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Exam 16: Monopolistic Competition

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Question 1

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A firm in a monopolistically competitive market is similar to a monopoly in the sense that (i) they both face downward-sloping demand curves. (ii) they both charge a price that exceeds marginal cost. (iii) free entry and exit determines the long-run equilibrium.

A) (i) only
B) (ii) only
C) (i) and (ii) only
D) (i) , (ii) , and (iii) only

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

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Question 2

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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?

A) panel a
B) panel b
C) panel c
D) panel d

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

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Question 3

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Which of the following is not an example of Joel Waldfogel's "Tyranny of the Market"?

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 profit maximizes and faces a constant marginal cost of $7, does it have excess capacity? How do you know?

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?

In the long run, a firm in a perfectly competitive market operates

The debate over the efficiency of markets in which products with brand names are sold

Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. The firm's maximum profit is

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?

Which of the following best describes the idea of excess capacity in monopolistic competition?

Table 16-4 This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm. -Refer to Table 16-4. If the government forces this firm to produce at its efficient output level, how much output will this firm produce?

Firms that sell highly differentiated consumer goods, such as over-the-counter drugs, soft drinks, breakfast cereals, and dog food, typically spend between 10 and 20 percent of revenue for

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, residents of Smalltown are likely to benefit from

Which type of market structure has the fewest number of firms?

Defenders of advertising argue that firms use advertising as a signal of quality, even if the advertising delivers little helpful information about the product.

When a new firm considers entering a market, it takes into account only the profit it would make. What are the two external effects that occur in the market that the firm does not consider?

The product-variety externality arises in monopolistically competitive markets because

Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what quantity would a profit-maximizing monopolist produce?

Figure 16-14 -Refer to Figure 16-14. Which letter identifies the efficient level of output for this firm?

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy. Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.