Chapter 16 2OA

Which of the following is true about a monopolistically competitive firm?

It can earn an economic profit in the short run, but not the long run

In monopolistically competitive markets, free entry and exit suggests that

all firms earn zero economic profits in the long run

If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will

be able to increase its markup over marginal cost.

The product-variety externality is associated with the

consumer surplus that is generated from the introduction of a new product.

When a market is monopolistically competitive, the typical firm in the market is likely to experience a

positive or negative profit in the short run and a zero profit in the long run.

When a monopolistically competitive firm raises its price,

quantity demanded declines but not to zero.

According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that

the existence of an expensive advertisement is more important than the content of the advertisement.

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,

the firm may be incurring economic losses