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Exam 16: Monopolistic Competition

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Question 281

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

A) perfect competition and oligopoly
B) perfect competition and monopoly
C) monopoly and monopolistic competition
D) oligopoly and monopolistic competition

E) None of the above
F) All of the above

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Question 282

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In a monopolistically competitive market,

A) the entry of new firms creates externalities.
B) the absence of restrictions on entry by new firms ensures that there will be no deadweight loss.
C) there are always too many firms in the market relative to the socially-optimal number of firms.
D) firms cannot earn positive economic profits in the short run.

E) All of the above
F) A) and B)

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Question 283

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A firm can signal the high quality of its product by

Figure 16-4 -Refer to Figure 16-4. The firm in this figure is monopolistically competitive. This firm

Because a monopolistically competitive firm has some market power, in the long-run the price of its product exceeds its

Which market structure(s) is(are) considered highly concentrated?

Figure 16-14 -Refer to Figure 16-14. Which letter identifies the profit-maximizing level of output for this firm?

Oligopoly and monopolistic competition are examples of a market structure called imperfect competition.

​Which of the following is the most distinguishing characteristic of a monopolistically competitive industry?

Critics of advertising argue that advertising

A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door, since a sale to that customer will not increase the firm's profit.

When a firm's demand curve is tangent to its average total cost curve, the

Which of the following statements is correct?

Figure 16-11 -Refer to Figure 16-11. If this firm profit-maximizes, how much profit or loss will it earn?

Figure 16-13 -Refer to Figure 16-13. What is the first step in this industry's adjustment to long run equilibrium?

The relationship between advertising and product differentiation is

To be considered an oligopoly, the market must have a concentration ratio below 50%.

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures can have positive profits in the short run?

A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to

Scenario 16-7 Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product is a constant $2, and the only fixed cost is for advertising. Each company knows that if it spends $12 million on advertising it will get 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year. On the basis of its market research, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units. -Refer to Scenario 16-7. Suppose YumYum has an opportunity to create a cheaper advertising campaign in newspapers rather than on television for its new product. This campaign will cost $8 million and is expected to result in the same 1.5 million one-time customers. YumYum should