Step 1 Read the following scenario.

Imagine a firm in monopolistic competition. A firm in monopolistic competition produces a product that you are familiar with, such as clothing and food. A monopolistic competition is a market in which:

many firms compete

each firm produces a product that is slightly different from products of other competing firms

each firm competes on product quality, price, and marketing

each firm is free to enter and exit the market

Step 2 Use the scenario to answer questions.

In a 250-500-words, answer the following questions using the information provided in the scenario in Step 1:

Use the cost and revenue curves for your market with monopolistic competition to determine the level where you set your price, economic profit, and output.

Explain the decisions you will make to maximize profit.

Compare oligopoly (when there are only two firms) outcomes to the outcome in a true monopoly industry. What are the differences? What are the similarities?

How does applying game theory to decisions faced by oligopolists change profit in the long and short run?

Using game theory, analyze decisions and choices that oligopolists must make to ensure success.