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Exam 16: Monopolistic Competition

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Question 81

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The market for wheat is most likely considered a monopolistically competitive market.

A) True
B) False

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Question 82

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Scenario 16-3 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 16-3. On the basis of a theory that people buy a product because it is advertised, the content of advertisements for Bertollini's product

A) must show a consumer taste-test to be successful.
B) must include celebrity endorsements to be successful.
C) is less important than the fact that they are willing to spend money on advertising.
D) is only important if the quality of the product is high.

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

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Question 83

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Scenario 16-6 ​ 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 16-6. Martina offers two reasons for agreeing with Dean's decision. What are they?

Scenario 16-5 ​ Burger Bonanza, a major national burger chain, recently decided to spend $4 million on an advertising campaign featuring a world famous actor to promote its new Bomber Burger. -Refer to Scenario 16-5. What two benefits are conveyed by the brand name Burger Bonanza?

Monopolistically competitive firms could reduce the average total cost of producing by increasing output; therefore, these firms have

Defenders of advertising argue that in some markets advertising may

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

For a profit-maximizing firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost.

Scenario 16-2 Delish, a moderately priced restaurant, has recently announced intentions to open a restaurant in Boston, MA. Assume that the restaurant market in Boston is characterized by monopolistic competition. -Refer to Scenario 16-2. As a result of the new restaurant, existing restaurant owners in Boston are likely to experience a

Figure 16-2 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-2. How much profit will the monopolistically competitive firm earn in this situation?

Excess capacity characterizes firms in monopolistically competitive markets, even in situations of long-run equilibrium.

Suppose there is a market in which the firms hold the following market shares: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1%. What is the concentration ratio for this market?

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. What price should Peter charge to maximize his profits?

Figure 16-10 ​ ​ -Refer to Figure 16-10. If this firm profit-maximizes, what price will it charge?

Figure 16-11 ​ ​ -Refer to Figure 16-11. Use the letters to identify the area of profit for this firm.

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 ​ Burger Bonanza, a major national burger chain, recently decided to spend $4 million on an advertising campaign featuring a world famous actor to promote its new Bomber Burger. -Refer to Scenario 16-5. What can consumers conclude from Burger Bonanza's willingness to spend $4 million on an advertising campaign?

A monopolistically competitive industry is characterized by

A similarity between monopoly and monopolistic competition is that in both market structures

Figure 16-5 The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-5. The firm's maximum profit is