monopolistic competition

Match the situation to the type of product differentiation

A Mercedes-Benz 4-door is more expensive than a Nissan 4-door Quality One clothing brand releases fresh, off-the-runway looks every season, while another sticks to classic designs Style/ type A gas station right off the highway attracts more customers than another 6 miles away Location One tech company sells laptops, while another focuses on tablets. Style/ type One restaurant chain sells $2 burgers, while another farm-to-table restaurant sells burgers for $7 Quality

Which market best illustrates a monopolistically competitive market? Egg Retail clothing Overnight delivery service Residential electric

Retail clothing

Which of the following is most likely to be be a part of a market that resembles monopolistic competition? Dairy farms Crude oil drillers Power companies Shoe stores

Shoe stores

Do the following situations describe perfect competition or monopolistic competition?

A copper manufacturer sells products for a price that is equal to the marginal cost (P=MC)- perfect competition A candy company produces a level of output that is less than what would be needed to minimize average total cost- Monopolistic competition A retailer charges a price that is $10 than the marginal cost of producing the clothing- monopolistic competition An ice cream shop operates with excess capacity.- Monopolistic competition A firm makes zero economic profits in the long run- both

Match the reasons for advertising to the appropriate market structure

Advertising occurs remind or inform consumers of a unique product- Monopoly Advertising occurs on an industry level for similar products- Perfect competition Advertising occurs to attract customers away from a competitor- Monopolistic competition

A monopolistically competitive firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal cost equal to $6, and has average cost equal to $12. From this information we can infer that _____. All of the following answer choices are correct. the profits of the firm are negative firms are likely to leave this market in the long run the firm is currently maximizing its profit

All of the following answer choices are correct.

How does the Federal Trade Commission (FTC) influence advertising? Decides what firms can advertise Limits the number of ads Enforces truth-in-advertising laws Regulates costs of ads

Enforces truth-in-advertising laws

A pizza company that charges $2 more than a competitors will never survive in the long run in monopolistic competition True False

False

The paradox of advertising means that no firms in industries should advertise. True False

False

Which of the following is a consequence of product differentiation? Product differentiation makes market entry difficult Greater product differentiation creates greater inefficiency. Product differentiation makes customers confused Product differentiation drives prices down

Greater product differentiation creates greater inefficiency.

Select all of the characteristics of monopolistic competition Only a few sellers Low barriers to entry Many different firms Minimal advertising Product differentiation

Low barriers to entry Many different firms Product differentiation

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market? Monopoly Perfect competition Monopolistic competition Monopsony

Monopolistic competition

Do the following situations describe monopolistic competition or monopoly?

There no close substitutes for a firm's product- Monopoly Firms advertise to emphasize different characteristics of their products from competitors'- Monopolistic competition Economic profit is possible in the long run- Monopoly This firm is not productively or allocatively efficient- Both The inefficiencies in this market may warrant government intervention- Monopoly

Some firms have an incentive to advertise because they sell a _____. similar product and charge a price equal to marginal cost similar product and charge a price above marginal cost differentiated product and charge a price equal to marginal cost differentiated product and charge a price above marginal cost

differentiated product and charge a price above marginal cost

Monopolistic competition differs from perfect competition because in monopolistically competitive markets _____. there are barriers to entry all firms can eventually earn economic profits each of the sellers offers a somewhat different product strategic interactions between firms are important

each of the sellers offers a somewhat different product

A monopolistic competitor finds its profit-maximizing rate of output by _____. equating the marginal revenue from advertising with the marginal revenue from selling the good setting average revenue equal to average cost equating marginal revenue and marginal cost equating price and marginal revenue

equating marginal revenue and marginal cost

In comparison to perfect competition, monopolistic competition is characterized by _____. All of the answer choices are correct. pricing at marginal cost excess capacity efficient scale

excess capacity

A men's suit business is monopolistically competitive. If the business has a marginal revenue of $200 and a marginal cost of $150, then in order to maximize profit, the business will _____. cease operations and go out of business continue supplying the current number of men's suits to the market decrease the number of men's suits supplied to the market increase the number of men's suits supplied to the market

increase the number of men's suits supplied to the market

The distinguishing of products by brand name, color, and other attributes _____. is known as interdependence is known as product differentiation leads to many firms in the market leads to collusion

is known as product differentiation

Suppose that the men's suit business is monopolistically competitive. It follows that the marginal revenue of any firm in the industry _____ the price. is greater than is less than is equal to has no relation to

is less than

When a monopolistically competitive firm raises its price, _____. quantity demanded falls to zero quantity demanded declines but not to zero the market supply curve shifts outward quantity demanded remains constant

quantity demanded declines but not to zero

The best example of monopolistic competition is the _____ market. tobacco restaurant steel automobile

restaurant

Examples of monopolistically competitive markets include the markets for _____. restaurants and furniture wheat and corn postage stamps and wooden pencils professional baseball

restaurants and furniture

As firms exit a monopolistically competitive market, profits of remaining firms _____. decline, and product diversity in the market decreases. decline, and product diversity in the market increases. rise, and product diversity in the market decreases. rise, and product diversity in the market increases.

rise, and product diversity in the market decreases

If the fast-food industry is monopolistically competitive, then a profit-maximizing firm in this industry sells its product at a price _____. equal to average variable cost so as to maximize the difference between marginal revenue and marginal cost so that marginal revenue and marginal cost are equal equal to marginal cost

so that marginal revenue and marginal cost are equal

All of the following are assumptions of monopolistic competition EXCEPT _____. many buyers and sellers standardized product easy entry of new firms profit-maximizing behavior

standardized product

In monopolistically competitive markets, economic losses _____. suggest that some existing firms will exit the market suggest that new firms will enter the market are minimized through government-imposed barriers to entry are never possible

suggest that some existing firms will exit the market

Under monopolistic competition a firm's ability to influence the price of the product it sells arises because _____. sellers in the market have large market shares sellers in the market have small market shares the product of each seller is differentiated from that of others each seller sells a standardized product

the product of each seller is differentiated from that of others

If a monopolistically competitive firm is earning positive profit in the short-run, then _____. these profits will persist in the long-run because of the firm's limited monopoly power these profits will be eliminated in the long-run as new firms enter the industry its output will increase in the long-run price will be driven down to minimum average total cost in the long-run

these profits will be eliminated in the long-run as new firms enter the industry

In the short-run, a monopolistically competitive firm can earn _____. positive profits only zero profits only zero or positive profits only zero, positive, or negative profits

zero, positive, or negative profits