Chapter 13: Monopolistic Competition

which of the following best exemplifies a firm with excess capacity?

a fast-food restaurant where customers never have to wait to place an order

the equality of price and marginal cost yields <blank> efficiency

allocative

the goal of advertising a product to differentiate it from that of other competitor's products in order to make price less of a factor when a consumer makes a purchase is what is considered so-called

non-price competition

product differentiation

A strategy in which one firm's product is distinguished from competing products by means of its design, related services, quality, location, or other attributes (except price).

which of the following is a measure of industry concentration that equals the sum of the squared percentage market shares of all firms in the industry?

Herfindalh Index

a good way to describe <blank> competition is that it mixes a small amount of monopoly power with a large amount of competition, while <blank> blends a large amount of monopoly power, a small amount of competition through entry, and considerable rivalry among firms

monopolistic; oligopoly

in the long run, a monopolistic competitor does not achieve allocative efficiency because <blank>

price exceeds the marginal cost

monopolistically competitive firms do not achieve allocative efficiency because <blank>

price for a monopolistically competitive firm exceeds the marginal cost

monopolistically competitive firms typically have a relatively <blank> share of the market and consequently <blank> control over market price

small; limited

suppose an industry has 10 firms and each has a 10% share of the market. this industry's herfindahl index is

1000

monopolistic competition

a market structure in which many firms sell a differentiated product, entry is relatively easy, each firm has some control over its product price, and there is considerable nonprice competition

Herfindahl index

a measure of the concentration and competitiveness of an industry; calculated as the sum of the squared percentage market shares of the individual firms in the industry

a major trade off that occurs in monopolistically competitive industries as product differentiation increases is

excess capacity increases

in monopolistically competitive industries

firms feel independent of one another, allowing them to determine their own price without considering the possible reactions by rival firms

when measuring industry concentration, the <blank> is the percentage ratio of sales of the four largest firms in the industry relative to the total industry sales

four-firm concentration ratio

in monopolistically competitive industries, small stores with high prices can compete with larger stores by

having very convenient locations for customers

the demand curve faced by a monopolistically competitive firm is <blank>

highly but not perfectly elastic

in the long run, if a monopolistically competitive firm is earning normal profits (breaking even), then it should

not exit the industry because both explicit and implicit costs are covered

excess capacity

plant resources that are underused when imperfectly competitive firms produce less output than that associated with achieving minimum average total cost

achieving economic efficiency that reduces the number of resources used but increases the number of socially optimal outputs requires a triple equality. Which of the following are the three components that must be equal?

price; minimum average total cost; marginal cost

when plant and equipment are underutilized because firms are producing less than the minimum-ATC output, this is known as having <blank> <blank>

productive inefficiency; excess capacity

the equality of price and minimum average total cost yields <blank> efficiency; the equality of price and marginal cost yields <blank> efficiency

productive; allocative

the elasticities of the demand curve for firms in monopolistically competitive (MC) industries will become more like that of firms in pure competition as

the number of rivals increases and product differentiation grows weaker

four-firm concentration ratio

the percentage of total industry sales accounted for by the top four firms in an industry

the Herfindahl index equals

the sum of the squared percentage market shares of all firms in an industry

In order for a monopolistically competitive firm to maximize profits, it must juggle which of the following factors

the variety of product; the selling price of the product; the level of advertising

concentration ratios are limited in that they

are national in scope

entry of new firms into monopolistically competitive industries is relatively easy because

capital requirements are low

in monopolistically competitive industries

collusion is unlikely because there is a large number of firms

nonprice competition

competition based on distinguishing one's product by means of product differentiation and then advertising the distinguished product to consumers

the demand curve for a monopolistically competitive firm is

downward-sloping

entry into monopolistically competitive industries is

easy compared to oligopoly

<blank> competition is a market characterized by having many sellers, differentiated products, and with ease of entry and exit from an industry

monopolistic

which of the following turns out variations of a particular product?

monopolistically competitive firms

in general, industries that typically have lower Herfindahl index values are

monopolistically competitive rather than oligopolistic

a monopolistic competitor's demand curve is

more elastic than that of a pure monopoly but less elastic than that of a firm in pure competition

the ability of monopolistically competitive firms to engage in <blank> competition makes the market more complex because of differentiated product differences and advertising

nonprice

compared with oligopoly and monopoly, entry of new firms into monopolistically competitive industries is

relatively easy because economies of scale are few

the four-firm concentration ratio, expressed as a percentage, is the ratio of the total industry <blank> of the four largest firms in the industry relative to total industry sales

sales

a firm with more courteous and helpful clerks than its rivals enables the firm to differentiate their good based on which of the following?

service

if a monopolistically competitive firm is producing where its marginal revenue is less than its marginal cost, then the firm

should produce less output to increase profits or reduce losses

monopolistic competition normally consists of 25 to 75 firms rather than hundreds or thousands and involves which of the following characteristics?

small market shares; no collusion; independent action

which of the following correctly describes the difference between products under pure competition versus produces under monopolistic competition?

standardized products are sold in pure competition but differentiated products are sold in monopolistic competition

two measures used to calculate industry concentration are

the four-firm concentration ratio and the Herfindahl index

industry concentration measures the extent to which

the largest firms account for industry output

managers can identify excess capacity by measuring the gap between

the minimum average total cost output and the profit-maximizing output

a monopolistically competitive firm may be able to continue earning profit in the long run

through further product differentiation

economic efficiency occurs when firms produce

where P = MC = minimum ATC

in long-run equilibrium, monopolistically competitive firms <blank>

will just break even and will make no economic profit