that is slightly different from the products of other competing firms
• each firm competes on product quality, price, and marketing
• each firm is free to enter and exit the market

Step 2 Use the scenario to answer questions.

In a two-page (500-word) document, answer the following questions using the information provided in the scenario in Step 1:

• Use the cost and revenue curves for your market with monopolistic competition to determine price, economic profit, and output.
• Explain the decisions you will make to maximize profit.
• Compare oligopoly (when there are only two firms) outcomes to the outcome in a true monopoly industry. What are the differences? What are the similarities?
• How does applying game theory to decisions faced by oligopolists change profit in the long and short run?
• Using game theory, analyze decisions and choices that oligopolists must make to ensure success.

Answer rating: 100% (QA)

Maximizing Profit in a Monopolistically Competitive Market In a monopolistically competitive market firms produce similar but slightly differentiated products competing on factors like quality price a... View the full answer