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Exam 16: Monopolistic Competition

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Question 71

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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) C) and D)
F) A) and D)

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Question 72

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Regulation of a firm in a monopolistically competitive market

A) usually implies a very small administrative burden.
B) will lower the firm's costs.
C) is commonly used to enhance market efficiency.
D) is unlikely to improve market efficiency.

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

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Question 73

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Firms in industries that have competitors but do not face so much competition that they are price takers are operating in either a(n)

Figure 16-3 -Refer to Figure 16-3.The firm in this figure is monopolistically competitive.It illustrates

A monopolistically competitive industry is characterized by

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Monopolistic competition is an inefficient market structure because

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,marginal cost must lie below average total cost.

Table 16-5 Traci's Hairstyling is one salon among many in the market for hairstyling.The following table presents cost and revenue data for hair cuts at Traci's Hairstyling. -Refer to Table 16-5.What is the profit-maximizing output for Traci's Hairstyling?

Monopolistic competition is an

Some firms have an incentive to advertise because they sell a

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

Assume the role of a critic of advertising.Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.

Compared to other firms,firms that sell highly differentiated products likely incur significant costs associated with

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 A?

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

Scenario 16-3 Consider the problem facing two firms,Firm A and Firm B,in the fast-food restaurant market.Each firm has just come up with an idea for a new fast-food menu item which it would sell for $4.Assume that the marginal cost for each new menu item is a constant $2,and the only fixed cost is for advertising.Each company knows that if it spends $12 million on advertising it will get 2 million consumers to try its new product.Firm A has done market research which suggests that its product does not have any "staying" power in the market.Even though it could get 2 million consumers to buy the product once,it is unlikely that they will continue to buy the product in the future.Firm B's market research suggests that its product is very good,and consumers who try the product will continue to be consumers over the ensuing year.On the basis of its market research,Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year,for a total of 24 million units. -Refer to Scenario 16-3.If Firm A decides to advertise its product it can expect to

In a long-run equilibrium,

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

Scenario 16-3 Consider the problem facing two firms,Firm A and Firm B,in the fast-food restaurant market.Each firm has just come up with an idea for a new fast-food menu item which it would sell for $4.Assume that the marginal cost for each new menu item is a constant $2,and the only fixed cost is for advertising.Each company knows that if it spends $12 million on advertising it will get 2 million consumers to try its new product.Firm A has done market research which suggests that its product does not have any "staying" power in the market.Even though it could get 2 million consumers to buy the product once,it is unlikely that they will continue to buy the product in the future.Firm B's market research suggests that its product is very good,and consumers who try the product will continue to be consumers over the ensuing year.On the basis of its market research,Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year,for a total of 24 million units. -Refer to Scenario 16-3.By its willingness to spend money on advertising,Firm B