Microeconomics 2106 Homework Set #11

The following diagram depicts firms in monopolistically competitive markets. Refer to Exhibit 14-4. If the firm maximizes profit, it will: A. charge $50 per pair of blue jeans. B. charge $48 per pair of blue jeans. C. charge $34 per pair of blue jeans. D. charge $45 per pair of blue jeans.

A. charge $50 per pair of blue jeans.

A monopolistically competitive firm differs from a perfectly competitive firm in that a monopolistically competitive firm: A. faces a downward-sloping demand curve for its product. B. faces a horizontal demand curve at the market-clearing price. C. is able to earn profits in the long run. D. faces virtually no barriers to entry.

A. faces a downward-sloping demand curve for its product.

In monopolistically competitive markets, advertising is an ____ type of non-price competition because it is used to ____ the demand for a firm's products. A. important; increase B. unimportant; increase C. important; decrease D. unimportant; decrease

A. important; increase

When a firm's demand curve is tangent to its average total cost curve: A. the firm must be operating in a monopolistically competitive market. B. economic profits are zero. C. the firm must be earning economic profits. D. the firm must be incurring economic losses.

B. economic profits are zero.

If toothpaste manufacturers compete in a monopolistically competitive market, then: A. firms are price takers. B. firms try to differentiate their products from those of competitors. C. firms maximize profits by choosing output where price equals marginal cost. D. there are significant barriers to entering the toothpaste industry.

B. firms try to differentiate their products from those of competitors.

The following diagram depicts firms in monopolistically competitive markets. Refer to Exhibit 14-4. The extent of excess capacity of this firm is: A. 11,000 pairs of blue jeans. B. 7,000 pairs of blue jeans. C. 4,000 pairs of blue jeans. D. 1,000 pairs of blue jeans.

C. 4,000 pairs of blue jeans.

Monopolistic competitors and perfect competitors are alike in: A. facing horizontal demand curves. B. earning zero economic profit in the short run. C. earning zero economic profit in the long run. D. relying on advertising to attract buyers to their products.

C. earning zero economic profit in the long run.

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of their rooms are full). This excess capacity is indicative of a(n) ____ industry. A. perfectly competitive B. monopoly C. monopolistically competitive D. oligopoly

C. monopolistically competitive

If firms in a monopolistically competitive industry are making economic profits: A. firms will likely be subject to regulation. B. barriers to entry will be strengthened. C. new firms will enter the market. D. some firms must exit the market.

C. new firms will enter the market.

The following diagram depicts firms in monopolistically competitive markets. Refer to Exhibit 14-4. If the firm maximizes profit, it will: A. produce 11,000 pairs of blue jeans each month. B. produce 10,000 pairs of blue jeans each month. C. produce 7,000 pairs of blue jeans each month. D. produce 4,000 pairs of blue jeans each month.

C. produce 7,000 pairs of blue jeans each month.

If Mary wants to use advertising to reduce the elasticity of demand for her dry cleaning services, she should make sure the advertising: A. clearly states the prices she charges. B. shows that she is producing a product like the other dry cleaners in town. C. shows why her services are truly different from the other dry cleaners in town. D. does none of the above.

C. shows why her services are truly different from the other dry cleaners in town.

In monopolistically competitive markets, economic profits ____, and ____ shifts the demand curve of the remaining firms to the ____. A. signal some remaining firms to exit; exit; right B. signal some remaining firms to exit; exit; left C. signal new firms to enter; entry; left D. signal new firms to enter; entry; right

C. signal new firms to enter; entry; left

The following diagram depicts firms in monopolistically competitive markets. Refer to Exhibit 14-4. Based on the diagram above, one can surmise that: A. new firms will enter the blue jeans industry. B. existing firms will exit the blue jeans industry. C. the industry is in long-run equilibrium. D. blue jeans will be produced at minimum average total cost.

C. the industry is in long-run equilibrium.

The following diagrams depict firms in monopolistically competitive markets. Refer to Exhibit 14-3. Graph ____ demonstrates firms entering the market, and a resulting ____ of the firm's share of the market. A. A; increase B. B; increase C. A; decrease D. B; decrease

D. B; decrease

Monopolistic competition is characterized by: A. homogeneous products. B. barriers to entry C. firms earning economic profits in the long run. D. differentiated products.

D. differentiated products.

The following diagram depicts firms in monopolistically competitive markets. Refer to Exhibit 14-4. If the firm maximizes profit, it will: A. earn $64,000 in profit this month. B. earn $112,000 in profit this month. C. earn $30,000 in profit this month. D. earn zero economic profits this month.

D. earn zero economic profits this month.