Economics Test 3(Monopolistic Competition)
What is the effect in the market as more firms enter a monopolistically competitive industry?
The demand curve faced by each firm shifts in and to the left
Which of the following is true of monopolistic competition but is NOT true of perfect competition?
Each firm distinguishes its product from that of its competitors
Which of the following is true of the long run in perfect competition but NOT true of the long run in monopolistic competition?
The firm produces where ATC is minimized.
Which of the following is true of monopoly but is NOT true of monopolistic competition?
The firm will earn positive economic profits in the long run.
Which of the following is true of perfect competition but is NOT true of monopolistic competition?
The firm will produce at a point where price equals marginal cost.
What accounts for the fact that profit is zero in the long-run equilibrium in monopolistic competition?
There are no barriers to the entry of new firms.
Why do monopolistic competitors not collude to form a monopoly?
There are too many firms to allow for successful collusion
The product diversity resulting from monopolistic competition comes at the expense of having
a higher average total cost of production than would prevail under perfect competition
A monopolistically competitive firm faces
a highly elastic demand curve
Monopolistic competitors engage in product differentiation in order to
enhance their market power
Suppose that a monopolistically competitive firm is currently producing at the point where marginal revenue equals marginal cost and is incurring a loss. In this situation, economic theory would predict that the firm will
exit the industry.
Since a monopolistic competitor produces a product with many close substitutes, it
has no market power.
The goal of a monopolistically competitive firm is to
maximize profit.
In long run equilibrium, a monopolistically competitive firm is producing at a point on its average total cost curve where
price equals average total cost.
In the oil change market, monopolistic competition prevails. This means that collusion among oil change suppliers is ______________ and firms engage in ___________ behavior.
rare, uncooperative
Which of the following would be an example of a monopolistically competitive industry with differentiation by style or type?
running shoes
Monopolistically competitive firms spend money on celebrity endorsements in order to
send a signal that they are successful companies.
If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run
they will make zero economic profits
To the extent that brand names developed in monopolistic competition provide a benefit to the consumer, it is
through their assurance that the firm will provide a quality product in order to preserve repeated transactions.
For any given firm in a monopolistically competitive market, the long run economic profit tends to be __________ and firms operate to the ____________ of the minimum point on the average total cost curve.
zero, left