Principles of Microeconomics Chapter 13: Monopolistic Competition((((((((

AR (average revenue)

TR/Q

marketing

all the activities necessary for a firm to sell a product to a consumer

Quantity Price (dollars) Total Revenue (dollars) Total Variable Cost (dollars) Total Cost (dollars) 0 $21 $0 $0 $50 1 20 20 16 66 2 19 38 31 81 3 18 54 45 95 4 17 68 59 109 5 16 80 75 125 6 15 90 93 143 7 14 98 112 162 8 13 104 140 190 9 12 108 180 230 10 11 110 230 280 Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm. Refer to Table 13-3. What is the amount of the firm's loss at its optimal output level? A) $0 B) $41 C) $45 D) $50

B) $41

1 $75 $75 $60 2 70 140 85 3 65 195 105 4 60 240 115 5 55 275 130 6 50 300 155 7 45 315 190 8 40 320 230 9 35 315 280 Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules. Refer to Table 13-2. What is the output (Q) that maximizes profit and what is the price (P) charged? A) P=$55; Q=5 cases B) P=$50; Q=6 cases C) P=$45; Q=7 cases D) P=$40; Q=8 cases

B) P=$50; Q=6 cases

Why do most firms in monopolistic competition typically make zero profit in the long run? A) because firms do not produce at their minimum efficient scale B) because the lack of entry barriers would compete away profits C) because the total market is not large enough to accommodate so many firms D) because firms produce differentiated products

B) because the lack of entry barriers would compete away profits

If a monopolistically competitive firm breaks even, the firm A) is earning zero accounting and zero economic profit. B) is earning an accounting profit and will have to pay taxes on that profit. C) should advertise its product to stimulate demand. D) should expand production.

B) is earning an accounting profit and will have to pay taxes on that profit. (Accounting profit only covers explicit costs)

In monopolistic competition there is/are A) only one seller who faces a downward-sloping demand curve. B) many sellers who each face a downward-sloping demand curve. C) a few sellers who each face a downward-sloping demand curve. D) many sellers who each face a perfectly elastic demand curve.

B) many sellers who each face a downward-sloping demand curve.

The key characteristics of a monopolistically competitive market structure include A) sellers have no incentive to advertise their products. B) many small (relative to the total market) sellers acting independently. C) barriers to entry are strong. D) all sellers sell a homogeneous product.

B) many small (relative to the total market) sellers acting independently.

Quantity Price (dollars) Total Revenue (dollars) Total Variable Cost (dollars) Total Cost (dollars) 0 $21 $0 $0 $50 1 20 20 16 66 2 19 38 31 81 3 18 54 45 95 4 17 68 59 109 5 16 80 75 125 6 15 90 93 143 7 14 98 112 162 8 13 104 140 190 9 12 108 180 230 10 11 110 230 280 Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm. Refer to Table 13-3. What is its average variable cost of production at its optimal output level? A) $0 (because its optimal output =0) B) $15 C) $14.75 D) $29

C) $14.75

Which of the following is true of a typical firm in a monopolistically competitive industry? A) Product differentiation allows a successful firm to emerge as a market leader in the industry. B) The more successful firms have an incentive to merge in order to exert greater market power. C) Each firm acts independently. D) All firms have identical cost structures.

C) Each firm acts independently.

Which of the following characteristics is not common to monopolistic competition and perfect competition? A) Firms act to maximize profit. B) Entry barriers into the industry are low. C) Firms take market prices as given. D) The market demand curve is downward -sloping.

C) Firms take market prices as given.

Quantity Price (dollars) Total Revenue (dollars) Total Variable Cost (dollars) Total Cost (dollars) 0 $21 $0 $0 $50 1 20 20 16 66 2 19 38 31 81 3 18 54 45 95 4 17 68 59 109 5 16 80 75 125 6 15 90 93 143 7 14 98 112 162 8 13 104 140 190 9 12 108 180 230 10 11 110 230 280 Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm. Refer to Table 13-3. If this firm continues to produce, what is likely to happen to the product's price in the long run? A) It will fall. B) It will remain constant. C) It will increase D) It cannot be determined without information on its long run demand curve.

C) It will increase

Figure 13-7 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-7. If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run? A) Inefficient firms will exit the market and new cost efficient firms will enter the market. B) The firms that are making losses will be purchased by their more successful rivals. C) Some firms will exit the market causing the demand to increase for firms remaining in the market. D) Firms will have to raise their prices to cover costs of production.

C) Some firms will exit the market causing the demand to increase for firms remaining in the market.

A trademark is A) a patent on a firm's product. B) a legal right to position a firm's product in high-traffic public areas such as airports and post offices. C) a distinguishing attribute such as a sign or logo that allows a firm to uniquely identify its product. D) a legal instrument which grants a firm the right to differentiate its product.

C) a distinguishing attribute such as a sign or logo that allows a firm to uniquely identify its product.

Some of the advantages Netflix had over companies like Blockbuster and Wal-Mart in successfully competing in the mail order DVD rental business include all of the following except A) an efficient system of processing DVDs returned from customers. B) a national system of warehouses allowing for quick customer delivery. C) an extensive system of storefront operations where customers could rent DVDs in person. D) a quick turnaround of mailing out the customer's next DVD once the previous one was returned.

C) an extensive system of storefront operations where customers could rent DVDs in person.

If the demand curve for a firm is downward-sloping, its marginal revenue curve A) is horizontal. B) will lie above the demand curve. C) will lie below the demand curve. D) is the same as the demand curve.

C) will lie below the demand curve.

Refer to Figure 13-6. What is the monopolistic competitor's profit maximizing price? A) P1 B) P2 C) P3 D) P4

D) P4

Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful? A) changing consumer tastes B) a rise in the price of a key input, for example, a rise in the price of oil leads to higher energy costs C) the number of competitors in the market D) the ability to produce the product at a lower cost

D) the ability to produce the product at a lower cost

Refer to Figure 13-2. The marginal revenue from selling the additional unit Qb instead of Qa equals A) the area G. B) the area (G + H). C) the area (E + F) - (G + H). D) the area (H - E).

D) the area (H - E).

Profits= (pi)=

(P-ATC) * q

Characteristics of Monopolistic Competition

- low barriers to entry - many firms compete by selling similar, but not identical products (differentiated)

profits in the long run

0 profits, because of easy entry,, as long as there are economic gains new firms come in. When new firms come in the demand for the existing firms decreases, thus profits decrease until it reaches 0 economic profits in the long run

Is a monopolistically competitive firm productively efficient? A) No, because it does not produce at minimum average total cost. B) Yes, because price equals average total cost. C) Yes, because it produces where marginal cost equals marginal revenue. D) No, because price is greater than marginal cost.

A) No, because it does not produce at minimum average total cost.

Firms such as Caribou Coffee and Diedrich Coffee operate hundreds of coffeehouses nationwide while firms such as Dunn Brothers Coffee operate only in four states. How would you characterize these stores? A) They are all monopolistic competitors. B) Caribou Coffee and Diedrich Coffee are duopolists while Dunn Brothers is an oligopolist C) Caribou Coffee and Diedrich Coffee are oligopolists while Dunn Brothers is a monopolistic competitor. D) Caribou Coffee and Diedrich Coffee are duopolists while Dunn Brothers is a monopolistic competitor.

A) They are all monopolistic competitors.

A monopolistically competitive industry that earns economic profits in the short run will A) experience the entry of new rival firms into the industry in the long run. B) experience the exit of existing firms out of the industry in the long run. C) experience a rise in demand in the long run. D) continue to earn economic profits in the long run.

A) experience the entry of new rival firms into the industry in the long run.

MR=

change in TR/ change in Q

Advertising

is informative, provides info and reduces searching costs, in order to find what you are looking for reducing searching costs- could make you buy thing you don't really need

allocative efficiency

producing all goods up to the point where consumers are paying the least possible

productive efficiency

producing items at the lowest possible cost

Brand Management

the actions of a firm intended to maintain the differentiation of a product over time

When the demand curve is tangent to the ATC curve

the firm is experiencing 0 economic profits and not minimizing production cost, just breaking even- new firms stop coming and people begin to leave the market [[once people leave the market the demand will go back up and prices will increase]]

with advertising

you want to increase demands and decrease elasticity of demand

maximizing profits

MR=MC then they go up to the demand curve and select the price people are willing to pay for the product

TR

P *Q

What makes a firm successful

Profitability- biggest indicator