Chapter 13

The monopolistically competitive seller maximizes profit by producing at the point where -total revenue is at a maximum -average costs are at a minimum -marginal revenue equals marginal cost -price equals marginal revenue

marginal revenue equals marginal cost

In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where -ATC = P, MR=MC=P -ATC<P, MR=MC=P -ATC<P,MR+MC<P -ATC = P, MR = MC < P

ATC = P, MR = MC < P

Which statement concerning monopolistic competition is false? -Long-run equilibrium under monopolistic competition and pure competition and pure competition both entail zero economic profits for firms -monopolistic competition is likely to result in a great variety of product brands than pure competition -monopolistiically competitive demand curve is more elastic than the demand curve facing a monopoly -Long-run equilibrium in monopolistic competition does not entail any economic inefficiency because of easy entry and exit

Long-run equilibrium in monopolistic competition does not entail competition does not entail any economic efficiency because of easy entry and exit.

When a monopolistically competitive firm is in long-run equilibrium -P=MC=ATC -MR=MC and minimum ATC>P -MR>MC and P = minimum ATC -MR=MC and P> minimum ATC

MR=MC and P> minimum ATC

In the long run, a profit-maximizing monopolistically competitive firm sets it price -above marginal cost -below marginal cost -equal to marginal revenue -equal to marginal cost

above marginal cost

Nonprice competition refers to -competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts -price increases by a firm that are ignored by its rivals -advertising, product promotion, and changes in the real or perceived characteristics of a product -reductions in production costs that are not reflected in price reductions

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

Excess capacity refers to the -amount by which actual production falls short of the minimum ATC output -fact that entry barriers artificially reduce the number of firms in an industry -differential between price and marginal costs that and characterizes monopolistically competitive firms -face that most monopolistically competitive firms encounter dis-economies of scale

amount by which actual product falls short of the minimum ATC output

The four-firm sales concentration ratio for an industry measures the -geographic concentration of firms -extent to which the four largest firms dominate the production of a good -percentage of the industry's capital facilities owned by the four largest firms -degree of X-inefficiency in the industry

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

Which of the following statements is not true for a monopolistically competitive industry? -firms tend to operate with excess capacity -each firm faces a downward-sloping demand curve -there firms earn zero economic profits in the long run -firms operate at the lower point of their ATC curves in the long run

firms operate at the lower point of their ATC curves in the long run

Monopolistic competition is characterized by excess capacity because -firms are always profitable in the long run -firms charge a price that is greater than marginal cost -firms produce at an output level less than the least-cost output -the demand for the product is perfectly elastic in this type of industry

firms produce at an output level less than the least-cost output

Refer to the diagram for a monopolistically competitive producer. If this firm were to realize productive efficiency, it would -also realize an economic profit -incur a loss -also achieve allocative efficiency -have to produce a smaller output

incur a loss

A monopolistically competitive firm's marginal revenue -is downsloping and coincides with the demand curve -coincides with the demand curve and is parallel to the horizontal axis -is downsloping and lies below the demand curve -does not exist because the firm is a "price maker"

is downsloping and lies below the demand curve

A significant difference between a monopolistic-ally competitive firm and a purely competitive firm is that the -former has fewer barriers to entry into the industry -latter recognizes that price must be reduced to sell more output -latter's demand curve is perfectly elastic -latter differentiate its product

latter's demand curve is perfectly elastic

Monopolistic competition means -a market situation where competition is based entirely on product differentiation and advertising -a large number of firms producing a standardized or homogeneous product -many firms producing differentiated products -a few firms producing a standardized or homogeneous product

many firms producing differentiated products

Under monopolistic competition, entry to the industry is -completely free of barriers -more difficult than under pure competition but not nearly as difficult as under pure monopoly -more difficult than under pure monopoly -blocked

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

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because -of product differentiation and consequent product promotion activities -monopolistically competitive firms cannot realize an economic profit in the long run -the number of firms in the industry is larger -monopolistically competitive producers use pricing strategies to combat rivals

of product differentiation and consequent product promotion activities

In the long run, a monopolistically competitive firm -earns an economic profit -produces where P=ATC -produces where MR exceeds MC -achieves allocative efficiency

produces where P=ATC

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because -each firm has to take the market price as given -product differentiation allows each firm some degree of monopoly power -there are a few large firms in the industry and they each act as a monopolist -mutual interdependence among all firms in the industry leads to collusion

product differentiation allows each firm some degree of monopoly power

Refer to the diagram for a monopolistically competitive producer. The firm is -minimizing losses in the long run -minimizing losses in the short run -realizing a normal profit in the long run -about to leave the industry

realizing a normal profit in the long run

The downward-sloping demand curve of a monopolistic competitor -reflects some level of control over its own price -becomes eventually horizontal in the long run -indicates collusion among the members of the product group -ensures that the firm will produce at a minimum average cost in the long run

reflects some level of control over its own price

In which industry is monopolistic competition most likely to be found? -utilities -agriculture -retail trade -mining

retail trade

The main point of the 1987 Wendy's commercial depicting a Soviet fashion show was to -show Wendy's product differentiation from its competitors -grow its international customer base -emphasize the efficiency of its production model -highlight the dependability of its reliable and consistent standardized product

show Wendy's produce differentiation from its competitors

If the four-firm concentration ratio for industry X is 80, -the four largest firms account for 80 percent of total sales -each of the four largest firms accounts for 20 percent of total sales - the four largest firms account for 20 percent of total sales -the industry is monopolistically competitive

the four largest firms account for 80 percent of total sales

One difference between monopolistic competition and pure competition is that -products may be homogeneous in monopolistic competition -there is some control over price in monopolistic competition -monopolistic competition has significant barriers to entry -firms differentiate their products in pure competition

there is some control over price in monopolistic competition

In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits -must be less than ATC -must be more than ATC -may be either equal to ATC, less than ATC, or more than ATC -will be equal to ATC

will be equal to ATC