Homework 9 Questions (ch 13)

In monopolistic competition, which of the following would make an individual firm's demand curve less price elastic?

increased brand loyalty toward the firm's product

Monopolistic competition is characterized by a

large number of firms and low entry barriers.

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be

$16

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

1,800

The Herfindahl index for a pure monopolist is

10,000

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be

160

Which of the following is correct for a monopolistically competitive firm in long-run equilibrium?

P exceeds minimum ATC.

In the long run, a profit-maximizing monopolistically competitive firm sets it price

above marginal cost of production.

In the short run, a profit-maximizing monopolistically competitive firm sets it price

above marginal cost of production.

The monopolistically competitive seller maximizes profit by producing at the point where

marginal revenue equals marginal cost of production.

The economic inefficiencies of monopolistic competition may be offset by the fact that

consumers have increased product variety.

Compared to perfect competition, monopolistic competition is characterized by excess capacity because

firms incur additional marketing and advertising costs to create product differentiation.

The Herfindahl index

gives much greater weight to larger firms than to smaller firms in an industry.

Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264. These data suggest

greater market power in Y than in X.

In the long run, economic theory predicts that a monopolistically competitive firm will

have excess production capacity.

A monopolistically competitive firm is producing at a short-run output level where average total cost (ATC) is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should

increase the level of output.

An industry having a four-firm concentration ratio of 30 percent

is monopolistically competitive.

Monopolistic competition means

many firms producing differentiated products.

Concentration ratios measure the

percentage of total industry sales accounted for by the largest firms in the industry.

The goal of product differentiation and advertising in monopolistic competition is to make

price less of a factor and product differences more of a factor in consumer purchases.

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from

product differentiation.

Excess capacity in an industry implies

productive inefficiency.

Compared to pure competition, monopolistic competition

provides greater product differentiation at the cost of lower productive efficiency.

In which of these continuums of degrees of competition (highest to lowest) is monopolistic competition properly placed?

pure competition, monopolistic competition, oligopoly, pure monopoly

In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the profit-maximizing firm will

set price above marginal cost.

If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will

shift to the right.

If the four-firm concentration ratio for industry X is 80,

the four largest firms account for 80 percent of total sales.

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation decreases,

the industry would more closely approximate pure competition.

In the long run, the economic profits for a monopolistically competitive firm will be

the same as the profits for a purely competitive firm.

Firms in an industry will not earn long-run economic profits if

there is free entry and exit of firms in the industry.

Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million, respectively. We can conclude that

this industry is monopolistically competitive.

A monopolistically competitive firm is producing at an output level in the short run where average total cost (ATC) is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating

with a loss

Which of the following statements concerning a monopolistically competitive industry is correct?

If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms in the industry will shift to the right.

In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits

will be equal to ATC, but not the minimum ATC.

The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers would suggest that the industry was monopolistically competitive?

25 and 207

If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is

2,500

Which of the following is a measure of the degree of industry concentration (or market power of firms in an industry)?

Herfindahl Index

Nonprice competition refers to

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.

In the long run, a representative firm in a monopolistically competitive industry will end up

earning a normal profit, but not an economic profit.

Suppose the Herfindahl indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that

market power is greatest in industry C.

Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a

higher price and lower output.

Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will

attract other firms to enter the industry, causing the existing firms' profits to shrink.

Refer to the diagram for a monopolistically competitive producer. This firm is experiencing

excess capacity of DE.

A monopolistically competitive industry combines elements of both competition and monopoly. The competition element results from

low entry barriers to entry of new firms in the industry.

A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost (ATC) is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should

make no change in the level of output.

"Variety is the spice of life" is best applied to which market structure?

monopolistic competition

The restaurant, legal assistance, and clothing industries are each illustrations of

monopolistic competition.

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic

profit of $480.

Refer to the diagram for a monopolistically competitive producer. The firm is

realizing a normal profit in the long run.