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Exam 16: Monopolistic Competition

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Question 21

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Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,

A) marginal revenue will equal average total cost.
B) price will exceed marginal cost.
C) marginal cost will exceed average total cost.
D) average total cost will be rising.

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

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Question 22

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In the long run, monopolistically competitive firms produce where demand equals marginal cost.

A) True
B) False

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Question 23

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A monopolistically competitive market is characterized by barriers to entry.

Which of the following is true about a monopolistically competitive firm?

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

The product-variety externality is associated with the

Figure 16-11 ​ ​ -Refer to Figure 16-11. Which letter represents the profit-maximizing quantity?

Table 16-4 Beatrice's Birthday Cakes operates in a monopolistically competitive market, so it is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's. ​ ​ ​ ​ -Refer to Table 16-4. If the government required Beatrice's to produce at the efficient scale of output, how many cakes would Beatrice's sell?

Scenario 16-1 Venya operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Venya's demand and cost values for sales per day are given in the following table. (Everyone who purchases Venya's ice cream buys a double scoop cone because it's so delicious.) ​ ​ ​ -Refer to Scenario 16-1. What price should Venya charge per double scoop ice cream cone to maximize his profit?

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

Scenario 16-3 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 16-3. By its willingness to spend money on advertising, Bertollini

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy. Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.

Scenario 16-6 ​ 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 16-6. If advertising were banned in these markets, what would likely happen to the prices of chips and soda?

Which of the following is not a key feature of monopolistic competition?

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.

Monopolistic competition is considered inefficient because

A market structure with only a few sellers, each offering similar or identical products, is known as

List five goods that are likely sold in a monopolistically competitive market.

The term excess capacity refers to the fact that a firm operates on the upward-sloping portion of its average-total-cost curve.

The debate over whether advertising serves a valuable purpose in society is definitively answered by economists who study the tastes and preferences of individuals.