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Exam 16: Monopolistic Competition

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Question 231

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In a monopolistically competitive market,

A) entry by new firms is impeded by barriers to entry; thus, the number of firms in the market is never ideal.
B) entry by new firms is impeded by barriers to entry, but the number of firms in the market is nevertheless always ideal.
C) free entry ensures that the number of firms in the market is ideal.
D) there may be too few or too many firms in the market, despite free entry.

E) B) and D)
F) None of the above

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Question 232

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Under which of the following market structures would consumers likely receive the most product variety?

A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly

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

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Question 233

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Figure 16-13 -Refer to Figure 16-13. Which of the following areas represents the profit for this profit maximizing monopolistically competitive firm?

Table 16-3 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. -Refer to Table 16-3. Based on the concentration ratio, which industry is the least competitive?

Scenario 16-9 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 16-9. Martina offers two reasons for agreeing with Dean's decision. What are they?

Free entry and exit means that the number of firms in the market adjusts until

Monopolistic competition is a type of

Figure 16-11 -Refer to Figure 16-11. If this firm profit-maximizes, how much profit or loss will it earn?

The product-variety externality and the business-stealing externality are both spillover benefits of new firms entering a monopolistically competitive market.

Scenario 16-7 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 16-7. Which of the following is most likely?

The commercial jetliner industry consisting of Boeing and Airbus would best be described as a (an)

With respect to monopolistic competition,

To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $24 at the profit-maximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is

Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. When the firm is maximizing its profit, the markup over marginal cost amounts to

Piper consumes Ragu spaghetti sauce exclusively. She claims that there is a clear taste difference and that competing brands of spaghetti sauce leave an unsavory taste in her mouth. However, in a blind taste test, Piper is found to prefer generic store-brand spaghetti sauce to Ragu spaghetti sauce eight out of ten times. The results of Piper's taste test would reinforce claims by critics of brand names that

When monopolistically competitive firms advertise, in the long run

Figure 16-5 -Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry?

Scenario 16-7 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 16-7. If YumYum decides to advertise its product it can expect to

Which of the following might be an example of an economic argument against advertising? ​