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Exam 16: Monopolistic Competition

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Question 1

Multiple Choice

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Figure 16-7 -Refer to Figure 16-7. Which of the graphs depicts the situation for a profit-maximizing firm in a monopolistically competitive market?

A) panel a
B) panel b
C) panel c
D) panel d

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

Correct Answer

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A

Question 2

Multiple Choice

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In the short run, a firm operating in a monopolistically competitive market

A) produces an output level where marginal revenue equals average total cost.
B) sets price equal to demand where marginal revenue equals marginal cost.
C) must earn zero economic profits.
D) maximizes revenues as well as profits.

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

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Question 3

Short Answer

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A new Mexican restaurant opens in the city of Manchester. The other restaurant owners are not happy about this new restaurant because they are experiencing what externality?

The market for novels is

Table 16-6 Beatrice's Birthday Cakes 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 16-6. At the profit-maximizing quantity, what is Beatrice's total profit?

Which market structure would likely have the highest concentration ratio?

Entry of new firms in monopolistically competitive industries can convey a positive externality on consumers because new products result in more consumer surplus. This externality is called the

In the long run, a profit-maximizing firm in a monopolistically competitive market operates at

Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry.

Scenario 16-3 Peter 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. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.) -Refer to Scenario 16-3. What price should Peter charge per double scoop ice cream cone to maximize his profit?

Most businesses advertise their products and services. Some business use SPAM emails to advertise because the cost of a mass e-mail is close to zero. Other business spend millions of dollars to advertise in a 30-second spot during the Super Bowl. Having observed this real world data, economists argue that the amount of money that a business spends on advertising is a proxy for a good or service's

Suppose the point of tangency that characterizes long-run equilibrium for a monopolistically competitive firm occurs at Q₁ units of output. This level of output, Q₁,

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 two benefits are conveyed by the brand name Burger Bonanza?

Advertising

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. Which of the following statements regarding this monopolistically competitive firm is correct?

In a monopolistically competitive market, the demand curves faced by incumbent firms are unaffected by the entry of new firms into the market.

Select the type of market that is described by the following attributes: many firms, differentiated products, and free entry.

The term excess capacity refers to the fact that a firm produces a lower quantity than it would if it operated at the efficient scale.

In monopolistic competition as well as in monopoly,

Scenario 16-3 Peter 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. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.) -Refer to Scenario 16-3. What price should Peter charge to maximize his profits?