ECONOMICS 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. T-SHIRTS Economic Profit T-Shirt Market $100 day BICYCLES $200 day BICYCLE Market FOOD $100 day FOOD Market Instructions: 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.