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Exam 16: Monopolistic Competition

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Question 41

Multiple Choice

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In the short run, a firm operating in a monopolistically competitive market can earn

A) positive economic profits.
B) economic losses.
C) zero economic profits.
D) All of the above are possible.

E) A) and B)
F) A) and C)

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Question 42

Multiple Choice

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Figure 16-6 -Refer to Figure 16-6. Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium?

A) panel a
B) panel b
C) panel c
D) None of the above is correct.

E) A) and B)
F) A) and C)

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Question 43

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Which market structure(s) include(s) many firms with differentiated products who can enter and exit the market freely?

Figure 16-14 -Refer to Figure 16-14. The difference between the price charged by the monopolistically competitive firm and the price that would be charged if this firm operated in a perfectly competitive market is represented by which line segment?

Monopolistically competitive firms, like monopoly firms, maximize their profits by charging a price that exceeds marginal cost.

Results of the study done by Lee Benham on advertising for eyeglasses would suggest that

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

Suppose there is a market in which the firms hold the following market shares: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1%. What is the concentration ratio for this market?

Imperfectly competitive firms are characterized by

A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door, since a sale to that customer will not increase the firm's profit.

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. Which friend is a critic of brand names?

Which of the following statements is not correct?

Table 16-6 Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's. -Refer to Table 16-6. If the government required Beatrice's to produce at the efficient scale of output, how many cakes would Beatrice's sell?

Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-2. If the marginal cost of producing this good is 4, what price would a profit-maximizing monopolist charge for the product?

Scenario 16-8 Burger Bonanza, a major national burger chain, recently decided to spend $4 million on an advertising campaign featuring a world famous actor to promote its new Bomber Burger. -Refer to Scenario 16-8. What can consumers conclude from Burger Bonanza's willingness to spend $4 million on an advertising campaign?

Monopolistic competition is considered inefficient because

Figure 16-11 -Refer to Figure 16-11. If this firm profit-maximizes, what price will it charge?

Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. -Refer to Table 16-2. Which industry is the most competitive?

Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. In response to the situation represented by the figure, we would expect

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium. You would draw the ATC curve