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Exam 16: Monopolistic Competition

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Question 111

Multiple Choice

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Critics of markets that are characterized by firms that sell brand-name products argue that brand names encourage consumers to pay more for branded products that

A) have elastic demand curves.
B) are very different from generic products.
C) are indistinguishable from generic products.
D) consumer-advocate groups have found to be inferior.

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

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Question 112

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The product-variety externality states that entry of a new firm conveys a negative externality on consumers.

A) True
B) False

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Question 113

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Figure 16-5 The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-5. In order to maximize its profit, the firm will choose to produce

Adibok knows that it produces and sells high-quality athletic shoes. Wurkout knows that it produces and sells low-quality athletic shoes. According to the signaling theory of advertising,

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

Scenario 16-4 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.) $\begin{array}{|l|l|l|l|l|}\hline \text { Quantity } & \text { Price } & \text { MR } & \text { MC } & \text { ATC } \\\hline 20 & \$ 5.60 & \$ 5.20 & \$ 2.20 & \$ 2.05 \\\hline 40 & \$ 5.20 & \$ 4.40 & \$ 2.40 & \$ 2.10 \\\hline 60 & \$ 4.80 & \$ 3.60 & \$ 2.60 & \$ 2.15 \\\hline 80 & \$ 4.40 & \$ 2.80 & \$ 2.80 & \$ 2.20 \\\hline 100 & \$ 4.00 & \$ 2.00 & \$ 3.00 & \$ 2.25 \\\hline 120 & \$ 3.60 & \$ 1.20 & \$ 3.20 & \$ 2.30 \\\hline 140 & \$ 3.20 & \$ 0.40 & \$ 3.40 & \$ 2.35 \\\hline 160 & \$ 2.80 & -\$ 0.40 & \$ 3.60 & \$ 2.40 \\\hline 180 & \$ 2.40 & -\$ 1.20 & \$ 3.80 & \$ 2.45 \\\hline\end{array}$ -Refer to Scenario 16-4. When Peter maximizes his profits, what is his total cost per day?

Figure 16-11 ​ ​ -Refer to Figure 16-11. What is the first step in this industry's adjustment to long run equilibrium?

In a long-run equilibrium, both perfectly competitive markets and monopolistically competitive markets have price equal to average total cost.

​A monopolistically competitive firm is a price-taker.

Table 16-4 Beatrice's Birthday Cakes operates in a monopolistically competitive market, so it is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's. ​ ​ ​ ​ -Refer to Table 16-4. What is the profit-maximizing output for Beatrice's Birthday Cakes?

Entry of new firms in monopolistically competitive industries can convey a positive externality on consumers because new products result in more consumer surplus. This externality is called the

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures features entry in the long run?

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

Entry of firms in a monopolistically competitive industry is characterized by two externalities. List them and briefly describe how consumers and existing firms are influenced by them.

Ellie consumes Pepsi exclusively. She claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in her mouth. In a blind taste test, Ellie is found to prefer Pepsi to store-brand cola nine out of ten times. The results of Ellie's taste test would refute claims by critics of brand names that

A monopolistically competitive firm faces a downward-sloping demand curve because there are few firms in the market.

Figure 16-10 ​ ​ -Refer to Figure 16-10. How much excess capacity does this firm have?

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

Figure 16-9 ​ ​ -Refer to Figure 16-9. What, if any, long run adjustment will occur in this industry?

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