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Exam 16: Monopolistic Competition

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Question 101

Multiple Choice

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Two bottles of over-the-counter pain reliever sit side-by-side in a grocery store: Advil (a brand name) sells for $5.00, while Feel Better (not a brand name) sells for $2.50. In a typical day the store sells some of each type of pain reliever, which suggests that

A) no rational consumer would spend twice as much for Advil as he would for Feel Better.
B) some consumers must perceive that Advil is a higher quality product.
C) Advil has no incentive to maintain the quality of its product just because of the Advil brand name.
D) Advil spends money on advertising to reduce competition in the market.

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

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Question 102

Multiple Choice

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A monopolistically competitive firm is currently earning a positive economic profit. If other firms enter the market, we would expect that the added competition will cause this firm to adjust its output such that it

A) will operate closer to its efficient scale.
B) will operate further from its efficient scale.
C) will no longer be at its efficient scale.
D) might move either closer to or further from its efficient scale.

E) A) and D)
F) All of the above

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Question 103

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A profit-maximizing firm in a monopolistically competitive market can earn positive, negative, or zero profits in the short run.

Which of the following is not a characteristic of monopolistic competition?

When a firm exits a monopolistically competitive market, the individual demand curves faced by all remaining firms in that market will

Compared to the monopoly outcome with a single price, imperfect price discrimination (i) sometimes raises total surplus. (ii) sometimes lowers total surplus. (iii) always leads to a lower quantity of output.

What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?

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?

When advertising is used to relay information about price, each firm is able to enhance market power.

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

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

Table 16-5 This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm. -Refer to Table 16-5. How much profit will this firm earn at the monopolistically competitive price?

For a profit-maximizing monopolistically competitive firm, marginal revenue exceeds marginal cost in

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $24 at the profit­maximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is

Why does a typical monopolistically competitive firm face a downward-sloping demand curve?

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market

Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. This firm is operating

There are four basic types of market structure.

Monopolistic competition and monopoly are examples of a market structure called imperfect competition.

Advertising during the Super Bowl is an example of information about quality contained primarily in the existence and expense of the advertising.