Micro Economics ch. 16

Each firm in a monopolistically competitive market

faces a downward-sloping demand curve.

A downward-sloping demand curve

is a feature of all monopolistically competitive firms.

Monopolistic competition is an inefficient market structure because

it has a deadweight loss, just as monopoly does.

A concentration ratio

-Measures the percentage of total output supplied by the four largest firms in the industry. -Reflects the level of competition in an industry. -Is related to the control that each firm has over price.

Which of the following is a commonly-cited benefit of advertising?

Advertising can be a signal of the quality of a product.

Which of the following is not an argument made by critics of advertising?

Advertising promotes economies of scale.

Monopolistically competitive firms, like monopoly firms, maximize their profits by charging a price that exceeds marginal cost.

True

Firms that spend a large amount of money on advertising a particular product are likely to be provid- ing consumers with

a signal of product quality.

Which of the following statements is not correct?

c. Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry.

Which of the following pairs illustrates the two extreme examples of market structures?

competition and monopoly

"In a long-run equilibrium, price is equal to average total cost." This statement applies to

competitive and monopolistically competitive markets, but not to monopolies.

Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell

highly-differentiated consumer goods.

When a market is monopolistically competitive, the typical firm in the market can earn

losses in the short run and zero profit in the long run.

Monopolistically competitive firms have excess capacity. To maximize profits, firms will

maintain the excess capacity.

A monopolistically competitive industry is characterized by

many firms selling products that are similar but not identical.

Which of the following is an example of a monopolistically competitive industry?

movies

Two bottles of body wash sit side-by-side in a grocery store: Olay (a brand name) sells for $6.00, while Up and Up (not a brand name) sells for $3.00. Even defenders of brand names would have to admit that

non of the above is correct

Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry?

panel c

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

price exceeds marginal cost