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Exam 16: Monopolistic Competition

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Question 71

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Which of the following statements is not correct?

A) Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry.
B) Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly.
C) Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly.
D) Both monopolistic competition and perfect competition are characterized by product differentiation.

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

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Question 72

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When a firm operates with excess capacity, it must be in a monopolistically competitive market.

A) True
B) False

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Question 73

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According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that

Use a graph to demonstrate why a profit-maximizing monopolistically competitive firm must operate at excess capacity. Explain why a perfectly competitive firm is not subject to the same constraint.

If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be able to charge a larger markup over marginal cost.

In the short run, a firm in a monopolistically competitive market operates much like a

Figure 16-2 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-2. What price will the monopolistically competitive firm charge in this market?

Economists measure a market's domination by a small number of firms with a statistic called the

Figure 16-5 The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-5. Efficient scale is reached

The product-variety externality and the business-stealing externality are both spillover costs of new firms entering a monopolistically competitive market.

In monopolistically competitive markets, positive economic profits

Professional organizations and producer groups have an incentive to

Figure 16-11 ​ ​ -Refer to Figure 16-11. Use the letters to identify the deadweight loss associated with this firm's profit-maximizing production.

A profit-maximizing firm in a monopolistically competitive market charges a price equal to marginal cost.

There is general disagreement among economists about the role of advertising, but there is widespread agreement about the role of brand names on market efficiency.

Table 16-1 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. ​ ​ $\begin{array} { | c | c | c | c | c | } \hline \text { Firm } & \text { Industry A } & \text { Industry B } & \text { Industry C } & \text { Industry D } \\\hline 1 & 50,000 & 18,000 & 37,000 & 40,000 \\\hline 2 & 47,000 & 17,750 & 36,500 & 39,000 \\\hline 3 & 43,000 & 17,250 & 35,500 & 37,000 \\\hline 4 & 38,000 & 16,500 & 34,000 & 34,000 \\\hline 5 & 32,000 & 15,500 & 32,000 & 30,000 \\\hline 6 & 25,000 & 14,250 & 29,500 & 25,000 \\\hline 7 & 17,000 & 12,750 & 26,500 & 19,000 \\\hline 8 & 8,000 & 11,000 & 23,000 & 12,000 \\\hline \text { Total } & \mathbf { 2 7 0 , 0 0 0 } & \mathbf { 1 3 0 , 0 0 0 } & \mathbf { 3 0 0 , 0 0 0 } & \mathbf { 2 5 0 , 0 0 0 } \\\hline\end{array}$ ​ -Refer to Table 16-1. Based on the concentration ratio, which industry is the most competitive?

Figure 16-5 The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-5. As the figure is drawn, the firm is in

Figure 16-12 ​ ​ -Refer to Figure 16-12. Which letter identifies the profit-maximizing level of output for this firm?

Figure 16-10 ​ ​ -Refer to Figure 16-10. If this firm profit-maximizes, how much output will it produce?

Figure 16-1 ​ ​ Graph (a) Graph (b) Graph (c) ​ ​ ​ ​ -Refer to Figure 16-1. Which of the graphs illustrates the demand curve most likely faced by a firm in a monopolistically competitive market?