CH 12 Econ

MC and PC have 2 key differences between them:

1. Excess capacity 2. Markup (MC has both of these bc of downward sloping demand curve, PC doesn't have either bc of perfectly elastic demand curve)

Chose the statement that is incorrect:

A brand name gives the produce an incentive to create below-standard products after customers become loyal.

Monopolistic competition is a market structure in which:

A large number of firms compete. Each firm produced a differentiated product. Firms compete on product quality, price and marketing. Firms are free to enter and exit the industry.

Choose the statement that is incorrect:

A. advertising is a signal B. advertising always increases the demand for any one firm C. advertising doesn't need any specific product information to be effective D. advertising is a fixed cost

Which of the following is not an example of MC?

A. clothing B. strawberries C. sporting goods D. computers

A brand created an efficient market.

False

The firms that are most likely to produce expensive and hard to miss advertising are firms that produce inferior products.

False

Advertising expenditures increase the costs of a _____ above those of a _____.

MC firm; PC firm or monopoly

MC makes a profit when

P > ATC

The presence of a large number of firms has three implications for the firms in the industry:

Small market share (each firm's price can deviate from the average price of other firms by only a relatively small amount) Ignore other firms (bc all the firms are relatively small, no one firm can dictate market conditions, so no one firm's action directly affect the actions of other firms) Collusion impossible (firms in MC would like to be able to conspire to fix a higher price-called collusion. but bc the number of firms in MC is large, coordination is difficult and collusion is not possible)

In the long run, the economic profit of a firm is ____

ZERO.

Bc of product differentiation, a firm in MC faces ____ demand curve for the food it produces

a downward-sloping

Excess capacity

a firm has this if it produces lass than its efficient scale, which is the quantity at the bottom of the U shaped ATC curve.

Product differentiation

a firm practices this if it makes a product that is slightly different form the products of competing firms. A differentiated product is a close substitute, but not perfect.

Which of the following industries is an example of MC?

audio and video equipment

In the short run, a firm in MC _____.

can incur an economic loss

In MC,

each firm has limited power to influence the price of its product.

In the short run, firms in MC make ____ profit, then in the long run, new firms will enter the market. The ____ the good produced by each individual firm will _____. In the new long-run equilibrium, firms will make _____ profit.

economic; demand; decrease; zero economic

If all firms advertise, the demand for a firm's output becomes more

elastic. Firms produce a larger quantity, price falls, and mark-up shrinks

Advertising expenditures are ____ costs and the per unit cost ____ as production increases

fixed; decreases

Product differentiation ____.

is making a product that is a close substitute but not a perfect substitute for the products of other firms.

Markup

is the amount by which price exceeds marginal cost.

In MC in the long run, firms ____.

make a normal profit and have excess capacity

In the long run, a firm in monopolistic competition maximizes its profit by producing the quantity at which its ____ ____ equals its ____ ____

marginal revenue equals its marginal cost, MR = MC.

In the short run, a MC firm ____.

may incur an economic loss

All the existing firms in a MC market advertise, and the number of firms in the market increases. The demand for any one firm's product decreases. The demand faced by any one firm becomes ____ elastic, and the profit-maximizing price ____, and the markup _____.

more, decreases, decreases.

In MC, ____.

no one firm's scions directly affect the actions of other firms.

The firm's markup is the amount by which _____ at the equilibrium quantity.

price exceeds marginal cost

In the long run, a firm in MC ____.

produces a profit-maximizing output that is less than its efficient scale.

Product differentiation enables a firm to compete with other firms in three areas:

product quality, price and marketing

Relative to successful advertising, with no advertising the profit-maximizing output is ____, the markup is _____, and the price is _____.

small; large; high

As firms enter the industry, each existing firm loses some of its market share which causes:

the demand curve to shift leftward, decreases the quantity at which MR = MC and lowers the maximum price that the firm can charge to sell this quantity.

Which of the following statements about a firm in MC is incorrect?

the firm's markup results from the firm' producing the quantity at which marginal cost doesn't equal marginal revenue.

If the firm successfully advertises, the quantity produced increases such that _____.

total cost increases and average total cost decreases

Without advertising, a firm sells 25 paris of shoes a day. If the firm advertises and sells 100 pairs a day, ____.

total cost increases, but average total cost decreases.

Monopolistic competition has _____ barriers to prevent new firms from entering the industry

zero.