Econ CH 15

The broccoli market is perfectly competitive. This means that the price of broccoli is _____ than if the market were monopolistically competitive, and broccoli output is _____ than if it were monopolistically competitive. A. lower; higher B. higher; higher C. higher; lower D. lower; lower

A

In the long run, monopolistically competitive firms: a. cannot earn an economic profit. b. produce so that marginal cost equals price. c. produce at the level that minimizes average total cost. d. set marginal revenue equal to price.

a

In large shopping malls, the retail clothing market is most illustrative of: a. perfect oligopoly. b. monopolistic competition. c. perfect competition. d. monopoly.

b

A(n) _____ is a single firm with _____, whereas a(n) _____ implies an industry with _____ firm(s) and _____. a. oligopoly; no barriers to entry; monopoly; many; easy entry and exit b. monopoly; barriers to entry; oligopoly; few; no barriers to entry c. monopolistic competitor; barriers to entry; monopoly; one; barriers to entry d. monopoly; barriers to entry; monopolistic competition; many; easy entry and exit

d

If economic profits are positive in the pizza industry in Seaside New Jersey, new firms will _____ the industry and any individual firm will see a _______ in the demand for its product

enter; decrease

An industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit of firms is: a. a duopoly. b. monopolistically competitive. c. an oligopoly. d. a monopoly.

b

An industry characterized by many competitors, each producing identical products, with free entry and exit, is described as: a. oligopolistic. b. monopolistically competitive. c. perfectly competitive. d. monopolistic.

c

Suppose a monopolistically competitive firm is making a profit, but it can increase its profits by increasing output. At the current level of output: A. price is less than marginal cost. B. marginal revenue is less than marginal cost. C. marginal revenue is greater than marginal cost. D. price is less than average total cost.

c

A brand name may be valuable because it differentiates a company's products in the minds of consumers. True False

true

The model of monopolistic competition characterizes the market for plumbing services in a city. Suppose that the market is in long-run equilibrium. For a typical plumbing firm, price: a. equals average total cost. b. is less than average total cost. c. is greater than the average for all other firms in the market. d. exceeds average total cost.

a

An industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit of firms is: a. a monopoly. b. monopolistically competitive. c. an oligopoly. d. a duopoly.

b

Monopolistic competition is characterized by: a. few producers. b. free entry and exit in the long run. c. each firm producing a standardized product. d. barriers to entry.

b

Monopolistically competitive firms produce less than the output at which average total cost is minimized in the long run. As a result, there is: a. zero economic profit. b. excess capacity. c. product differentiation. d. irrational capacity.

b

Monopolistically competitive firms produce less than the output at which average total cost is minimized in the long run. As a result, there is: a. irrational capacity. b. excess capacity. c. zero economic profit. d. product differentiation.

b

Monopolistically competitive firms: a. are very similar to perfect competitors in producing at the minimum ATC. b. earn a positive economic profit if price is greater than ATC. c. engage in collusive activity to maximize profit. d. will set price where MC > MR.

b

Product differentiation under monopolistic competition means that each firm: a. charges the same price. b. faces a downward-sloping demand curve. c. always receives economic profits. d. maximizes profit where MC = P.

b

The model of monopolistic competition characterizes the market for plumbing services in a city. This market is initially in long-run equilibrium, but then there is an increase in market demand for plumbing services. We expect that in the long run: a. there will be a short-run increase in the number of firms, but then the number will return to the original level. b. new firms will enter the plumbing market. c. firms will leave the plumbing market. d. firms will shut down, but they will not leave the industry.

b

An industry characterized by many firms producing similar but differentiated products in a market with easy entry and exit is called: a. perfectly competitive. b. monopolistic. c. monopolistically competitive. d. oligopolistic.

c

Defenders of advertising argue that it: a. encourages artificial product differentiation. b. facilitates the concentration of monopoly power. c. provides education and information about products. d. seeks to persuade rather than inform buyers.

c

Defenders of advertising argue that it: a. seeks to persuade rather than inform buyers. b. encourages artificial product differentiation. c. provides education and information about products. d. facilitates the concentration of monopoly power.

c

Firms in monopolistic competition can acquire some market power by: a. engaging in tacit collusion. b. differentiating the product. c. using price competition. d. increasing their output to the perfectly competitive level.

c

If a firm operating in monopolistic competition is producing a quantity that generates MC = MR, then the marginal decision rule tells us that profit: a. can be increased by decreasing the price. b. can be increased by decreasing production. c. is maximized. d. is maximized only if MC = P.

c

In monopolistic competition, each firm: a. has marginal revenue that is greater than price. b. is a price taker. c. has some ability to set the price of its differentiated good. d. will set price equal to marginal cost.

c

The problem of wasteful duplication in monopolistic competition is due to: a. a lack of physical and human capital. b. barriers to entry. c. excess capacity. d. the lack of close substitutes for products produced by monopolistically competitive firms.

c

Toby operates a small deli downtown. The deli industry is monopolistically competitive. In the long run, Toby will produce where: a. price equals marginal cost. b. price equals marginal revenue. c. marginal revenue equals marginal cost. d. price equals minimum average total cost.

c

Toby operates a small deli downtown. The deli industry is monopolistically competitive. Toby is producing the quantity that minimizes his average total cost. Assuming that Toby is maximizing profits, his: a. marginal cost is less than his marginal revenue. b. price equals his average total cost. c. price is more than his average total cost. d. marginal cost is less than his average total cost.

c

The problem of wasteful duplication in monopolistic competition is due to: a. barriers to entry. b. a lack of physical and human capital. c. the lack of close substitutes for products produced by monopolistically competitive firms. d. excess capacity.

d

The sources of product differentiation do NOT include: a. differences in quality. b. differences in location. c. the perception by consumers that products are different, even if they are physically identical. d. consumers' value in uniformity.

d

The sources of product differentiation do NOT include: a. differences in quality. b. the perception by consumers that products are different, even if they are physically identical. c. differences in location. d. consumers' value in uniformity.

d

Toby operates a small deli downtown. The deli industry is monopolistically competitive. If some delis leave the industry, Toby's _____ curve will shift to the _____. a. marginal cost; left b. demand; left c. marginal cost; right d. demand; right

d

Only irrational consumers are affected by advertising. False True

false

Brand names offer some assurance that the seller has a reputation to protect and hopes to be engaged in repeated transactions with its customers. False True

true

Economics textbooks are an example of product differentiation by type and style. True False

true

Monopolistic competition is often found in service industries. False True

true

The fact that firms in a monopolistically competitive industry are competing for a limited market is called competition among sellers. False True

true

Value in diversity means that by providing a variety of differentiated choices, firms in monopolistic competition provide a gain to consumers. True False

true

Monopolistically competitive firms produce less than the output at which average total cost is minimized in the long run. As a result, there is: A. irrational capacity. B. zero economic profit. C. excess capacity. D. product differentiation.

C

The price for a firm under monopolistic competition is _____ revenue. A. equal to marginal B. less than marginal C. greater than marginal D. greater than total

C

Monopolistic competitors often hire a celebrity spokesperson to advertise their product. One reason such advertising works is that: A. consumers assume that the celebrity has researched the product and that the claims being made on his or her behalf are true. B. celebrities are better informed about the relative merits of different products than the rest of us. C. celebrities encourage other firms to enter the industry. D. the fact that a firm is willing to pay the large fees associated with celebrity advertising signals consumers that it is a major company and that it is therefore likely to have a reliable product.

D

Monopolistic competition is unique among the four market structures in that it is the only one that is always characterized by product differentiation. False True

false

A firm in monopolistic competition maximizes its profit by producing so that: a. MC = MR. b. MC = P. c. MC = AR. d. MC = ATC.

a

A monopolistic competitor will advertise to: a. increase demand for its product. b. produce on the upward-sloping portion of its ATC curve. c. collude more effectively with other firms. d. reduce excess capacity.

a

For a monopolistically competitive firm, Q = 160 - P; MC = 20 + 2Q; and TC = 20Q + Q2 + 20. Given the information in the scenario Monopolistically Competitive Firm, what is the profit-maximizing price for this firm in the short run? a. $125 b. $160 c. $180 d. $40

a

If the toothpaste market is monopolistically competitive, product differentiation may take the form of: a. production of many varieties of toothpaste, including those with whitening agents; differentiation in the locations where certain toothpastes are available; and quality differences among the various brands. b. quality differences among the various brands. c. production of many varieties of toothpaste, including those with whitening agents. d. differentiation in the locations where certain toothpastes are available.

a

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of java. For these customers, coffee is differentiated by: a. quality. b. type. c. style. d. location.

a

The downward-sloping demand curve for a monopolistically competitive firm: a. reflects product differentiation. b. eventually will become perfectly elastic as more firms enter. c. ensures that the firm will produce at minimum average cost in the long run. d. indicates collusion among firms in the industry.

a

Because monopolistically competitive firms charge a price that is greater than marginal cost: a. the marginal benefit to society of an additional unit of output is below its cost. b. monopolistic competition is inefficient. c. monopolistic competition is inefficient and the marginal benefit to society of an additional unit of output is below its cost. d. monopolistic competition is efficient.

b

General Snacks is a typical firm in a market characterized by the model of monopolistic competition. Initially, the market is initially in long-run equilibrium, and then there is an increase in the market demand for snacks. We expect that: a. there will be a short-run increase in the number of firms, but in the long run the number of firms will return to the original level. b. in the long run, new firms will enter the market. c. firms will shut down, but they will not leave the industry in the long run. d. firms will leave the market in the long run.

b

In the long run, if a monopolistically competitive firm produces the optimal level of output: a. P = ATC = MR = MC. b. P = ATC > MR = MC. c. P > ATC > MR = MC. d. P = ATC > MR > MC.

b

In the long run, monopolistically competitive firms: a. produce at the level that minimizes average total cost. b. set marginal revenue equal to price. c. cannot earn an economic profit. d. produce so that marginal cost equals price.

c

Monopolistic competition describes an industry characterized by: a. a horizontal demand curve. b. barriers to entry and exit. c. a product with many close substitutes. d. a small number of firms.

c

Monopolistically competitive firms: a. will set price where MC > MR. b. are very similar to perfect competitors in producing at the minimum ATC. c. earn a positive economic profit if price is greater than ATC. d. engage in collusive activity to maximize profit.

c

An industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit of firms is: a. a duopoly. b. an oligopoly. c. monopolistically d. competitive.

d

If a firm operating in monopolistic competition is producing a quantity that generates MC < MR, then the marginal decision rule tells us that profit: a. is maximized only if MC = P. b. can be increased by increasing the price. c. can be increased by decreasing production. d. can be increased by increasing production.

d

If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run: a. economic profits will increase. b. the demand curves faced by existing firms will move to the right. c. firms will leave the industry. d. economic profits will be reduced to zero.

d

Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year. In the long run, the demand for any one firm's dry-cleaning services will _____ as more firms enter the industry, causing economic profits to _____. a. not change; fall b. increase; increase c. decrease; become economic losses d. decrease; fall to zero

d

Relying on brand names will always lead consumers to the best consumption choices if they buy the brand name rather than a cheaper substitute. False True

false

Negative profits (losses) will cause firms to _____ the industry. For a remaining firm the impact will be to see its share of the market grow and demand for the typical firm will _______.

exit; increase

Advertising is more likely to occur in perfect competition than in monopolistic competition. True False

false

Firms in monopolistic competition and in perfect competition have excess capacity. True False

false