ECO Chapter 16.

Monopolistic competition is considered inefficient because a. barriers to entry limit the number of firms in the market. b. long-run profits are positive. c. price exceeds marginal cost. d. output is excessive.

C. Price exceeds marginal cost

Refer to Figure 16-5. When the firm is maximizing its profit, the markup over marginal cost amounts to a. $50.00. b. $66.66. c. $16.67. d. $33.33.

a. $50.00

Refer to Figure 16-6. The firm's maximum profit a. cannot be determined from the figure. b. is −$5,000. c. is −$7,000. d. is −$2,000.

a. -2000

Refer to Figure 16-3. At the profit-maximizing, or loss-minimizing, output level, how many units of output will the firm in this figure produce? a. 30 b. 40 c. This firm will choose not to produce. d. 20

a. 30

Refer to Table 16-4. What is the profit-maximizing output for Beatrice's Birthday Cakes? a. 4 cakes b. 3 cakes c. 5 cakes d. 6 cakes

a. 4 cakes

Which of the following statements is not correct? a. Both monopolistic competition and perfect competition are characterized by product differentiation. b. Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. c. Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. d. Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly.

a. Both monopolistic competition and perfect competition are characterized by product differentiation.

To maximize profit (or minimize losses), the firm will produce a. 50 units. b. 30 units. c. 20 units.

b. 30 units

Which of the following statements is correct? a. The more similar Firm A's product is to Firm B's product, the more likely Firm A is to advertise. b. Brand names may help consumers if they provide information about the quality of a product when acquiring such information is difficult. c. Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face. d. According to the signaling theory, the more product information an advertisement contains the more effective it is.

b. Brand names may help consumers if they provide information about the quality of product when acquiring such information is difficult.

For a monopolistically competitive firm, a. marginal revenue and price are the same. b. at the profit-maximizing quantity of output, marginal revenue equals marginal cost. c. at the profit-maximizing quantity of output, price equals marginal cost. d. at the profit-maximizing quantity of output, price equals the minimum of average total cost.

b. at the profit-maximizing quantity of output, marginal revenue 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, consumers in Boston are likely to experience a a. product-variety externality, which is a negative externality. b. product-variety externality, which is a positive externality. c. business-stealing externality, which is a positive externality. d. business-stealing externality, which is a negative externality. Hide Feedback

b. product-variety externality, which is a positive externality

Refer to Figure 16-8. Assume a monopolistically competitive firm is currently producing the profit-maximizing level of output. Which of the following represents the excess capacity of this firm? a. GH b. There is no excess capacity. c. LM d. BJ

c. LM

Which of the following statements is correct? a. Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves facing each firm. b. Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products. c. Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers. d. Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market

c. Monopolistic competition is similar to monopoly because both market structure are characterized by firms being price makers rather than price takers

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short run and the long run? a. MC = ATC b. P < MR c. P > MC d. P = ATC

c. P > MC

In monopolistically competitive markets, free entry and exit suggests that a. some firms will be able to earn economic profits in the long run. b. the market structure will eventually be characterized by perfect competition in the long run. c. all firms earn zero economic profits in the long run. d. some firms will be forced to incur economic losses in the long run

c. all firms earn zero economic profit 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 a. increase the welfare of society. b. reduce its average total cost. c. be able to increase its markup over marginal cost. d. eventually have to reduce price to remain competitive.

c. be able to increase its markup over marginal cost

Refer to Figure 16-2. What price will the monopolistically competitive firm charge in this market? a. $60 b. $75 c. $70 d. $80

d. $80

Refer to Table 16-4. If the government forced Beatrice's to produce at the efficient scale of output, what is the maximum profit Beatrice's could earn? a. $67 b. $101 c. $126 d. $59

d. 59

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms, a. marginal revenue will equal average total cost. b. marginal cost will exceed average total cost. c. average total cost will be rising. d. price will exceed marginal cost.

d. Price will exceed marginal cost

Refer to Figure 16-5. Given this firm's cost curves, if the firm were perfectly competitive rather than monopolistically competitive, then in a long-run equilibrium it would produce a. 133.33 units of output. b. between 100 and 133.33 units of output. c. less than 100 units of output. d. more than 133.33 units of output

d. more than 133.3 units of output

Professional organizations and producer groups have an incentive to a. encourage advertising in order to enhance competition on the basis of price. b. encourage advertising in order to reduce competition on the basis of price. c. restrict advertising in order to enhance competition on the basis of price. d. restrict advertising in order to reduce competition on the basis of price.

d. restrict advertising in order to reduce competition on the basis of price