What do demand and marginal revenue curves look like in monopolistic competition? How do they compare to the demand and marginal revenue curves in perfect competition and monopoly?
What will be an ideal response?
In monopolistic competition, the product is differentiated. This fact gives each firm some control over price, so each firm's demand curve is downward sloping. Because there are many close substitutes for these firms' goods, demand is elastic. These firms must lower their price to sell more; therefore the marginal revenue curve is beneath the demand curve.
In perfect competition, the product is homogeneous, which makes firms price-takers, able to sell as much as they wish at the market price. Therefore, marginal revenue equals price, and the marginal revenue curve and the demand curve are the same and are horizontal.
In monopoly, there is only one firm. The firm faces the market demand, which is steep, because there are no close substitutes for the good. The firm must lower its price to sell more, so for a single-price monopoly, the marginal revenue curve is beneath the demand curve.
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A commercial society, as described by Adam Smith, develops when
A) maximizing income becomes the ultimate objective for most people. B) more people are employed in service industries than in agriculture and manufacturing. C) private interest replaces the public interest. D) the division of labor extends itself throughout the society. E) traditional values give way to commercial values.
If the desired reserve/deposit ratio equals 0.10, then every dollar of currency in bank reserves supports ________ of deposits and the money supply, while every dollar of currency held by the public contributes ________ to the money supply.
A. $10; $1 B. $1; $10 C. $0.10; $1 D. $1; $0.10