15 Multiple Choice

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In the long run, a firm in monopolistic competition

A. earns zero economic profit

One reason a company advertises is to

A. signal consumers that its product is high quality

In monopolistic competition there

A. Are a large number of firms

A firm in monopolistic compeition has ___ demand curve

A. a downward-sloping

Once a firm in monopolistic competiton has determined how much to produce, the firm determines its price by reffering to its

A. demand curve

Figure 15.1 shows Louie's Lunches, a lunch counter in competition with many other restraunts. To maximize its profit, Louie's produces __ lunches per day.

B. 20

A firm in monopolistic competition definetly incurs an economic loss if

B. Price is less than average total cost

Advertising costs and other selling costs are

B. fixed costs

In the long run, a firm in monopolistic competition ____ a markup of price over marginal cost and a firm in perfect competition _____ a markup of price over marginal cost.

B. has; does not have

In the long run, a firm in monopolistic competition _____ excess capactiy and a firm in perfect competition _____ excess capacity.

B. has; does not have

A firm in monopolistic compietion that introduces a new and differentiated product will temporarily have a ____ demand for its product and is able to charge _____.

B. less elastic, a higher price than before

If the four-firm concentration ratio for the market for pizza is 28 percent, then this industry is best characterized as

B. monopolistic competition

For a firm in monopolistic competition, selling costs

C. can change the quantity produced and lower the average total cost

If advertising increases the number of firms in an industry, each firm's demand

C. decreases

Because economic profits are eliminated in the long run in monopolistic competition, to earn an economic profit firms continuously

C. innovate and develop new products

The decision to innovate

C. is based on the marginal cost and the marginal revenue of innovation

Figure 15.1 shows demand and cost curves for Louie's Llunches. Louie's is in the ____ and is _____.

C. short run; incurring an economic loss

A firm in monopolistic compeition has a ____ market share and ____ influence the price of its good or service.

C. small; can

Figure 15.1 shows demand and cost curves for Louie's Lunches. To maximize its profit, Louie's sets a price of ___ per lunch.

D. $6

Each of the ten firms in an industry has 10 percent of the industry's total revenue. The four-firm concentration ration is

D. 40

A firm in monopolistic compeition maximizes profit by equating

D. Marginal revenue and marginal cost

The absence of barriers to entry in monolpolistic competiton means that in the long run firms

D. earn zero economic profit

The larger the four-firm concentration, the ____ competition within an industry; the larger the Herfindahl-Hirschman Index, the ______ competition within an industry.

D. less; less

Product differentiation means

D. making a product that is slightly different from products of competing firms.

Each of the four firms in an industry has a market share of 25 percent. The Herfindahl-Hirschman Indez equals

E. 2,500

Firms in monopolistic competiton compete on

E. quality; price; marketing


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