ECON CH 17 – Flashcards

Monopolistic competition is characterized by which of the following attributes? (i) Free entry (ii) Product differentiation (iii) Many sellers a. (i) and (iii) only b. (i) and (ii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

In a monopolistically competitive industry, firms set price a. equal to marginal cost since each firm is a price taker. b. below marginal cost since each firm is a price taker. c. above marginal cost since each firm is a price setter. d. always a fraction of marginal cost since each firm is a price setter.

In which of the following market structures are there a large number of sellers? (i) Monopolistic competition (ii) Perfect competition (iii) Oligopoly a. (i) and (ii) only b. (ii) and (iii) only c. (ii) only d. (i), (ii), and (iii)

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market a. is characterized by market-share maximization. b. has no barriers to entry. c. faces a downward-sloping demand curve for its product. d. faces a horizontal demand curve at the market clearing price.

If firms in a monopolistically competitive market are incurring economic losses, which of the following scenarios would best describe the change existing firms (who are able to stay in the market) would face as the market adjusts to the long-run equilibrium? a. A downward shift in the marginal cost curve for each firm b. An upward shift in the marginal cost curve for each firm c. A decrease in demand for each firm d. An increase in demand for each firm

6. In monopolistically competitive markets, free entry and exit suggests that a. the market structure will eventually be characterized by perfect competition in the long run. b. all firms earn zero economic profits in the long run. c. some firms will be able to earn economic profits in the long run. d. some firms will be forced to incur economic losses in the long run.

7. When a firm's demand curve is tangent to its average total cost curve, the a. firm's economic profit is zero. b. firm must be earning economic profits. c. firm must be incurring economic losses. d. firm must be operating at its efficient scale.

10. In a long-run equilibrium, a firm in a monopolistically competitive market operates a. where marginal revenue is zero. b. where marginal revenue is negative. c. on the rising portion of its average total cost curve. d. on the declining portion of its average total cost curve.

11. In a monopolistically competitive market, a. there are only a few sellers. b. each firm takes the price of its product as given. c. firms can enter or exit the market without restriction. d. each firm produces a product that is essentially identical to the products of other firms in the market.

12. In both perfect competition and monopolistic competition, a. each firm is, in many ways, like a monopoly. b. each firm sells a product that is at least slightly different from those of other firms. c. each firm faces a downward-sloping demand curve. d. each firm has many competitors.

13. Which of the following markets is not likely characterized by a monopolistically competitive market? a. The market for piano lessons b. The market for corn c. The market for cookies d. The market for clothing

14. When a market is monopolistically competitive, the typical firm in the market is likely to experience a a. positive profit in the short run and in the long run. b. positive or negative profit in the short run and a zero profit in the long run. c. zero profit in the short run and a positive or negative profit in the long run. d. zero profit in the short run and in the long run.

15. For a monopolistically competitive firm, at the profit-maximizing quantity of output, a. price exceeds marginal cost. b. marginal revenue exceeds marginal cost. c. marginal cost exceeds average revenue. d. price equals marginal revenue.

16. Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its a. marginal revenue curve and its total cost curve. b. marginal revenue curve and its average total cost curve. c. demand curve and its total cost curve. d. demand curve and its average total cost curve.

21. In the monopolistically competitive equilibrium, the amount of product differentiation a. is always socially desirable. b. is always too much than socially desirable. c. is always too little than socially desirable. d. can be too much or too little than socially desirable.

When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that a. the quality of products sold in the market always increases. b. customers are less likely to be informed about other characteristics of the product. c. new firms are discouraged from entering the market. d. each firm has less market power.

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with a. information about the availability of the product. b. information about product price. c. a signal of product quality. d. a good example of wasted resources.

If advertising reduces a consumer's price sensitivity between identical goods, it is likely to a. increase the elasticity of demand for differentiated products. b. enhance competition, and encourage more product diversity. c. reduce competition and reduce social welfare. d. encourage the consumption of all homogenous goods.

The primary claim of defenders of advertising is that it a. conveys information about firm profitability. b. is psychological rather than informational. c. enhances the information available to consumers. d. reduces the elasticity of demand for a firm's product.

26. A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to a. a decrease in profits for all hotels/motels. b. reduced efficiency of local lodging markets. c. a request by consumers to increase the number of billboards. d. increased price competition among hotels/motels in the community.

30. A monopolistically competitive market is characterized by barriers to entry.

A profit-maximizing firm in a monopolistically competitive market always prices its product at some markup over marginal cost.

When advertising is used to relay information about price, each firm is able to enhance market power.

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

The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York. This is an example of a brand name enhancing market efficiency for U.S. tourists visiting the Philippines.

Advertising during the Super Bowl is an example of information about quality contained primarily in the existence and expense of the advertising.

Brand names are rarely used to convey information about product quality.

If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be able to charge a larger markup over marginal cost.

When poor-quality products are advertised using cheap advertising, consumers learn to ignore such cheap advertising.

20. Because monopolistically competitive firms produce differentiated products, each firm a. faces a demand curve that is horizontal. b. faces a demand curve that is vertical. c. has no control over product price. d. has some control over product price.