Econ Units 16, 17

which of the following statements about expenditures on advertising is true? -When a firm spends a large amt of money on advertising, advertising can be construed as a signal of quality. -if a firm knows its product is of low quality, it will be willing to spend large amts of money on advertising. -When a firm spends a small amt of money on advertising, this signals that the quality of the good is high.

-When a firm spends a large amt of money on advertising, advertising can be construed as a signal of quality.

Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost. How much additional profit can the restaurant earn by switching to the use of a tying strategy to price salads and steaks rather than pricing these goods separately?

-$6 explanation: With $20 steaks and $7 salads, they will sell one steak and 2 salads to the customers 20+7+7=34. If they tie the price to Ms.Leafygreen's willingness to pay, $20, they can get $20 from each customer 20+20=40. 40-34=$6 profit

Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. If the marginal cost of producing this good is 4, how much total consumer surplus would consumers receive in this market?

-32 explanation: since MC is $4, we need to find the qty where MR=4. 4=20-2Q -16=-2Q Q=8. Since P=20-Q, P=12. P-MC(8) * Q(8)=64/2=32

Which of the following is a reason advertising can be economically wasteful? -Advertising provide consumers with price and quality information about products. -Advertising manipulates people's tastes and can reduce competition. -The most effective advertising is very expensive and, therefore, wasteful.

-Advertising manipulates people's tastes and can reduce competition. They say ads are psychological, not very informational

Which of the following statements about brand names is true? -Brand names give the sellers an incentive to provide consistently high-quality products and services in order to protect the reputation of the brand. -Brand names are always economically wasteful and they dupe consumers into buying more expensive goods and services that are no different from generic versions. -It is always rational to prefer brand names over generic substitutions.

-Brand names give the sellers an incentive to provide consistently high-quality products and services in order to protect the reputation of the brand.

The only dominant strategy in this game is for _____ to choose _____. The outcome reflecting the unique Nash equilibrium in this game is as follows: Felix chooses _____ and Janet chooses _____.

-Janet; left -right; left, because Janet's only dominant strategy is to choose left, and Felix's best choice if she chooses left is right, so these two choices are a Nash equilibrium

Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that _____ at the optimal qty for each firm. Furthermore, the qty the firm produces in long-run equilibrium is _____ the efficient scale. T/F?: This indicates that there is excess capacity in the market for jackets.

-P=ATC; less than -true

Heat-Em-Up is the only firm producing grills. It costs $410 to produce a grill, and Heat-Em-Up sells each grill for $1k. After Well Done, a new firm with the same costs as Heat-Em-Up, enters the market for grills, Heat-Em-Up starts selling its grills for a price of $330. Tying, resale price maintenance or predatory pricing?

-Predatory Pricing because it is a price cut intended to drive the other firm out of the market

The Robinson-Patman Act (1936)

-Prohibits any form of price discrimination that has the effect of reducing competition among wholesalers or retailers

Chrissy and Marvin are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $10,000. If neither of them advertise, each will earn a profit of $20,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $30,000 and the other will earn $14,000. To earn the highest profit, Chrissy's dominant strategy is....

-She has no dominant strategy.

Suppose that the leaders of several oil corporations hold a secret meeting in the Cayman Islands where they agree to restrict fuel output in order to boost prices. As a result of the higher fuel prices, an airline company loses billions of dollars. This airline company could recover three times the damages it has sustained by suing the appropriate oil corporations under which of the following laws? -The Clayton Act of 1914 -The Sherman Antitrust Act of 1890 -The Robinson-Patman Act of 1936 -The Celler-Kefauver Act of 1950

-The Clayton Act of 1914 This act bolstered antitrust law by allowing the awarding of triple damages to entities harmed by anticompetitive practices. This aspect of the act was intended to encourage lawsuits against oligopolists who conspire.

Suppose that two American investment banks negotiate a merger agreement because a financial crisis threatens to bankrupt both firms. This merger could potentially be stopped by a lawsuit brought on by which of the following American Institutions? -The Defense Dept. -The Justice Dept. -The Commerce Dept. -The Interior Dept.

-The Justice Dept. This institution, as well as private parties, has the power to initiate lawsuits to prevent mergers that could result in a single firm having excess market power. The Commerce Dept. is responsible for promoting economic growth, the Defense Dept. maintains the military, and the Interior Dept. manages federal land and programs for indigenous people.

Suppose that the presidents of two auto manufacturing companies exchange text messages in which they discuss jointly raising prices on their new lines of hybrid SUVs. This illegal communication would violate which of the following laws? -The Clayton Act of 1914 -The Sherman Antitrust Act of 1890 -The Robinson-Patman Act of 1936 -The Celler-Kefauver Act of 1950

-The Sherman Antitrust Act of 1890 This act outlaws attempts to monopolize trade or commerce in the US.

Book Bound sells a wide variety of books to retail bookstores. Book Bound recently purchased two new books: a popular mystery novel and a much less popular history book. Book Bound requires bookstores to buy 15 copies of the history book for every 140 copies of the mystery novel ordered. Tying, resale price maintenance or predatory pricing?

-Tying: because two goods are tied together at a single price rather than separately

Monopolistic competition

-many sellers: competing for the same customers -product differentiation: products that are similar but not identical -in a monopolistically competitive market, there is free entry and exit until firms make zero economic profit in long-run -produce qty below efficient scale, so they're said to have excess capacity

Musashi and Rina have cheated on their cartel agreement and increased production by 25 gallons more than the cartel amount. However, they both realize that if they continue to increase output beyond this amount, they'll each suffer a decrease in profit. (To see this for yourself consider me a profit when he produces 50 gallons more than the cartel amount compared to his profit when he produces 25 gallons more than the cartel amount. Profit@25 gallons more=225; profit@50 gallons more=225) Neither Musashi nor Rina has an incentive to increase output further, nor does either have an incentive to decrease output. This outcome is an ex. of _____.

-a Nash equilibrium

Cartel model of oligopoly

-a model where oligopolies act as if they were monopolists that have assigned output quotas to individual firms of the cartel so that output qty is profit-maximizing -they work together like a monopolist to produce the exact Q where MR=MC, at the price on the demand curve -if someone deviates on their collusive agreement to produce more, the market price falls, profit for the partner falls, and total industry profit decreases.

Prisoner's Dilemma

-a particularly important game theory "game" defined by a certain payoff structure and inability of players to collude -provides insight into the difficulty of maintaining cooperation

Nash Equilibrium

-a situation in which each firm chooses the best strategy, given the strategies chosen by other firms

Dominant Strategy

-a strategy that is the best for a firm, regardless of what strategies are chosen other firms

Payoff Matrix

-a table that shows all elements of a game: all players, potential strategies, and possible payoffs each firm earns from every combination of strategies by the firms -examined via game theory techniques to help predict the outcome of the game

Competitive market vs. monopolistic competitive market

-both have many sellers -both have free entry -competitive market sells identical products -monopolistic competitive market sells differentiated products -P=ATC in long-run for both markets

Markup

-competitive firms have no mrkt power, so they set P=to mC or they will lose all customers. -Monopolistically competitive firms, have some mrkt power, leading to a markup of price above MC in L.-R, but they still earn zero economic profit b/c ATC=P -

While shopping for soda, Eleanor is trying to determine whether to purchase the generic cola or the generic brand cola. Although she would not notice the difference between the two in a blind taste test, she buys the higher-priced Zcola because she has seen it advertised as being "the drink that's the life of the party!" This illustrates a common _____ of advertising.

-critique, by manipulation of people's tastes

Shen is initially unsure about which laundry detergent to buy: Stainz-Out or Ocean Fresh Thanks to advertising, he has learned that Ocean Fresh is a cheaper product with roughly the same quality as Stainz-Out. Therefore, he chooses to buy Ccean Fresh the next time he needs more laundry detergent. This illustrates a common _____ of advertising.

-defense, by fostering competition

Product-Variety externality

-entry of a new firm conveys a positive externality on consumers because they get some consumer surplus from the introduction of a new product -if there is too little entry into a monopolistically competitive market, the product variety externality is present.

By bundling the two soft drinks together, Chug-a-lug can force convenient stores to pay more than they would be willing to pay when purchasing the soft drinks separately. T/F?

-false, forcing convenience stores to accept worthless products as part of the deal will not increase their willingness to pay

All economists believe that predatory pricing is a profitable business strategy. T/F?

-false, some are doubtful because big losses are incurred during price wars

Only 3 airlines fly prom San Francisco to Oregon. No new airline will enter this market b/c there aren't enough customers to share among 4 or more airlines without higher costs. Consumers view all airlines as the same service and will shop for the lowest price. What is the number of firms, type of product, and market model for this scenario?

-few firms -identical products -oligopoly

Oligopoly

-few sellers in market -product similar or identical -not the perfectly competitive ideal

Which of the following statements are true about both monopolistic competition and monopolies? -firms are not price takers -price is above marginal cost -firms can earn positive profit in the long run -firms earn zero profit in the long run

-firms are not price takers and price is above marginal cost

Monopolistic competitors in the Long-Run

-if firms are making profits, new firms enter, causing the demand curves to shift to the left -if firms are making losses, some firms exit, causing the demand curve to shift to the right -at long-run equilibrium, P=ATC (tangent) where MR=MC, and firms earn zero economic profit

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is one...

-in which both Bonnie and Clyde confess.

business-stealing externality

-inefficiency. if there is too much entry into a monopolistically competitive market, the business-stealing externality is present. -entry of a new firm imposes a negative externality on existing firms because this causes other firms to lose customers and profit

In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel like its coffee tastes better than its competitors. What is the number of firms, type of product, and market model for this scenario?

-many firms -differentiated products -monopolistic competition

There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer they can. While manufacturers must pay licensing fees to undergo regular food-safety inspections, anyone who passed inspections can acquire and maintain their license. What is the number of firms, type of product, and market model for this scenario?

-many producers -identical products -perfect competition

Monopolistic competitors in the Short-Run

-maximize profit by producing the qty at which marginal revenue equals marginal cost -at this qty, price is greater than MR -if P>ATC where MR=MC, there is a profit -if P<ATC where MR=MC, there is a loss

Concentration Ratio

-measures a market's domination by an oligopoly -percentage of total output in the market is supplied by the four largest firms.

Given the profit-maximizing choice of output and price in a monopolistic competition, the shop is making a negative profit, which means there are _____ shops in the industry relative to long run equilibrium. When firms leave the market in long run, demand curve will shift _____.

-more -right

An oligopolistic market structure is distinguished by several characteristics, one of which is either similar or identical products. Which of the following are other characteristics of this market structure? -Mutual dependence -mutual interdependence -difficult entry -markets controlled by a few large firms -market controlled by many small firms

-mutual interdependence -difficult entry -markets controlled by a few large firms

What term best describes "a set of strategies (one for each player) in which each player's strategy is the best option for that player, given the chosen strategy of the player's opponents"?

-nash equilibrium

How is monopolistic competition different from monopoly?

-no free entry into monopoly, but there is in monopolistic competition -monopoly has one product with no close substitutes, and can earn positive economic profit even in the long run -in monopolistic competition, products are differentiated, and economic profits are zero

A publishing co. owns the US copyright to a popular series of books. It is the only company with the legal right to publish these books in the US. What is the number of firms, type of product, and market model for this scenario?

-one firm -unique product -monopoly market

The Celler-Kefauver Act of 1950

-prevents mergers or buying up assets of other companies when aimed at reducing competition or forming a monopoly

TalkieTime is a firm that produces smartphones. Suppose TalkieTime sells its smartphones to retail stores for $209 each and requires those retailers to charge customers at least $229 for each smartphone. Tying, resale price maintenance or predatory pricing? T/F?: The only reason for TalkieTime to require retailers to sell smartphones at a certain price is to reduce competition and extend market power to the retail market. Therefore, this practice is always economically inefficient.

-resale price maintenance because there is a contractual agreement that the retail store cannot sell for less than $229 -False, TalkieTime doesn't care about having power in the retail market. They would want to do it because sometimes resale price maintenance is used to promote economic efficiency such as when the sales go towards hiring educated employees with higher standards.

If the ATC<demand price where MC=MR, a monopolistically competitive market is operating in the _____ -run and earning a _____ economic profit.

-short; positive

What separates few sellers from many sellers?

-the any is never clear cut, so it can be debatable

Collusion

-the event of an agreement among firms about which strategies to implement for a markets prices and output -a cartel is one possible outcome of collusion

A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

-the firm is currently maximizing its profit. (b/c MR=MC<P)

Note that Edison and Hilary started by cooperating. However, one Edison cheated, Hilary decided to as well. In other words, Hilary's output decisions are based on Edison's decisions. This behavior is an ex. of _____.

-tit-for-tat strategy

Based on the fact that both Edison and Hilary increased production from the initial cartel qty, you know that the output effect was larger than the price effect at this qty. T/F?

-true b/c the output effect increases TR when qty increases, but price effect decreases TR as qty increases. The output effect was larger because they both could individually increase revenue with higher production than cartel qty.

Output effect

-when a higher quantity output increases total revenue

price effect

-when a lower price decreases total revenue

The following table shows the percentage of output supplied by the top eight firms in four different industries. What is the concentration ratio in Industry A?

92%

Which of the following statements is not correct?

An industry with many brand name products will be more competitive than one with many generic products.

​ Which of the following goods is most likely to be associated with monopolistic competition? -gasoline -cookies -milk -wheat

Cookies

Suppose the following are the sales for all of the firms in two different industries. What are the concentration ratios for these industries?

Industry A: 68%, Industry B: 79%

Which of the following statements is not correct?

Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face.

Two CEOs from different firms in the same market collude to fix the price in the market. This action violates the

Sherman Antitrust Act of 1890.

Which of the following best describes the idea of excess capacity in monopolistic competition?

The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve.

Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff matrix below shows the net gain or loss to each firm. Which firms have a dominant strategy? a. A but not B b. Neither A nor B c. A and B

a. A but not B

Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H), comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits: Does either Firm W or Firm H have a dominant strategy? a. Both Firm W and Firm H have a dominant strategy. b. Firm W has one, but Firm H does not. c. neither have a dominant strategy.

a. Both Firm W and Firm H have a dominant strategy.

Other things the same, in which case is the quantity produced the highest? a. There are a very large number of firms. b. few firms c. one firm

a. There are a very large number of firms.

Under which of the following market structures would consumers likely receive the most product variety? a. monopolistic competition b. oligopoly c. monopoly d. perfect competition

a. monopolistic competition, (this is a positive externality of monopolistic competitions)

As the number of firms in an oligopoly increases... a. the total quantity of output produced by firms in the market gets closer to the socially efficient quantity. b. the output effect decreases c. the oligopoly has more market power and firms can earn more profit

a. the total quantity of output produced by firms in the market gets closer to the socially efficient quantity. explanation: b/c more firms increase competition.

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together... a. they are unable to maintain the same degree of monopoly power enjoyed by a monopolist. b. society is worse off as a result b. each firm's profits always end up being zero

a. they are unable to maintain the same degree of monopoly power enjoyed by a monopolist.

When a firm operates with excess capacity,

additional production would lower the average total cost.

In the study done by Lee Benham on advertising for eyeglasses,

advertising decreased the average price

The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16. The socially efficient level of output supplied to this market is a. 8,000 b. 6,000 c. 4,000

b. 6,000

Assume that Bart's Batteries has entered into a resale price maintenance agreement with Radio Shanty but not with Prime Purchase. In this case... a.Radio Shanty will sell Bart's Battery's at a lower price than Prime Purchase. b. Prime Purchase might benefit from customers who go to Radio Shanty for information about different batteries. c. the wholesale price of Bart's Battery's will be different for Radio Shanty than it is for Prime Purchase.

b. Prime Purchase might benefit from customers who go to Radio Shanty for information about different batteries.

The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost. Suppose we observe that the price of a gallon of gasoline in Driveaway is $2. Given this observation, which of the following scenarios is most likely? a. There are a few sellers of gasoline in Driveaway, but the number of sellers exceeds two. b. there are many sellers c. there is one seller d. there are two sellers

b. there are many sellers explanation: there are many sellers because the price is two and the MC is also $2 per gallon, so MC=P=Competitive market. Had this town been a monopoly or cartel, the price would've been greater than the MC.

Two prescription drug manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with side-effects from its drugs. Each drug manufacturer has evidence that indicates that taking its prescription drug causes liver failure. State prosecutors do not have access to the same data used by drug manufacturers and thus will have difficulty recovering full costs without the help of at least one of the drug manufacturer's studies. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states. If both firms follow a dominant strategy, Firm B's profits (losses) will be... a. $-40m b. $-12m c. $-24m

c. $-24m ***these are negative so the dominant strategy is whichever profit is the least negative

Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk that is safe to drink. Each week Maria and Miguel work together to decide how many gallons of milk to produce. They bring milk to town and sell it at whatever price the market will bear. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for milk is shown in the table below: Suppose that Maria and Miguel work together in order to operate as a profit-maximizing monopolist. What price will they charge for milk? c. $12

c. $12

Only two firms, ABC and XYZ, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost. If this market were perfectly competitive instead of oligopolistic, what quantity would be produced? a. 70 b. 25 c. 50

c. 50

As a group, oligopolists would always earn the highest profit if they would a. operate according to self-interest b. produce the perfectly competitive qty of output c. charge the same price that a monopolist would charge if the market were a monopoly.

c. charge the same price that a monopolist would charge if the market were a monopoly.

In a two-person repeated game, a tit-for-tat strategy starts with... a. cooperation and then each player is unresponsive to the strategic moves of the other player. b. noncooperation and then each player pursues his or her own self-interest. c. cooperation and then each player mimics the other player's last move.

c. cooperation and then each player mimics the other player's last move.

In an oligopoly, each firm knows that its profits... a. depend on how much output its rivals produce b. will be zero in the long run b/c of free entry c. depend on both how much output it produces and how much output its rival firms produce.

c. depend on both how much output it produces and how much output its rival firms produce.

The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero. Assume there are two digital cable TV companies operating in this market. If they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions, then their agreement will stipulate that a. each firm will charge a price of $90 and each firm will sell 9,000 subscriptions. b. each firm will charge a price of $120 and each firm will sell 4,500 subscriptions. c. each firm will charge a price of $90 and each firm will sell 4,500 subscriptions.

c. each firm will charge a price of $90 and each firm will sell 4,500 subscriptions.

Select the type of market that is described by the following attributes: many firms, differentiated products, and free entry. a. oligopoly b. monopoly c. monopolistic competition

c. monopolistic competition

Game theory is necessary to understand which kinds of markets? a. competitive b. monopoly c. oligopoly

c. oligopoly

Which of the following describes an imperfectly competitive firm? a. identical products b. horizontal demand curves c. some price setting ability d. many small firms

c. some price setting ability

We know that people tend to overuse common resources. This problem can be viewed as an example of... a. a situation in which game theory does not apply b. a game in which the players succeed in reaching the cooperative outcome c. the prisoners' dilemma.

c. the prisoners' dilemma.

In the prisoners' dilemma...

when each player chooses his dominant strategy the players reach a Nash equilibrium.

In a market that is characterized by imperfect competition, a. firms are price takers. b. there are always a large number of firms. c. there are at least a few firms that compete with one another. d. the actions of one firm in the market never have any impact on the other firms' profits.

c. there are at least a few firms that compete with one another.

The dog food industry spends a substantial amount of revenue on advertising. It is likely that a. the consumers in this industry are not well-informed. b. the dog food industry is perfectly competitive. c. there is a large variety of dog foods available in the market. d. advertising in this market does little to change consumer preferences.

c. there is a large variety of dog foods available in the market. More advertising suggests a large variety, and the ads are meant to attract customers to this specific product.

​Assume a monopolistically competitive firm encounters a decrease in average variable cost at all output levels.We would expect: a. ​The price to fall and output to fall b. ​The price to rise and output to fall c. ​The price to fall and output to rise d. ​The price to rise and output to rise

c. ​The price to fall and output to rise

If four firms comprise the entire golf club industry, the market would be

characterized by interdependence of firms.

The product-variety externality is associated with the

consumer surplus that is generated from the introduction of a new product.

Defenders of advertising

contend that firms use advertising to provide useful information to consumers.

The higher the concentration ratio, the a. more control an individual firm has to set prices b. more competitive the market c. less competitive the market d. Both a and c are correct.

d. Both a and c are correct. ***so the most competitive industry has the lowest concentration ration***

The following table shows the percentage of output supplied by the top eight firms in four different industries. Which industry has the lowest concentration ratio? a. Industry D b. Industry C c. Industry A d. Industry B

d. Industry B explanation: the percentages are already given so just add up the percents of the first 4 firms in each industry to find the concentration ration. Industry B= 23+16+10+9= 58% which is the lowest of the 4 industries.

Which of the panels shown could illustrate the short-run situation for a monopolistically competitive firm? a. panel a b. panel b c. panel c d. all of the above are correct.

d. all of the above are correct.

Which of the following industries has the lowest concentration ratio? b. breakfast cereal c. household industrial appliance d. electric lamp bulbs

d. electric lamp bulbs

In a game, a dominant strategy is

d. the best strategy for a player to follow, regardless of the strategies followed by other players.

If a person can prove that she was damaged by an illegal arrangement to restrain trade, that person can sue and recover

d. three times the damages she sustained, as provided for in the Clayton Act.

​In which of the following market structures can a firm earn an economic profit in the short run? a. competition b. monopoly c. competitive monopoly d. ​All of these market structures can earn an economic profit in the short run

d. ​All of these market structures can earn an economic profit in the short run

Suppose that monopolistically competitive firms in a certain market are earning positive profits. In the transition from this initial situation to a long-run equilibrium,

each existing firm experiences a decrease in demand for its product.

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

firms are price takers

In an oligopoly, the total output produced in the market is

higher than the total output that would be produced if the market were a monopoly but lower than the total output that would be produced if the market were perfectly competitive.

Monopolistic competition is characterized by i) efficient scale ii) markup pricing over marginal cost iii) deadweight loss iv) excess capacity

ii), iii), and iv) only

The administrative burden of regulating price in a monopolistically competitive market is

large because of the large number of firms that produce differentiated products.

A market structure in which there are many firms selling products that are similar but not identical is known as

monopolistic competition

In a long-run equilibrium, a firm in a monopolistically competitive market operates

on the declining portion of its average total cost curve.

Results of the study done by Lee Benham on advertising for eyeglasses would suggest that

optometrists would enthusiastically endorse advertising restrictions.

The relationship between advertising and product differentiation is

positive; the more differentiated the product, the more a firm is likely to spend on advertising.

Professional organizations and producer groups have an incentive to

restrict advertising in order to reduce competition on the basis of price.

Tying involves a firm...

selling two individual products together for a single price rather than selling each product individually at separate prices.

OPEC is able to raise the price of its product by

setting production levels for each of its members

Much of the research on game theory in recent decades was driven by attempts to analyze actions of players during

the Cold War between the United States and the Soviet Union.

Monopolistically competitive markets may be socially inefficient because

the market may have too much or too little entry by new firms.