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Exam 16: Monopolistic Competition

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Question 171

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Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the ATC=40 at the profit-maximizing level of output, which of the following will occur in the long run in this industry?

A) Firms will exit this industry.
B) Firms will enter this industry.
C) This firm will continue to earn positive economic profits.
D) This firm will incur losses.

E) B) and C)
F) A) and B)

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Question 172

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Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. -Refer to Table 16-2. Which industry has the lowest concentration ratio?

A) Industry J
B) Industry K
C) Industry L
D) Industry M

E) None of the above
F) C) and D)

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Question 173

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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

Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1. What is the concentration ratio in Industry A?

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

Critics of advertising argue that advertising leads to less elastic demand for products and a larger markup of price over marginal cost.

Table 16-7 A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to 20. -Refer to Table 16-7. If the firm has a constant marginal cost of $7 per unit, how many units should the firm produce to maximize profit?

On a vacation to China, you find yourself eating every meal at the local Burger King rather than buying a meal from one of the street vendors. Your traveling companion claims that you are irrational, since you never eat Burger King hamburgers when you are home, and Burger King's hamburgers cost more than the meals prepared and sold by China's street vendors. An economist would most likely explain your behavior by suggesting that

Firm A produces and sells in a market that is characterized by highly differentiated consumer goods. Firm B produces and sells industrial products. Firm C produces and sells an agricultural commodity. Which firm is likely to spend the greatest portion of its total revenue on advertising?

Figure 16-14 -Refer to Figure 16-14. Which of the following best describes the profit-maximizing outcome for the firm depicted here?

Which market structure(s) include(s) many firms with differentiated products who can enter and exit the market freely?

Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-2. If the marginal cost of producing this good is 0, how much total consumer surplus would consumers receive in this market?

Which of the following conditions distinguishes monopolistic competition from perfect competition?

Of the following market structures, which are considered imperfectly competitive?

Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. -Refer to Table 16-3. What is the concentration ratio for Industry B?

Figure 16-14 -Refer to Figure 16-14. Use the letters to identify the deadweight loss from this firm producing at its profit- maximizing level of output.

Which of the following statements is not correct?

Table 16-5 This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm. -Refer to Table 16-5. What price should this firm charge to maximize profit?

When a new firm considers entering a market, it takes into account only the profit it would make. What are the two external effects that occur in the market that the firm does not consider?

A downward-sloping demand curve