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Exam 16: Monopolistic Competition

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Question 231

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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. Which industry has the highest concentration ratio?

A) Industry A
B) Industry B
C) Industry C
D) Industry D

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

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Question 232

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Which of the following represents the best government policy to reduce the deadweight loss associated with a monopolistically competitive market?

A) The government should regulate firms in a manner similar to natural monopolies.
B) The government should encourage more firms to enter the industry because without government intervention, there are likely to be "too few" firms.
C) The government should encourage some firms to exit the industry because without government intervention, there are likely to be "too many" firms.
D) There is no government policy that can reduce deadweight loss without creating other problems.

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

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Question 233

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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. Based on the concentration ratio, which industry is the most competitive?

Free entry and exit means that the number of firms in the market adjusts until

When a market is monopolistically competitive, the typical firm in the market can earn

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. Which industry has the lowest concentration ratio?

Figure 16-6 -Refer to Figure 16-6. Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium?

Figure 16-8 The lines in the figures below illustrate the potential effect of entry and exit in a monopolistically competitive market on either the demand curve or the marginal cost curve of existing firms. -Refer to Figure 16-8. Which of the diagrams illustrates the impact of some existing firms leaving the market?

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

To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which

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

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. What is the concentration ratio for Industry C?

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

Figure 16-13 -Refer to Figure 16-13. Which letter represents the profit-maximizing quantity?

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. What is the concentration ratio for Industry D?

A monopolistically competitive market is like a competitive market in that

A firm can signal the high quality of its product by

When an industry has many firms, the industry is

Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. At what quantity of output does average revenue exceed marginal revenue by $66.66?

One way in which monopolistic competition differs from oligopoly is that