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Exam 16: Monopolistic Competition

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Question 291

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Which of the following is not a key feature of monopolistic competition?

A) Excess capacity
B) A markup of price over marginal cost
C) Positive economic profits for firms in the long run
D) Differentiated products among firms in the market

E) A) and D)
F) None of the above

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Question 292

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When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,

A) the demand curve will be perfectly elastic.
B) price exceeds marginal cost.
C) marginal cost must be falling.
D) marginal revenue exceeds marginal cost.

E) All of the above
F) C) and D)

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Question 293

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Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. -Refer to Table 16-3. What is the concentration ratio for Industry A?

Scenario 16-3 Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.) -Refer to Scenario 16-3. When Peter maximizes his profits, how much revenue does he earn per day?

Critics of advertising argue that in some markets advertising may

Scenario 16-9 Dean goes to the grocery store to buy chips and soda for a party. He purchases brand name products even though generic versions are available at lower prices. His friend John says he was irrational to spend more for a nearly identical product. His friend Martina agreed with Dean's decision to spend more for the brand name products. -Refer to Scenario 16-9. Martina offers two reasons for agreeing with Dean's decision. What are they?

Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry.

Brand names are rarely used to convey information about product quality.

Scenario 16-9 Dean goes to the grocery store to buy chips and soda for a party. He purchases brand name products even though generic versions are available at lower prices. His friend John says he was irrational to spend more for a nearly identical product. His friend Martina agreed with Dean's decision to spend more for the brand name products. -Refer to Scenario 16-9. If advertising were banned in these markets, what would likely happen to the prices of chips and soda?

Entry by new firms into a monopolistically competitive market

Monopolistic competition is characterized by i.efficient scale ii.markup pricing over marginal cost iii.deadweight loss iv.excess capacity

How does advertising signal to consumers that the product is a good one?

Which two curves are tangent to each other in a monopolistically competitive market with zero economic profit?

In a long-run equilibrium, firms in both perfectly competitive markets and monopolistically competitive markets produce a quantity below the efficient scale of production.

Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. For this firm, the long-run equilibrium quantity of output is

Figure 16-13 -Refer to Figure 16-13. Which letter represents the profit-maximizing price?

"In a long-run equilibrium, price is equal to average total cost." This statement applies to

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the ATC=40 at the profit-maximizing level of output, which of the following will occur in the long run in this industry?

Figure 16-11 -Refer to Figure 16-11. If this firm profit-maximizes, how much cost will it incur?

Entry of firms in a monopolistically competitive industry is characterized by two externalities. List them and briefly describe how consumers and existing firms are influenced by them.