chapter 25 Monopolistic Competition

Which of the following is a characteristic of a monopolistically competitive​ market?

Long-run profits equal to zero

All of the following are key characteristics of a monopolistically competitive industry except

a homogeneous product

Which of the following is an example of a credence good​?

legal advice

Which of the following is not a characteristic of a monopolistically competitive market?

long-run profits likely to be positive

In comparing the​ long-run equilibrium of perfect competition and monopolistic​ competition, which of the following is true?

Perfect​ competition: P​ = MC​ = minimum of ATC and zero economic​ profits; Monopolistic​ competition: P​ > MC, P​ > minimum ATC and zero economic profits.

Which of the following characteristics applies to a monopolistically competitive industry?

Products are​ similar, but not​ identical, to​ competitors' products.

In a perfectly competitive​ market, price equals marginal​ cost, but this condition is not satisfied for the firm with the revenue and cost conditions depicted in the figure on the right. In the long​ run, what would happen if the government decided to require the firm in the figure to charge a price equal to marginal cost at the​ firm's long-run output​ rate? (graph)

The firm will incur a loss of $8 per unit and this and other firms will leave the industry

Firms will enter a monopolistically competitive industry when there are

economic profits. This will shift demand to the​ left, thus reducing each​ firm's market share and economic profits.

Information products use information-intensive inputs and are characterized by

high fixed costs but low marginal costs.

Monopolistic competition is similar to perfect competition because

in both industry structures, there are no barriers to entry.

The difference between monopolistic competition and pure monopoly is that in comparison to monopolistic​ competition, pure monopoly has

one firm, a unique product, price control, and entry barriers

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $ 5.25​, price is $ 4.25​, marginal revenue is $ 2.50​, and marginal cost is $ 3.00. This firm is

operating at a loss and is producing too many units to maximize profits

If there is no product differentiation at​ all, then the individual firm has a demand curve that is

perfectly elastic and identical to the firm in perfect competition

The greater the monopolistically competitive firm's success at product differentiation the lower is (are) the firm's

price elasticity of demand

Critics argue that monopolistically competitive markets are wasteful because

price exceeds marginal cost and minimum average total cost

In which industry is monopolistic competition most likely to be found?

retail trade

In the short run, a monopolistically competitive firm will

select the rate of output where marginal revenue equals marginal cost.

The downward slope of the demand curve of a monopolistically competitive firm implies that the firm has

some monopoly power over​ price, and therefore advertising may increase profits.

What does the long-run price equal for an informational product?

the price equals average total costs

If a firm is selling a search good it is more likely to

use informational advertising

Which of the following is not true of both firms in monopolistic competition and firms in perfect​ competition?

Both types of firms produce at minimum ATC

No individual's firm is a monopolistically competitive market will advertise.

False

The more it costs to enter a monopolistically competitive​ market, the more a firm currently in that market must worry about losing business.

False

Which of the following characteristics is true for both perfectly competitive and monopolistically competitive firms in the long​ run?

There are zero economic profits.

Which of the following goods would most likely be advertised using largely informative advertising?

a car

Which of the following goods would most likely be advertised using largely persuasive ​advertising?

a hair styling salon

Which of the following goods would most likely be advertised using a mix of informative and persuasive ​advertising?

a pharmaceutical company

Which of the following is an example of an experience good?

a restaurant meal

When the qualities of a good are relatively easy to assess in advance of their​ purchase, the good is known as

a search good

Assume that every time you wanted to take this quiz you were charged a fee. The​ publisher's cost for developing the quizzes and making them available does not vary with the number of times you or anyone else takes the quizzes. These quizzes

are known as an informational product

Consider a monopolistically competitive firm with the revenue and cost conditions depicted in the figure on the right. Which of the following statements best​ describe(s) the​ firm's behavior that it is charging a price greater than marginal​ cost? I. The firm is behaving anticompetitively and taking advantage of consumers. II. The firm is charging a price over and above the minimum average total cost to cover for the cost of product differentiation. III. Consumers willingly accept the increased production costs in return for more choice and variety of output.

both II and III

Products with qualities that consumers lack the expertise to assess without assistance are

credence goods

The main objective of advertising for a monopolistically competitive firm is to

differentiate its product from those of other firms and boost demand.

For a monopolistic​ competitor, short-run profits will tend to​ ________ in the long run and​ short-run losses will tend to​ ________ in the long run.

disappear; disappear

An individual firm in a monopolistically competitive industry faces a​ ________ demand curve and​ a(n) ________ marginal revenue curve.

downward-sloping; downward-sloping

The number of firms in a monopolistically competitive market means that

each firm has a relatively small share of the total market since there are many firms in the industry.

The monopolistically competitive firm in the diagram is (graph)

earning positive economic profits

In the long run, a monopolistically competitive firm will

make zero economic profits.

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $ 4.25​, price is $ 4.50​, marginal revenue is $ 2.25​, and marginal cost is $ 2.25. This firm is

making positive profits but is maximizing profits.

Advertising intended to reach as many consumers as possible, typically through television, newspaper, or magazine ads is

mass marketing