CFA Level I · CFA Level I Exam · The Firm and Market Structures
Which feature best distinguishes monopolistic competition from oligopoly?
Firms in monopolistic competition need not consider rivals' individual reactions to their pricing. There are many sellers, so no single firm's action materially affects others. In oligopoly, few firms are interdependent, while differentiation and price above marginal cost appear in both.
- AFirms use product differentiation
- BFirms can set price above marginal cost
- CFirms need not consider rivals' individual reactions to their pricingCorrect
Explanation
Monopolistic competition has many small sellers, so each firm ignores individual rivals' reactions. In oligopoly, few firms are interdependent and must anticipate rivals' responses. Product differentiation and price above marginal cost occur in both structures.
Did you get it right without looking?
One question tells you little. A timed set on The Firm and Market Structures shows your real accuracy, how long you take and where you lose marks.
More The Firm and Market Structures questions
- In a perfectly competitive market, a firm's demand curve is most likely:
- A monopolist practices perfect (first-degree) price discrimination, charging each customer the maximum price that customer is willing to pay…
- Compared with a perfectly competitive firm, a monopolistically competitive firm in long-run equilibrium most likely produces at an output le…
- A firm in a monopolistically competitive market is earning positive economic profit in the short run. In the long run, the most likely outco…
- A monopolist faces the linear inverse demand P = 100 − 2Q and has a constant marginal cost of 20. The profit-maximizing price is closest to:
- A profit-maximizing monopolist faces a downward-sloping demand curve. At its profit-maximizing output, the monopolist's price is most likely…