Microeconomics chapter 13

If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry sales), you are calculating the

Herfindahl Index

The economic inefficiencies of monopolistic competition may be offset by the fact that

consumers have increased product variety.

Monopolistic competition is characterized by a

large number of firms and low entry barriers.

The monopolistically competitive seller's demand curve will become more elastic the

larger the number of competitors.

A monopolistically competitive industry combines elements of both competition and monopoly. The competition element results from

low entry barriers

Raising the minimum wage in the restaurant industry

makes it more difficult for mom and pop restaurants to compete with highly capitalized chain restaurants.

When a monopolistically competitive firm is in long-run equilibrium,

marginal revenue equals marginal cost and price equals average total cost.

The monopolistically competitive seller maximizes profit by producing at the point where

marginal revenue equals marginal cost.

Suppose the Herfindahl indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that

market power is greatest in industry C

In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits

may be either equal to ATC, less than ATC, or more than ATC.

Monopolistically competitive firms

may realize either profits or losses in the short run but realize normal profits in the long run.

The restaurant, legal assistance, and clothing industries are each illustrations of

monopolistic competition

Under monopolistic competition, entry to the industry is

more difficult than under pure competition but not nearly as difficult as under pure monopoly.

Concentration ratios measure the

percentage of total industry sales accounted for by the largest firms in the industry.

In the long run, a monopolistically competitive firm

produces where P=ATC

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from

product differentiation

In which of these continuums of degrees of competition (highest to lowest) is monopolistic competition properly placed?

pure competition, monopolistic competition, oligopoly, pure monopoly

In which of the following market models do demand and marginal revenue diverge?

pure monopoly, oligopoly, and monopolistic competition

Which of the following is not a basic characteristic of monopolistic competition?

recognized mutual interdependence

The Herfindahl index for a pure monopolist is

10,000

Assume the top six firms comprising an industry have market shares of 10, 8, 8, 5, 5, and 4 percent. The remaining 20 firms each have market shares of 2 percent. The Herfindahl index for this industry is

374

Which of the following is correct for a monopolistically competitive firm in long-run equilibrium?

P exceeds minimum ATC

Which of the following is correct about excess capacity?

The greater the degree of product variation, the greater is the excess capacity problem.

A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from

a relatively large number of firms and the monopolistic element from product differentiation.

In the long run, a profit-maximizing monopolistically competitive firm sets it price

above marginal cost

Nonprice competition refers to

advertising, product promotion, and changes in the real or perceived characteristics of a product.

Monopolistic competition resembles pure competition because

barriers to entry are either weak or nonexistent.

Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia

can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.

The price elasticity of a monopolistically competitive firm's demand curve varies

directly with the number of competitors but inversely with the degree of product differentiation.

In long-run equilibrium, both purely competitive and monopolistically competitive firms will

equate marginal cost and marginal revenue.

In the long run, the price charged by a monopolistically competitive firm seeking to maximize profit will

exceed MC, but equal ATC.

The four-firm sales concentration ratio for an industry measures the

extent to which the four largest firms dominate the production of a good.

The monopolistic competition model assumes that

firms will engage in nonprice competition

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

former sells similar, although not identical, products.

The Herfindahl index

gives much greater weight to larger firms than to smaller firms in an industry.

The less elastic a monopolistic competitor's long-run demand curve, the

greater its excess capacity.

Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264. These data suggest

greater market power in Y than in X.

A monopolistically competitive firm has a

highly elastic demand curve

A monopolistically competitive firm's marginal revenue curve

is downsloping and lies below the demand curve.

If the four-firm concentration ratio for industry X is 80,

the four largest firms account for 80 percent of total sales.

If an industry evolves from oligopoly to monopolistic competition, we would expect

the four-firm concentration ratio to decrease

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes,

the industry would more closely approximate pure competition

Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million, respectively. We can conclude that

this industry is monopolistically competitive

In monopolistically competitive markets, resources are

underallocated because long-run equilibrium occurs where price exceeds marginal cost.

In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits

will be equal to ATC.