Chapter 16 MCQ/TF/Quick Quiz
What is true of a monopolistically competitive market in long-run equilibrium?
Price is greater than marginal cost
Which one is not the characteristics of a monopolistically competitive market?
Price taker
Which of the following conditions does NOT describe a firm in a monopolistically competitive market?
. It takes its price as given by market conditions.
Identify the truthfulness of the following statements: I. Monopolistically competitive firms produce at the efficient scale and charge a price above marginal cost. II. Monopolistically competitive firms produce with excess capacity and charge a price above marginal cost.
I is false; II is true.
Which of the following markets best fits the definition of monopolistic competition?
Soft Drinks (Products that Vary)
Suppose that a monopolistically competitive firm's marginal revenue curve crosses marginal cost at an output level of 8. The price at that output level is $3.00. The marginal revenue is $1.00. The average total cost is $3.00. What is the firm's profit and is the firm in long-run equilibrium or in short-run equilibrium?
Profit is zero and the firm is in the long-run equilibrium
Advertising must be socially wasteful because advertising simply adds to the cost of producing a product.
This statement is false. Advertising may increase competition, which could increase social welfare.
Brand names allow firms to make economic profits in the long run because they are able to sell inferior products based on the apparent connection of those products to the firm's unrelated high-quality products.
This statement is false. Brand names give the firm incentive to maintain high quality.
Economists generally agree that monopolistically competitive firms should be regulated in order to increase economic efficiency.
This statement is false. It is not clear how one would regulate a monopolistically competitive firm in order to increase efficiency.
Monopolistic competition is a market structure in which few firms sell similar products.
This statement is false. Monopolistic competition is a market structure in which many firms sell differentiated products.
In the long run, a monopolistically competitive firm charges a price that exceeds average total cost.
This statement is false. Monopolistically competitive firms charge a price equal to ATC.
In the long run, a monopolistically competitive firm produces at the efficient scale while a competitive firm has excess capacity.
This statement is false. Monopolistically competitive firms have excess capacity while competitive firms produce at the efficient scale.
Advertising may make consumers more loyal to a certain brand.
True
Even advertising that appears to contain little information about the product may be useful because it provides a signal about the quality of the product.
True
Monopolistic competitive firm produces at the downward sloping of the ATC curve. This statement is
True
Similar to firms in perfectly competitive markets, firms in monopolistically competitive markets can enter and exit the market without restriction so profits are driven to zero in the long run.
True
Firms that sell highly differentiated consumer products are more likely to spend a large percentage of their revenue on advertising.
true
Similar to a monopolist, a monopolistically competitive firm faces a downward-sloping demand curve for its product.
true
In the long run, firms in monopolistically competitive markets produce at the minimum of their average-total-cost curves.
~ This statement is false. Monopolistic competitors produce in the downward-sloping portion of their ATC curve where the ATC curve is tangent to the demand curve faced by the firm.
One source of inefficiency in monopolistic competition is that
because price is above marginal cost, some units are not produced that buyers value and this causes deadweight loss.
If advertising makes consumers more loyal to particular brands, it could ________ the elasticity of demand and ________ the markup of price over marginal cost.
decrease, increase
The demand curve that a monopolistic competitive firm faces is
downward sloping but more elastic than a monopoly
Which of the following markets best fits the definition of monopolistic competition? (quick quiz)
haircuts
Advertising can be a signal of quality
if the benefit of attracting customers is greater for firms with better products.
If advertising makes consumers more aware of alternative products, it could ________ the elasticity of demand and ________ the markup of price over marginal cost.
increase, decrease
A monopolistically competitive firm will increase its production if
marginal revenue is greater than marginal cost.
New firms will enter a monopolistically competitive market if
price is greater than average total cost.
Because a monopolistically competitive firm charges a price that exceeds marginal cost, the firm fails to produce some units that the buyers value in excess of the cost of production, and thus, monopolistic competition is inefficient.
true
Both monopolists and monopolistically competitive firms produce the quantity at which marginal revenue equals marginal cost and then use the demand curve facing the firm to determine the price consistent with that quantity.
true
Critics of advertising argue that advertising decreases competition while defenders of advertising argue that advertising increases competition and reduces prices to consumers.
true
