Microeconomics Quiz CH 13
Suppose the figure to the right represents the market for a particular brand of shampoo, such as L'Oreal, Lancome, or Maybelline. Assume the market is monopolistically competitive. What is the firm's profit-maximizing price and quantity? The monopolistically competitive firm's profit-maximizing quantity is 10 thousand bottles of shampoo, and its profit-maximizing price is $2 per bottle. (Enter your responses as integers.) What are the firm's profits? Profit equals $2 thousand.
10 2 2
As new firms enter the market, a monopolistically competitive firm can maintain profits by
A and C only.
Which of the following statements is correct? A.Legally enforcing trademarks can be difficult. .B. Establishing franchises is the best strategy to protect a firm's brand name. C. Brand names can be easily protected, especially as time goes by. D. All of the above are correct.
Legally enforcing trademarks can be difficult.
A monopolistically competitive firm doesn't produce where P = MC like a perfectly competitive firm because
P exceeds MR for a monopolistically competitive firm, and it's MR that must equal MC for profit maximization.
Which of the following statements is true?
The firm is not allocatively efficient because the profit-maximizing price exceeds marginal cost
Which of the following statements is true?
The firm is not productively efficient because the profit-maximizing price is not at the minimum of average total cost.
If marginal revenue slopes downward, which of the following is true?
The firm must decrease its price to sell a larger quantity.
Define marketing. Is marketing just another name for advertising? Marketing is
all the activities necessary for a firm to sell a product including advertising, product design, and product distribution
A monopolistically competitive firm is not productively efficient because it produces a level of output where
average total cost is not at a minimum.
The monopolistically competitive firm sells _________ product and faces _________ demand curve.
a differentiated; a downward-sloping
William Germano previously served as the vice president and publishing director at the Routledge publishing company. He once gave the following description of how a publisher might deal with an unexpected increase in the cost of publishing a book: "It's often asked why the publisher can't simply raise the price [if costs increase]... It's likely that the editor [is already]... charging as much as the market will bear. ... In other words, you might be willing to pay $50.00 for a ... book on the Brooklyn Bridge, but if... production costs [increase] by 25 percent, you might think $62.50 is too much to pay, though that would be what the publisher needs to charge. And indeed the publisher may determine that $50.00 is this book's ceilinglong dash—the most you would pay before deciding to rent a movie instead." Source: William Germano, Getting It Published: A Guide to Scholars and Anyone Else Serious about Serious Books, Chicago: University of Chicago Press, 2001, pp. 110-111. According to the graph on the right and what you have learned in this chapter, a monopolistically competitive firm responds to an increase in cost by adjusting the price upward . This model does not fit Germano's description because he assumes what? A. Demand is perfectly elastic. Your answer is correct.B. Demand is perfectly inelastic. C. Demand is very, though not perfectly, elastic. D. Demand is unit-elastic. If a publisher does not raise the price of a book following an increase in its production cost, the result will be A. a negative economic profit. B. economic losses. C. less than maximum profit. Your answer is correct.D. All of the above. The ability of a publishing company to raise book prices when costs increase would be greater, the lower is the elasticity of demand for published books.
Upward Demand is perfectly elastic less than maximum profit lower
There are many wheat farms in the United States, and there are also more than 1,800 Chipotle restaurants. Why, then, does a Chipotle restaurant face a downward-sloping demand curve when a wheat farmer faces a horizontal demand curve?
Wheat is a homogeneous good, while Chipotle is able to differentiate its food from other restaurants.
Consider the graph to the right. Is it possible to say whether this firm is a perfectly competitive firm or a monopolistically competitive firm?
Yes. This is a monopolistically competitive firm because its demand curve is downward sloping. Short-run Positive 6
There are about 400 wineries in California's Napa Valley. Suppose the owner of one of the winerieslong dash—Jerry's Wine Emporiumlong dash—raises the price of his wine by $5.00 per bottle. If the industry is perfectly competitive, the reaction of consumers would be to
buy wine from another winery.
The entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to shift to the left because ______ and become more elastic since ______.
each will have a smaller share of the existing market; consumers will have additional choices
Use the graph to the right for Elijah's burgers: If Elijah produces at the profit-maximizing level of output, his total revenue will be $54405 Elijah's total cost is $4080 Elijah is earning $1360
fall as new firms enter the market.
A monopolistically competitive firm in a long-run equilibrium produces where
its demand curve is tangent to its average total cost curve.
What is brand management? Brand management is designed to
maintain product differentiation.
Is zero economic profit inevitable in the long run for monopolistically competitive firms? In the long run, monopolistically competitive firms
may continue to earn profit by improving their productimproving their product.
Which type of efficiency does a monopolistically competitive firm achieve in the long run?
neither allocative nor productive efficiency
A monopolistically competitive firm produces where _________, while a perfectly competitive firm produces where _________.
price is greater than marginal cost; price is equal to marginal cost
Suppose a local McDonald's hamburger restaurant raises the price of its cheeseburgers from $2.00 to $2.50. What will happen to the quantity of McDonald's cheeseburgers demanded? If McDonald's raises the price of it's cheeseburgers, then
some of McDonald's customers, but not all of them, will still demand McDonald's cheeseburgers because they may prefer McDonald's cheeseburgers to cheeseburgers at other fast minus food restaurantsthey may prefer McDonald's cheeseburgers to cheeseburgers at other fast−food restaurants.
Do consumers benefit in any way from monopolistic competition relative to perfect competition? Compared to perfect competition, when a consumer purchases a product from a monopolistically competitive firm, the consumer benefits from purchasing a product
that is more closely suited to their tastesis more closely suited to their tastes.
Which of the following is a threat to a trademarked company name? Trademarked brands are threatened by
their names becoming so widely used for a type of product that they no longer are associated with a specific company.
Does the fact that monopolistically competitive markets are not allocatively or productively efficient mean that there is a significant loss in economic well-being to society in these markets? Though monopolistically competitive markets are not allocatively or productively efficient, consumers benefit in that
they are able to purchase a differentiated product that more closely suits their tastes.
At the profit-maximizing level of output, how much economic profit is this firm earning?
Zero, because at the profit-maximizing output level, the price equals average total cost.
When a firm advertises a product, it is trying to shift the demand curve for the product to the ________ and make it more ________.
right; inelastic
What is a key factor that determines a firm's profitability?
All of the above
Which of the following is an example of a trademarked name that has become so widely used for a type of product that it is no longer associated with the product of a specific company?
Aspirin
A monopolistically competitive firm has excess capacity in the sense that if it increased output beyond the quantity associated with profit maximization, it could produce at a lower _____________ cost.
Average
What trade-offs do consumers face when buying a product from a monopolistically competitive firm?
Consumers pay a price greater than marginal cost, but they also have choices more suited to their tastes.
How does the entry of new coffeehouses affect the profits of existing coffeehouses?
Entry will decrease the profits of existing coffeehouses by shifting each of their individual demand curves to the left and making the demand curves more elastic.
An increase in the price of cappuccino will increase the quantity of cappuccinos demanded
False
If the industry is monopolistically competitive, the reaction of consumers
could be to remain loyal to Jerry's and pay the higher price.
What are the key factors that determine the profitability of a firm in a monopolistically competitive market? Monopolistically competitive firms will be profitable to the extent that they
differentiate their product and produce at lower average cost than competitors.
