1. In the short run, monopolistic competitors that can at least cover their average variable costs will maximize prof- its or minimize losses by producing where marginal revenue equals marginal cost. In the long run, easy entry and exit of firms ensures that monopolistic competitors earn only a normal profit, which occurs where the average total cost curve is tangent to a firm's downward-sloping de- mand curve.

2. An oligopoly is an industry dominated by a few sellers, some of which are large enough relative to the market to influence the price. In undifferentiated oligopolies, such as steel or oil, the product is a commodity. In differentiated oligopolies, such as automobiles or breakfast cereals, the product differs across firms.