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Exam 16: Monopolistic Competition

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Question 121

Multiple Choice

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Although monopolistically competitive markets offer consumers a wide variety of differentiated products, there may still be insufficient variety if

A) there are large fixed costs in the market.
B) there are no barriers to entry in the market.
C) the business-stealing externality is present in the market.
D) the government does not impose regulations on the market.

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

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Question 122

Multiple Choice

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Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $26 at the profit-maximizing quantity, and if the firm's profit is $40 at that quantity, then its fixed costs amount to

A) $12.
B) $152.
C) $200.
D) $240.

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

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Question 123

Multiple Choice

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Firms that sell highly differentiated consumer goods, such as soft drinks, breakfast cereals, and dog food, typically spend what percent of their revenues on advertising?

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?

The "monopoly" in monopolistically competitive markets is most likely a result of firms having some pricing power due to product differentiation.

A monopolistically competitive firm chooses the quantity to produce where

Monopolistic competition is the only market structure that features many sellers.

Which of the following statements is correct?

Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. In response to the situation represented by the figure, we would expect

For the economy as a whole, about what percentage of total firm revenue is spent on advertising?

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

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 Bertollini decides to advertise its product it can expect to

Figure 16-13 -Refer to Figure 16-13. Use the letters to identify the area of total revenue for this firm.

Which of the following is an example of a monopolistically competitive industry?

Imperfectly competitive firms are characterized by

In the debate between the critics and defenders of advertising, what conclusion have policymakers come to regarding the effect of advertising on competition - advertising makes markets more competitive or less competitive?

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

When a firm in a monopolistically competitive market earns zero economic profit, its product price must equal marginal cost.

Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. -Refer to Table 16-3. Which industry has the highest concentration ratio?

Consider two industries in which firms hold the following market shares: Industry A: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1% Industry B: 30%, 10%, 9%, 8%, 8%, 8%, 8%, 6%, 6%, 5%, 2% What are the concentration ratios for each industry? Which is more competitive?