Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050



Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Which of the following conditions does NOT describe a firm in a monopolistically competitive market?

a. It sells a product different from its competitors.

b. It takes its price as given by market conditions.

c. It maximizes profit both in the short run and in the long run.

d. It has the freedom to enter or exit in the long run.

To determine
Monopolistic competition and its features.


Option ‘b’ is the correct answer.


Option (b):

Similar to monopoly, monopolistic markets are price setters, rather than price takers. Therefore, it does not take the price given by market conditions. Thus, option ‘b’ is correct.

Option (a):

In a monopolistic competitive market, products are differentiated; that is, it sells similar (but not identical) products of its competitors. Since the statement is a feature of monopolistic market, option ‘a’ is incorrect.

Option (c):

A monopolistic competitive market can attain profit maximization both in the short run as well as the long run. Hence, option ‘c’ is incorrect.

Option (d):

Since the monopolistic market features free entry and exit of firms in the market, option ‘d’ is incorrect.


Concept introduction:

Monopolistic competition: It is an imperfect market structure in which many firms sell products that are differentiated from one another.

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