Chapter 13 Learn Smart Microeconomics torture

Demand for monopolistically competitive firms is ______.

less elastic than demand for firms in pure competition due to fewer rivals and relative product differentiation

In the short run, monopolistically competitive firms maximize profits or minimize losses by producing the output level where

marginal revenue equals marginal cost.

The four-firm concentration ratio and the Herfindahl index measure ______.

industry concentration

In general, industries that typically have lower Herfindahl index values are ______.

monopolistically competitive rather than oligopolistic

A monopolistic competitor's demand curve is ______.

more elastic than that of a pure monopoly but less elastic than that of a firm in pure competition

In the figure given, what is the economic profit of a monopolistically competitive firm when it is producing optimally?

(P1- A1) x Q1

Which factors contribute to the likelihood of a monopolistically competitive firm sustaining a greater than normal profit in the long run?

-Increased financial barriers to entry due to product differentiation -Sufficient product differentiation that other firms cannot duplicate

If the four largest firms in an industry produce 20, 10, 7, and 3 units of output, respectively, and total industry output is 100 units, then the four-firm concentration ratio equals ______.

40%

Suppose an industry has two firms each with 50% market share. The Herfindahl index for this industry is ______.

5,000

Suppose an industry has ten firms. Three of the firms produce 200 units of output each, one produces 150 units, two of the firms produce 75 units each, and four of the firms produce 25 units each. The four-firm concentration ratio for this industry equals ______.

75%

Suppose an industry has 10 firms and each has a 10% share of the market. This industry's Herfindahl index is

Blank 1: 1000

The equality of price and minimum average total cost yields Blank 1Blank 1 production , Incorrect Unavailable efficiency; the equality of price and marginal cost yields Blank 2Blank 2 allocative , Incorrect Unavailable efficiency. (Enter one word in each blank.)

Blank 1: allocative Blank 2: productive

A good way to describe Blank 1Blank 1 monopolistic , Correct Unavailable (monopolistic/oligopolistic) competition is that it mixes a small amount of monopoly power with a large amount of competition, while Blank 2Blank 2 oligopolistic , Correct Unavailable (monopoly/oligopoly) blends a large amount of monopoly power, a small amount of competition through entry, and considerable rivalry among firms.

Blank 1: monopolistic Blank 2: oligopoly or oligopolistic

B-Balls, a manufacturer of athletic balls, is facing increased competition due to the entry of several new firms into the industry. These new competitors have resulted in reduced demand for B-Balls' basketballs, and the company is losing money. Which of the following steps should B-Balls take regarding price in order to minimize losses until some firms exit the industry?

Set its price at its new reduced level of demand where the MC curve intersects the MR curv

Why does each monopolistically competitive firm generally have limited control over market price?

Each firm has a relatively small percentage of the total market.

Which of the following is a measure of industry concentration that equals the sum of the squared percentage market shares of all firms in the industry?

Herfindahl index

Which of the following produce variations of a particular product?

Monopolistically competitive firms

-------competition is competition illustrated through product differentiation and advertising.

Nonprice

Andrea and Robert are considering operating a retail jewelry store. Robert has been designing jewelry for a wholesaler since graduating from college. Andrea was a business major and is evaluating if they can increase their income by being in business for themselves. Which of the following characteristics show that the industry they wish to enter is a monopolistically competitive industry?

Opening a retail jewelry store is relatively easy. There are many places to buy jewelry.

Allocative efficiency is achieved in the short run when the equality of which of the following occurs?

P = MC

Achieving economic efficiency that uses the right amount of scarce resources to produce the right amount of output requires a triple equality. Which three components must be equal?

Price Marginal cost Minimum average total cost

In the long run, a monopolistic competitor fails to achieve which of the following?

Productive efficiency Allocative efficiency

Which of the following scenarios does not illustrate the concept of product differentiation based on service?

Some stores may charge different prices.

Why is collusion unlikely in a monopolistically competitive industry?

The industry has a relatively large number of firms.

Which statement is true about an industry and the Herfindahl index?

The lower the index, the more likely the industry is monopolistically competitive.

B-Balls, a manufacturer of athletic balls, is facing increased competition due to the entry of several new firms into the industry. These new competitors have resulted in reduced demand for B-Balls' basketballs, and the company is losing money. What should B-Balls do in regard to output for their basketballs to help minimize losses until some firms exit the industry?

They should reduce output to wherever their new MR curve equals the MC curve caused by a leftward shift in demand.

What will happen to a monopolistically competitive firm in the long run?

break even

The monopolistically competitive firm's economic profit per unit when producing at Q1 units of output ______.

is the difference between P1 and A1 Reason: Recall that profit can be calculated as price minus average total cost (ATC) multiplied by output. Here, P1 represents price and A1 represents ATC at Q1 units of output.

The equality of price and marginal cost yields Blank 1Blank 1 allocative , Correct Unavailable_ (allocative/productive) efficienc

allocative

Monopolistically competitive firms are not productively efficient because output is less than society's optimal level because a producer's ______.

average total cost per unit is not at its lowest possible cost

Entry of new firms into monopolistically competitive industries is relatively easy because ______.

capital requirements are low

In monopolistically competitive industries

collusion is unlikely because there is a large number of firms.

Entry into monopolistically competitive industries is

easy compared to oligopoly.

When Mary tried to get an appointment with a local dentist she was told that the earliest the doctor could see her was in three weeks. This may have been due to a lack of ______. Multiple choice question.

excess capacity

When plant and equipment are underutilized because firms are producing less than the minimum-ATC output, this is known as having ______.

excess capacity productive inefficiency

Concentration ratios that use national market share numbers are limited in usefulness because they ______.

fail to account for highly localized industries

When measuring industry concentration, the ____ is the ratio of sales of the four largest firms in an industry relative to total industry sales.

four-firm concentration ratio

In monopolistically competitive industries, small stores with high prices can compete with larger stores by

having very convenient locations for customers.

The demand curve faced by a monopolistically competitive firm is _____.

highly but not perfectly elastic. Reason: It is elastic because the monopolistically competitive seller has many competitors producing closely substitutable goods, the latter being a determinant of the elasticity of demand.

The goal of advertising a product to differentiate it from competitor's products so that price is less of a factor when a consumer makes a purchase is considered ______ competition.

nonprice

In long-run equilibrium, monopolistically competitive firms will show a(n) _____.

normal

Productive efficiency in monopolistically competitive markets does not occur in the long run because firms set the price

on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective.

Monopolistically competitive firms do not achieve allocative efficiency because the _____.

price for a monopolistically competitive firm exceeds the marginal cost

When a business secures a convenient store location even if it means higher prices and less selection, it is known as

product differentiation

When a firm's price is equal to its minimum average total cost of producing a product, ___ exists.

productive efficiency

Entry to and exit from monopolistically competitive industries is ______.

relatively easy

Compared with oligopoly and monopoly, entry of new firms into monopolistically competitive industries is

relatively easy because economies of scale are few.

The four-firm concentration ratio, expressed as a percentage, is the ratio of the total industry _ of the four largest firms in an industry relative to total industry sales.

sales, output, or production

If a monopolistically competitive firm is producing where its marginal revenue is less than its marginal cost, then the firm

should produce less output to increase profits or reduce losses.

Industry concentration measures the extent to which ______. Multiple choice question.

the largest firms account for industry output

The elasticities of the demand curves for firms in monopolistically competitive (MC) industries will become more like that of firms in pure competition as ______.

the number of rivals increases and product differentiation grows weaker

The Herfindahl index equals ______.

the sum of the squared percentage market shares of all firms in an industry

The Herfindahl index equals the ______.

the sum of the squared percentage market shares of all firms in an industry

A monopolistically competitive firm may be able to continue earning greater than a normal profit in the long run ______.

through further product differentiation Reason: The stronger the product differentiation (variety), the more likely the firm will retain some of its monopoly power even in the long run.

True or false: Concentration ratios that use national market share numbers are of limited help because they do not account for the fact that competition in many industries is concentrated in local markets.

true

Economic efficiency occurs when firms produce ______.

where P = MC = minimum ATC Reason: The equality of price and minimum ATC yields productive efficiency; whereas the equality of price and MC yield allocative efficiency. Together, they yield economic efficiency.