Chapter 16 Econ – Flashcards

A market is comprised of many firms as opposed to just one firm or a few firms a. only when it is perfectly competitive. b. only when it is perfectly competitive or oligopolistic. c. only when it is perfectly competitive or monopolistically competitive. d. when it is perfectly competitive, monopolistically competitive, or oligopolistic.

Firms in a monopolistically competitive market a. are price takers. b. produce an output level that minimizes average total cost in the long run. c. maximize profits by producing where price equals marginal cost. d. cannot earn economic profits in the long run.

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly? a. The monopolistically competitive firm advertises. b. The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level. c. Monopolistic competition features many buyers. d. Monopolistic competition features many sellers.

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.

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.

A firm in a monopolistically competitive market is similar to a monopoly in the sense that (i) they both face downward-sloping demand curves. (ii) they both charge a price that exceeds marginal cost. (iii) free entry and exit determines the long-run equilibrium. a. (i) only b. (ii) only c. (i) and (ii) only d. (i), (ii), and (iii) only

Some firms have an incentive to advertise because they sell a a. similar product and charge a price equal to marginal cost. b. similar product and charge a price above marginal cost. c. differentiated product and charge a price equal to marginal cost. d. differentiated product and charge a price above marginal cost.

The relationship between advertising and product differentiation is a. positive; the more differentiated the product, the more a firm is likely to spend on advertising. b. negative; the more differentiated the product, the less a firm is likely to spend on advertising. c. zero; there is no relationship between product differentiation and advertising. d. irrelevant; firms with differentiated products do not need to advertise.