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Exam 16: Monopolistic Competition

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Question 81

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Scenario 16-6 Ike's Ice Cream has decided to open a new ice cream parlor in Mayville, MS. The market for ice cream parlors is monopolistically competitive. -Refer to Scenario 16-6. As a result of the new Ike's Ice Cream parlor, consumers living in and visiting Mayville are likely to experience a

A) business-stealing externality, which harms producers.
B) business-stealing externality, which benefits producers.
C) product-variety externality, which harms consumers.
D) product-variety externality, which benefits consumers.

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

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Question 82

Multiple Choice

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A monopolistically competitive firm's choice of output level is virtually identical to the choice made by

A) a perfectly competitive firm.
B) a duopolist.
C) a monopolist.
D) an oligopolist.

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

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Question 83

Multiple Choice

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Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. At the profit-maximizing level of output, what is this firm's total cost of production?

Which of the following goods are likely to be sold in a monopolistically competitive market?

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. By its willingness to spend money on advertising, Bertollini

Figure 16-4 -Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has total costs of approximately

A monopolistically competitive industry is characterized by

For the economy as a whole, about what percentage of total firm revenue is spent on advertising?

Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm experience zero economic profit?

Scenario 16-9 Dean goes to the grocery store to buy chips and soda for a party. He purchases brand name products even though generic versions are available at lower prices. His friend John says he was irrational to spend more for a nearly identical product. His friend Martina agreed with Dean's decision to spend more for the brand name products. -Refer to Scenario 16-9. Which friend is a critic of brand names?

Figure 16-12 -Refer to Figure 16-12. How much excess capacity does this firm have?

Scenario 16-8 Burger Bonanza, a major national burger chain, recently decided to spend $4 million on an advertising campaign featuring a world famous actor to promote its new Bomber Burger. -Refer to Scenario 16-8. What can consumers conclude from Burger Bonanza's willingness to spend $4 million on an advertising campaign?

Which of the following statements is correct?

It has been said that many of the patrons in McDonald's restaurants in foreign locations are American tourists. A likely reason why many Americans dine at McDonald's while vacationing abroad is

Television advertisements aired during major sporting events are very expensive. A theory asserting that people buy a product simply because it is advertised would suggest that information on the high cost of advertising

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Economists measure a market's domination by a small number of firms with a statistic called the

A firm in a monopolistically competitive market can earn short-run profits but not long-run profits.

Figure 16-1 -Refer to Figure 16-1. Which of the following sets of explanations best describes the differences between the graphs above?

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short-run and the long run?