One Difference Between Perfect Competition and Monopolistic Competition Is That

question 261

Multiple Choice

One difference between perfect competition and monopolistic competition is that

• A) a perfectly competitive industry has fewer firms.
• B) in perfect competition, firms produce slightly differentiated products.
• C) monopolistic competition has barriers to entry.
• D) firms in monopolistic competition face a downward-sloping demand curve.

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Definitions:

Trade-Off Theory

The addition of financial distress and agency costs to either the MM tax model or the Miller model. When trade-off is added to either model, the optimal capital structure can be visualized as a trade-off between the benefit of debt (the interest tax shield) and the costs of debt (financial distress and agency costs).

Debt Financing

A method of funding in which a company raises capital by borrowing money, agreeing to repay the principal amount along with interest on a specified schedule.

MM Model

The Modigliani-Miller theorem, proposing that in perfect markets, the value of a firm is unaffected by its capital structure.

Miller Model

A model formulated by Merton Miller, part of the Modigliani-Miller theorem, which discusses the irrelevance of capital structure for a company's market value under certain assumptions.