Micro Chapter 13

True or false: Concentration ratios that use national market share numbers are of limited help because they do not account for the fact that competition in many industries is concentrated in local markets. True false question. True False

True

Suppose an industry has 10 firms and each has a 10% share of the market. This industry's Herfindahl index is ______________

1000

If the four largest firms in an industry produce 20, 10, 7, and 3 units of output, respectively, and total industry output is 100 units, then the four-firm concentration ratio equals ______. Multiple choice question. 75% 25% 40% 0.4%

40%

Suppose an industry has two firms each with 50% market share. The Herfindahl index for this industry is ______. Multiple choice question. 50,000 5,000 100,000 1,000

5,000

In the short run, monopolistically competitive firms maximize profits or minimize losses by producing the output level where Multiple choice question. marginal revenue equals marginal cost. marginal revenue equals price. marginal revenue equals average total cost. price equals average variable cost. price equals marginal cost.

marginal revenue equals marginal cost.

Entry of new firms into monopolistically competitive industries is relatively easy because ______. Multiple choice question. competitors are large firms capital requirements are low existing firms experience economies of scale advertising is not required product development is unnecessary

capital requirements are low

In monopolistically competitive industries Multiple choice question. price fixing is unlikely because there is a small number of firms. competition is unlikely because there is a small number of firms. restricting output is unlikely because there is a small number of firms. collusion is unlikely because there is a large number of firms. competition is unlikely because there is a large number of firms.

collusion is unlikely because there is a large number of firms.

Suppose an industry has ten firms. Three of the firms produce 200 units of output each, one produces 150 units, two of the firms produce 75 units each, and four of the firms produce 25 units each. The four-firm concentration ratio for this industry equals ______. Multiple choice question. 40% 75% 10% 25%

75%

Which of the following best exemplifies a firm with excess capacity? Multiple choice question. A fast-food restaurant where customers never have to wait to place an order. A hotel with no rooms for the night. An auto plant running three full shifts per day to meet customer orders. A convenience store with all its gas pumps in use and customers waiting to gas.

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

Which of the following represents the most significant benefits to society generated by monopolistically competitive markets? Multiple choice question. Product differentiation Low barriers to entry Many sellers Allocative and productive efficiency

Product differentiation

Which of the following is a characteristic of monopolistic competition? Multiple choice question. Differentiated products Only one buyer Only one seller High barriers to entry Homogeneous products

Differentiated products

Why does each monopolistically competitive firm generally have limited control over market price? Multiple choice question. Each firm is competing with hundreds or thousands of other firms. All firms in the industry sell essentially the same products. Each firm has a relatively small percentage of the total market. All the firms in the industry vote democratically on the price.

Each firm has a relatively small percentage of the total market.

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? Multiple choice question. Herfindahl index Consumer Price Index Producer Price Index Four-firm concentration ratio

Herfindahl index

Why do firms engage in product differentiation if it adds to the firm's costs? Multiple choice question. Increased differentiation leads to a decrease in excess capacity for the firm. Increased differentiation increases productive efficiency. Increased differentiation prevents competitors from achieving a normal profit. Increased differentiation may increase demand enough to compensate for the added costs.

Increased differentiation may increase demand enough to compensate for the added costs.

What will happen to a monopolistically competitive firm in the long run? Multiple choice question. It will be forced to leave a profitable industry. It will become a monopoly. It will only break even. It will fail to cover both implicit and explicit costs.

It will only break even.

____________ (one word) competition is a market characterized by having many sellers, differentiated products, and ease of entry and exit from an industry.

Monopolistic

Which of the following produce variations of a particular product? Multiple choice question. Monopsonist firms Monopolies Perfectly competitive firms Monopolistically competitive firms

Monopolistically competitive firms

Select all that apply Which of the following are typical characteristics of monopolistic competition? Multiple select question. No collusion Small market share Mutual interdependence Few firms Independent action

No collusion Small market share Independent action

_______________________ competition is competition illustrated through product differentiation and advertising.

Nonprice

Allocative efficiency is achieved in the short run when the equality of which of the following occurs? Multiple choice question. P = ATC P = MC P = D P = MR

P = MC

Which of the following factors is most likely to help a monopolistically competitive firm postpone earning only a normal profit? Multiple choice question. Product differentiation Minimal advertising New competitors Price cutting

Product differentiation

Select all that apply In the long run, a monopolistic competitor fails to achieve which of the following? Multiple select question. Productive efficiency Allocative efficiency Excess capacity A normal profit

Productive efficiency Allocative efficiency

B-Balls, a manufacturer of athletic balls, is facing increased competition due to the entry of several new firms into the industry. These new competitors have resulted in reduced demand for B-Balls' basketballs, and the company is losing money. Which of the following steps should B-Balls take regarding price in order to minimize losses until some firms exit the industry? Multiple choice question. Set its price at its new reduced level of demand where the MC curve lies above the MR curve Set its price at its new reduced level of demand where the MC curve lies below the MR curve Set its price at its new reduced level of demand where the MC curve intersects the MR curve Set its price at its new reduced level of demand where the AC curve intersects the AR curve

Set its price at its new reduced level of demand where the MC curve intersects the MR curve

Which of the following scenarios does not illustrate the concept of product differentiation based on service? Multiple choice question. Some stores may provide faster service. Some stores may have a better exchange policy. Some stores may charge different prices. The clerks in some stores may be more helpful. The workers in some stores may be more courteous.

Some stores may charge different prices.

Which of the following correctly describes the difference between products under pure competition versus products under monopolistic competition? Multiple choice question. Standardized products are sold in pure competition, but differentiated products are sold in monopolistic competition. Standardized products are sold in both pure competition and in monopolistic competition. Standardized products are sold in pure competition but homogeneous products are sold in monopolistic competition. Differentiated products are sold in both pure competition and in monopolistic competition. Differentiated products are sold in pure competition, but standardized products are sold in monopolistic competition.

Standardized products are sold in pure competition, but differentiated products are sold in monopolistic competition.

Which factors contribute to the likelihood of a monopolistically competitive firm sustaining a greater than normal profit in the long run? Multiple select question. Sufficient product differentiation that other firms cannot duplicate A decrease in spending on advertising and other firm expenses Increased financial barriers to entry due to product differentiation Standardized products that make entry to the industry easy

Sufficient product differentiation that other firms cannot duplicate Increased financial barriers to entry due to product differentiation

Which statement is true about an industry and the Herfindahl index? Multiple choice question. The higher the index, the more likely the industry is purely competitive. The higher the index, the more likely an industry is monopolistically competitive. The lower the index, the more likely an industry is oligopolistic. The lower the index, the more likely the industry is monopolistically competitive.

The lower the index, the more likely the industry is monopolistically competitive.

B-Balls, a manufacturer of athletic balls, is facing increased competition due to the entry of several new firms into the industry. These new competitors have resulted in reduced demand for B-Balls' basketballs, and the company is losing money. What should B-Balls do in regard to output for their basketballs to help minimize losses until some firms exit the industry? Multiple choice question. They should increase output to wherever their new MR curve is less than the MC curve caused by a leftward shift in demand. They should reduce output to wherever their new MR curve equals the MC curve caused by a leftward shift in demand. They should increase output to wherever their new MR curve equals the MC curve caused by a leftward shift in demand. They should reduce output to wherever their new MR curve is greater than the MC curve caused by a leftward shift in demand.

They should reduce output to wherever their new MR curve equals the MC curve caused by a leftward shift in demand.

Excess capacity is best described as underused plant resources that are a result of ______. Multiple choice question. an industry in which the top four firms are monopolistically competitive a firm distinguishing its products through design, related services, quality, or price a concentration of industry competitiveness combined with an increase in market share a firm producing less output than what is associated with achieving minimum average total cost

a firm producing less output than what is associated with achieving minimum average total cost

The equality of price and marginal cost yields ____________ efficiency.

allocative

Monopolistically competitive firms are not productively efficient because output is less than society's optimal level because a producer's ______. Multiple choice question. average variable cost per unit is not at its optimal possible cost average total cost per unit is not at its lowest possible cost marginal revenue per unit is not at its optimal possible price average fixed cost per unit is not at its lowest possible cost

average total cost per unit is not at its lowest possible cost

When Mary tried to get an appointment with a local dentist she was told that the earliest the doctor could see her was in three weeks. This may have been due to a lack of ______. Multiple choice question. perfectly competitive firms provider resources monopolistically competitive providers excess capacity

excess capacity

Select all that apply When plant and equipment are underutilized because firms are producing less than the minimum-ATC output, this is known as having ______. Multiple select question. excess capacity allocative efficiency productive efficiency productive inefficiency

excess capacity productive inefficiency

A major trade-off that occurs in monopolistically competitive industries is that, as product differentiation increases, Multiple choice question. excess capacity also increases. allocative efficiency also increases. productive efficiency also increases. consumer choice decreases.

excess capacity also increases.

Concentration ratios that use national market share numbers are limited in usefulness because they ______. Multiple choice question. incorporate foreign competition fail to account for competition from multiple firms fail to account for highly localized industries ignore inflation

fail to account for highly localized industries

When measuring industry concentration, the ____ is the ratio of sales of the four largest firms in an industry relative to total industry sales. Multiple choice question. corporate output ratio corporate sales ratio big-four ratio four-firm concentration ratio

four-firm concentration ratio

When measuring industry concentration, the ____ is the ratio of sales of the four largest firms in an industry relative to total industry sales. Multiple choice question. four-firm concentration ratio corporate sales ratio big-four ratio corporate output ratio

four-firm concentration ratio

The demand curve faced by a monopolistically competitive firm is _____. Multiple choice question. perfectly elastic. unit-elastic. highly but not perfectly elastic. perfectly inelastic. highly but not perfectly inelastic.

highly but not perfectly elastic.

Select all that apply Monopolistic competition normally consists of 25 to 75 firms rather than hundreds or thousands and involves which of the following characteristics? Multiple select question. independent action small market shares no collusion standardized products restriction of output

independent action small market shares no collusion

The four-firm concentration ratio and the Herfindahl index measure ______. Multiple choice question. firm profits advertising industry concentration technological advances inflation

industry concentration

The four-firm concentration ratio and the Herfindahl index measure ______. Multiple choice question. inflation technological advances industry concentration advertising firm profits

industry concentration

Two types of market models that closely approximate many markets in the real world are Multiple choice question. pure competition and oligopoly. monopolistic competition and oligopoly. monopoly and oligopoly. monopoly and monopolistic competition. pure competition and monopoly. pure competition and monopolistic competition.

monopolistic competition and oligopoly.

A good way to describe _____________ (monopolistic/oligopolistic) competition is that it mixes a small amount of monopoly power with a large amount of competition, while ______________ (monopoly/oligopoly) blends a large amount of monopoly power with a small amount of competition through entry and considerable rivalry among firms.

monopolistic; oligopoly

In general, industries that typically have lower Herfindahl index values are ______. Multiple choice question. monopolistically competitive rather than oligopolistic oligopolistic rather than purely competitive monopolistic rather than oligopolistic oligopolistic rather than monopolistically competitive

monopolistically competitive rather than oligopolistic

A monopolistic competitor's demand curve is ______. Multiple choice question. more elastic than that of a pure monopoly but less elastic than that of a firm in pure competition less elastic than that of a pure monopoly but more elastic than that of a firm in pure competition as elastic as demand for pure monopolies but less elastic than that of a firm in pure competition perfectly elastic as is demand for firms in pure competition. more elastic than that of a pure monopoly and as elastic as demand for firms in pure competition

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

Monopolistically competitive firms to engage in ______ competition by means of product differentiation and advertising, which makes the market situation complex. Multiple choice question. price pure unproductive nonprice

nonprice

The goal of advertising a product to differentiate it from competitor's products so that price is less of a factor when a consumer makes a purchase is considered ______ competition. Multiple choice question. attribute high/low pricing nonprice feature pricing

nonprice

In long-run equilibrium, monopolistically competitive firms will show a(n) _____. Multiple choice question. normal profit increasing loss below-normal profit above-normal profit

normal profit

Productive efficiency in monopolistically competitive markets does not occur in the long run because firms set the price Multiple choice question. -on the demand curve where MR=ATC to maximize economic profit, making output more than optimal from society's perspective. -on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective. -on the supply curve where VC=MR to maximize economic profit, making output less than optimal from society's perspective. -on the supply curve where MR=MC to maximize economic profit, making output more than optimal from society's perspective.

on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective.

A firm with more courteous and helpful clerks than its rivals enables the firm to differentiate their good based on which of the following? Multiple choice question. brand names service product attributes location

service

Monopolistically competitive firms do not achieve allocative efficiency because the _____. Multiple choice question. price for a monopolistically competitive firm exceeds the marginal cost output produced is less than optimal and consumers pay a lower than competitive price, causing inefficient use of resources for society price for a monopolistically competitive firm is lower than the average cost output produced is more than optimal and consumers pay a lower than competitive price, causing inefficient use of resources for society

price for a monopolistically competitive firm exceeds the marginal cost

When a firm's price is equal to its minimum average total cost of producing a product, ___ exists. Multiple choice question. efficiency theory productive efficiency allocative efficiency minimum efficiency marginal efficiency

productive efficiency

The equality of price and minimum average total cost yields _____________ efficiency; the equality of price and marginal cost yields _______________ efficiency.

productive; allocative

Entry to and exit from monopolistically competitive industries is ______. Multiple choice question. costless impossible relatively easy relatively difficult undesirable

relatively easy

Monopolistically competitive firms typically have a(n) ______ share of the market. Multiple choice question. insubstantial relatively small comparatively large overlapping

relatively small

If a monopolistically competitive firm is producing where its marginal revenue is less than its marginal cost, then the firm Multiple choice question. is maximizing profits. should produce less output to increase profits or reduce losses. should shut down in the short run. should produce more output to increase profits. should shut down in the long run.

should produce less output to increase profits or reduce losses.

The Herfindahl index equals the ______. Multiple choice question. average percentage market share in an industry sum of the squared percentage market shares of all firms in an industry total market shares of the largest four firms in an industry percentage market shares of all firms in an industry

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

Select all that apply In order for a monopolistically competitive firm to maximize profits, it must juggle which of the following factors? Multiple select question. the channels of distribution the level of advertising the strategic business units needed the selling price of the product the variety of product

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

Managers can identify excess capacity by measuring the gap between Multiple choice question. price and average total cost at the profit-maximizing output. the minimum-marginal-cost output and the profit-maximizing output. price and marginal revenue at the profit-maximizing output. the minimum average total cost output and the profit-maximizing output. marginal revenue and marginal cost at the profit-maximizing output.

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

The elasticities of the demand curves for firms in monopolistically competitive (MC) industries will become more like that of firms in pure competition as ______. Multiple choice question. the substitutability of competing goods decreases product differentiation increases and the number of rivals decreases the number of rivals increases and product differentiation grows weaker the entry rate of new firms decreases

the number of rivals increases and product differentiation grows weaker

A monopolistically competitive firm may be able to continue earning greater than a normal profit in the long run ______. Multiple choice question. by standardizing its product by not spending on advertising through further product differentiation by decreasing variety

through further product differentiation