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Exam 16: Monopolistic Competition

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Question 1

Multiple Choice

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

A) efficient scale.
B) a level of output at which average total cost is rising.
C) a level of output at which average total cost is falling.
D) the level of output at which total revenue is maximized.

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

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Question 2

Multiple Choice

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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?

A) $5.60
B) $4.40
C) $3.20
D) $2.40

E) A) and B)
F) B) and D)

Correct Answer

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B

Question 3

True/False

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

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?

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

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?

Advertising

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.

The market for novels is

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?

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,

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?

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

In monopolistic competition as well as in monopoly,

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

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?

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

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?

Which market structure would likely have the highest concentration ratio?