C. Mon. April 7--Review Sheet--Perfect & Monopolistic Competition

Name: ________________________________________
Understanding Perfect Competition & Monopolistic Competition
1) Describe the five market characteristics of a perfectly competitive market
a. How many firms are there in such a market, how unique is the product, how easy is it to enter into such a market, how
easily available is it to obtain information about conditions in such a market, what is the degree of price control that each
individual firm has in such a market?
2) List some benefits to society from a market structure such as perfect competition.
3) Write a list of the assumptions in the theory of perfect competition which are “unrealistic” in the real world.
4) What does zero economic profit mean:
a. The company/firm earns no money
b. The company/firm loses money
c. The company/firm earns enough to compensate the owner for the opportunity cost of working, but no more
d. All listed
5) Which of the following is an example of a monopolistically competitive market?
a. wireless telephone service providers
b. airplane manufacturers
c. gas stations
d. none of the above
e. both b and c
6) One key difference between a perfectly competitive market and a monopolistically competitive market is that
a. in perfect competition there are many competing business firms, while a monopolistically competitive market has only a
few competing firms
b. it is relatively easy to enter into a perfectly competitive market, but very difficult to enter into a monopolistically
competitive one
c. perfectly competitive firms produce identical products, while in a monopolistically competitive market firms produce
similar but not identical products
d. in a perfectly competitive market each firm is a price setter, while in a monopolistically competitive market each firm is a
price taker
7) The information below is based on the theory of perfect competition. Follow the instructions below.
Economic Profit
T-Shirt Market
$100 day
$200 day
$100 day
FOOD Market
 There are 3 industries above with the profits listed per industry
 Draw a supply & demand curve for each industry showing equilibrium price & quantity (P 1, Q1, E1)
 Explain how the market would find a new equilibrium based on any entry/exit which would occur
 Graph any changes based on 3 above graphs.