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Exam 16: Monopolistic Competition

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Question 31

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Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.

A) True
B) False

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Question 32

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​If a monopolistically competitive firms incurs an increase in fixed costs, its price will rise and its output will fall.

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B) False

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Question 33

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Figure 16-4 ​ ​ Graph (a) Graph (b) Graph (c) Graph (d) ​ ​ -Refer to Figure 16-4. Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into this monopolistically competitive industry?

Figure 16-8 ​ -Refer to Figure 16-8. If this firm were operating in a perfectly competitive market in the long run, it would charge a price equal to point

​In the long run, a monopolistically competitive firm produces at efficient scale.

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

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

​A monopolistically competitive firm cannot earn an economic profit in the long run.

Table 16-1 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. ​ ​ $\begin{array} { | c | c | c | c | c | } \hline \text { Firm } & \text { Industry A } & \text { Industry B } & \text { Industry C } & \text { Industry D } \\\hline 1 & 50,000 & 18,000 & 37,000 & 40,000 \\\hline 2 & 47,000 & 17,750 & 36,500 & 39,000 \\\hline 3 & 43,000 & 17,250 & 35,500 & 37,000 \\\hline 4 & 38,000 & 16,500 & 34,000 & 34,000 \\\hline 5 & 32,000 & 15,500 & 32,000 & 30,000 \\\hline 6 & 25,000 & 14,250 & 29,500 & 25,000 \\\hline 7 & 17,000 & 12,750 & 26,500 & 19,000 \\\hline 8 & 8,000 & 11,000 & 23,000 & 12,000 \\\hline \text { Total } & \mathbf { 2 7 0 , 0 0 0 } & \mathbf { 1 3 0 , 0 0 0 } & \mathbf { 3 0 0 , 0 0 0 } & \mathbf { 2 5 0 , 0 0 0 } \\\hline\end{array}$ ​ -Refer to Table 16-1. What is the concentration ratio for Industry C?

Figure 16-3 -Refer to Figure 16-3. Which of the following will occur in the long run in this industry?

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

Consider two industries in which firms hold the following market shares: Industry A: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1% Industry B: 30%, 10%, 9%, 8%, 8%, 8%, 8%, 6%, 6%, 5%, 2% What are the concentration ratios for each industry? Which is more competitive?

Assume the role of a defender of advertising. Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

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

The business-stealing externality states that entry of a new firms imposes a cost on existing firms because they lose customers.

The government may not be able to improve the inefficiencies of a monopolistically competitive market.

Figure 16-10 ​ ​ -Refer to Figure 16-10. Compare the price and marginal cost in this market with price and marginal cost if this were a perfectly competitive market.

Why does a typical monopolistically competitive firm face a downward-sloping demand curve?

A firm in a monopolistically competitive market can earn both short-run and long-run profits.