Chapter 13 (Monopolistic Competition) Homework

increased brand loyalty toward the firm's product - 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 minimum average cost in the long run.

reflects some level of control over its own price.

In monopolistic competition, which of the following would make an individual firm's demand curve less elastic? - the purchase of more efficient machinery - an increase in the price of the firm's product - increased brand loyalty toward the firm's product - an increase in the number of rival firms

increased brand loyalty toward the firm's product

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.

Refer to the diagram. The monopolistically competitive firm shown - will realize allocative efficiency at its profit-maximizing output. - cannot operate at a loss. - is in long-run equilibrium. - is realizing an economic profit.

is realizing an economic profit.

Product variety in monopolistic competition comes at the cost of - nonprice competition. - barriers to entry. - diminishing returns. - excess capacity.

nonprice competition.

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.

In monopolistically competitive markets, resources are - overallocated because long-run equilibrium occurs where price exceeds marginal cost. - underallocated because long-run equilibrium occurs where price exceeds marginal cost. - overallocated because long-run equilibrium occurs where marginal cost exceeds price. - underallocated because long-run equilibrium occurs where marginal cost exceeds price.

underallocated because long-run equilibrium occurs where price exceeds marginal cost.

Firm | Market Share (%) A | 20% B | 20% C | 20% D | 20% E | 10% F | 10% Refer to the data. The Herfindahl index for the industry is - 1,600 - 18,000 - 1,800 - 80

1,800.

Firm | Market Share (%) A | 40% B | 30% C | 20% D | 05% E | 05% Refer to the data. If Firm B merged with Firm E, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____. - rise; rise - fall; rise - remain the same; rise - remain the same; fall

rise; rise

The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are - constant. - increasing. - decreasing. - at their minimum point.

decreasing

(Consider This) In Wendy's 1987 commercial depicting a Soviet fashion show, one objective was to portray McDonald's and Burger King products as - all the same and not very appealing. - produced inefficiently. - unpredictable in terms of features and quality. - only appealing to old women.

all the same and not very appealing.

Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 27 percent, 26 percent, 22 percent, 12 percent, 7 percent, 4 percent, and 2 percent. A. What is the four-firm concentration ratio of the hamburger industry in this town? ____% b. What is the Herfindahl index for the hamburger industry in this town? ______ c. If the top three sellers combine to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index? Four-firm concentration ratio = ____% Herfindahl index = _______

A. 87% B. 2102 C. 98% and 5838

15. A Consider the diagram below depicting the demand and cost conditions faced by a monopolistically competitive firm. a. Use the graph to show how price and output will vary depending upon which point the firm produces. Indicate the levels that will be produced under profit maximization, productive efficiency, and allocative efficiency. Instructions: (1) Use the tool provided 'Profit maximizing' to plot a point showing the price-quantity combination when the firm is maximizing profit. (2) Use the tool provided 'Productive efficiency' to plot a point showing the price-quantity combination when the firm is producing the productively efficient output level. (3) Use the tool provided 'Allocative efficiency' to plot a point showing the price-quantity combination when the firm is producing the allocatively efficient output level. b. In which of these three situations is the highest output level produced?

a. Productive efficiency where ATC and MC intersect Profit maximizing where ATC and Demand intersect Allocative efficiency where MC and MU intersect b. Productive efficiency

Consider the diagram below depicting the revenue and cost conditions faced by a monopolistically competitive firm, and then answer the following questions. What is the total revenue for this​ firm? $_________ b. What is the total cost for this​ firm? $________ c. What is this firm's economic profit? $________ d. This firm is most likely in - short-run - both short-run and long-run - long-run Instructions: In order to receive full credit, you must make a selection for each option. For the correct answer(s), click the box once to place a checkmark. For the incorrect answer(s), click the option twice to empty the box. e. check all that apply [?]P > MC. [?]MR = MC. [?]the firm is experiencing economic profits. [?]P = ATC. [?]the firm is experiencing normal profits. [?]demand exceeds marginal revenue.

a. $56.88 b. $56.88 c. $ d. both short-run and long-run e. [_] P > MC. [Y] MR = MC. [_] the firm is experiencing economic profits. [Y] P = ATC. [Y] the firm is experiencing normal profits. [_] demand exceeds marginal revenue.

Suppose that the most popular car dealer in your area sells 12.50 percent of all vehicles. Instructions: Enter your answers as a whole number. a. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area? _____ b. In that same situation, what would the four-firm concentration ratio be? ___%

a. 1250 How to find 100/12.5=8 (12.5)^2 x 8=1250 b. 50%

Consider the diagram below depicting the revenue and cost conditions faced by a monopolistically competitive firm, and then answer the following questions. a. According to the diagram, the profit-maximizing output level is -2.5 units. -3.0 units. -4.0 units. -4.5 units. b. The profit-maximizing price is -$25.00. -$32.50. -$40.00. -$14.30. c. The firm will earn an economic profit of - $45.50. - $18.75. - $30.00. - $0.00. - -$30.00. d. If the firm produces at a point that results in allocative efficiency, the price will be -$25.00. -$14.30. -$32.50. -$20.00. e. If, instead, the firm produces at a point that results in productive efficiency, the resulting output level will be -54.5 units. -2.5 units. -4.0 units. -0 units.

a. 2.5 units b. $40.00 c. $0.00 d. $25.00 e. 4.5 units

Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 23 percent, 22 percent, 18 percent, 12 percent, 11 percent, 8 percent, and 6 percent. Instructions: Enter your answers as a whole number. a. What is the four-firm concentration ratio of the hamburger industry in this town? ____% b. What is the Herfindahl index for the hamburger industry in this town? ______ c. If the top three sellers combine to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index? Four-firm concentration ratio = ____% Herfindahl index = _______

a. 75 % b. 1702 c. 94% & 4334 Herfindahl index

(Last Word) In a monopolistically competitive market like restaurants, large capital-intensive firms like McDonald's may co-exist with more labor-intensive mom-and-pop shops. In this case, higher labor costs would tend to favor the survival of - large-scale capital-intensive firms more than the small firms. - small firms more than the large-scale capital-intensive firms. - foreign firms more than the large-scale capital-intensive firms. - domestic restaurant firms more than the foreign firms.

large-scale capital-intensive firms more than the small firms.

A significant difference between a monopolistically 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 differentiates its product.

latter's demand curve is perfectly elastic.

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.