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Exam 16: Monopolistic Competition

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Question 21

Multiple Choice

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Long-run profit earned by a monopolistically competitive firm is driven to the competitive level due to a(n)

A) change in the technology that the firm utilizes.
B) shift of its demand curve.
C) shift of its supply curve.
D) increase in the firm's average cost of production.

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

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Question 22

Multiple Choice

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Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost?

A) monopoly only
B) monopoly and monopolistic competition only
C) monopoly, monopolistic competition, and perfect competition
D) The answer cannot be determined without knowing whether the market is in the long run or short run.

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

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Question 23

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Figure 16-11 -Refer to Figure 16-11. If this firm profit-maximizes, how much profit or loss will it earn?

Which of the following industries has the lowest concentration ratio?

Figure 16-5 -Refer to Figure 16-5. Which of the panels shown could illustrate the short-run situation for a monopolistically competitive firm?

Scenario 16-7 Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product 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 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini'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, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units. -Refer to Scenario 16-7. If YumYum decides to advertise its product it can expect to

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.

The debate over whether advertising serves a valuable purpose in society is definitively answered by economists who study the tastes and preferences of individuals.

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. Which of the following statements best describes the long run adjustment in this market?

If we observe a great deal of advertising of men's shaving products, we can infer that

Among arguments for and against advertising, both sides agree that advertising leads to

In a long-run equilibrium,

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?

A concentration ratio

Which of the following statements is not correct?

Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. How much output will the monopolistically competitive firm produce in this situation?

Figure 16-6 -Refer to Figure 16-6. Which of the graphs shown would be consistent with a profit maximizing firm in a monopolistically competitive market that is earning a positive profit?

Economists are unanimous in their belief that advertising is socially inefficient.

In a market that is characterized by imperfect competition,

Figure 16-12 -Refer to Figure 16-12. If this firm profit-maximizes, how much output will it produce?