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Exam 16: Monopolistic Competition

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Question 201

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The primary claim of defenders of advertising is that it

A) conveys information about firm profitability.
B) is psychological rather than informational.
C) enhances the information available to consumers.
D) reduces the elasticity of demand for a firm's product.

E) All of the above
F) None of the above

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Question 202

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Which of the following statements regarding monopolistic competition is not correct?

A) In the long-run equilibrium, price equals average total cost.
B) In the long-run equilibrium, firms earn zero economic profit.
C) In the long-run equilibrium, firms charge a price above marginal cost.
D) In the long-run equilibrium, firms produce a quantity in excess of their efficient scale.

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

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Question 203

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Which of the following markets is not likely characterized by a monopolistically competitive market?

Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1. What is the concentration ratio in Industry D?

Figure 16-6 -Refer to Figure 16-6. Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money?

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures can have positive profits in the short run?

A firm has the following cost structure: If this firm is in a typical monopolistically competitive market, in the long run it will likely produce

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. How many double scoop ice cream cones should Peter sell per day to maximize his profit?

The breakfast cereal industry, with its concentration ratio of 80%, would best be described as a(n)

Figure 16-12 -Refer to Figure 16-12. If this firm profit-maximizes, what price will it charge?

The market structure in which each firm has a monopoly over the product it makes, but many other firms make similar products that compete for the same customers is called

Monopolistic competition differs from perfect competition because in monopolistically competitive markets

Scenario 16-5 McDonald's restaurants has recently announced intentions to open a new restaurant in Smalltown, Indiana. Assume that the fast-food restaurant market in Smalltown is characterized by monopolistic competition. -Refer to Scenario 16-5. As a result of the new McDonald's, existing fast food restaurants in Smalltown are likely to

Table 16-7 A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to 20. -Refer to Table 16-7. If this firm has a constant marginal cost of $7, what is the profit-maximizing level of output?

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

In monopolistically competitive markets, positive economic profits

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 which of the following market structures can a firm earn an economic profit in the short run?

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. What is the concentration ratio for Industry J?

Both monopolistic competition and oligopoly are market structures