ECON 2302 - Hw #9

In which of the following market structures is(are) there a large number of sellers? (i) monopolistic competition (ii) perfect competition (iii) oligopoly

(i) and (ii) only

A concentration ratio

All of the Above. - Measures the percentage of total output supplied by the four largest firms in the industry. - Reflects the level of competition in an industry. - Is related to the control that each firm has over price

Advertising

All of the above are correct.

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

All of the above. - Average revenue exceeds marginal revenue price exceeds marginal cost. - Marginal revenue equals marginal cost. - Price exceeds marginal cost.

Critics of advertising argue that advertising

All of the above. - Creates desires that otherwise might not exist. - Hinders competition. - Often fails to convey substantive information.

Suppose that average total cost is $18 when Q=12. What is the profit-maximizing price and resulting profit?

P=$18, profit=$0

A monopolistically competitive market has characteristics that are similar to

both a monopoly and a competitive firm.

Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its

demand curve and its average total cost curve.

A firm in a monopolistically competitive market faces a

downward-sloping demand curve because the firm's product is different from those offered by other firms.

In a long-run equilibrium,

excess capacity applies to monopolistically competitive firms but not to competitive firms.

Which of the following is a characteristic of monopolistic competition?

free entry.

Monopolistic competition is an inefficient market structure because

it has a deadweight loss, just as monopoly does.

A monopolistically competitive industry is characterized by

many firms selling products that are similar but not identical.

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market?

monopolistic competition

Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry?

panel b

As firms exit a monopolistically competitive market, profits of remaining firms

rise, and product diversity in the market decreases.

On a vacation to China, you find yourself eating every meal at the local Burger King rather than buying a meal from one of the street vendors. Your traveling companion claims that you are irrational, since you never eat Burger King hamburgers when you are home, and Burger King's hamburgers cost more than the meals prepared and sold by China's street vendors. An economist would most likely explain your behavior by suggesting that

the Burger King brand name suggests consistent quality.

A study of the market for optometrists' services in the 1960s showed that

the average price of eyeglasses would decrease if the legal restrictions on advertising by optometrists were removed.

A business-stealing externality is

the negative externality associated with entry of new firms in a monopolistically competitive market.

A firm operating in a monopolistically competitive market can earn economic profits in

the short run but not in the long run.