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Exam 16: Monopolistic Competition

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Question 91

Multiple Choice

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When a firm exits a monopolistically competitive market,what will happen to the individual demand curves faced by all existing firms in that market

A) They will remain unchanged but the quantity of demand will increase.
B) They will shift to the right.
C) They will remain unchanged but the quantity of demand will decrease.
D) They will shift to the left.

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

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Question 92

True/False

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Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.

A) True
B) False

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Question 93

Multiple Choice

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Critics of markets that are characterized by firms that sell brand-name products argue that brand names encourage consumers to pay more for which type of branded products

Which goods are NOT sold in a monopolistically competitive market

Monopolistic competition is the only market structure that features many sellers.

What happens when advertising is used to strengthen brand loyalty

The competition in monopolistically competitive markets is most likely a result of having many sellers in the market.

What did Edward Chamberlin argue about brand names

A monopolistically competitive firm's choice of output level is virtually identical to the choice made by what other type of firm

How is the inefficiency related to the monopolistically competitive industry eliminated?

Figure 16-2 -Refer to Figure 16-2.Which of the graphs would most likely represent a profit-maximizing firm in a monopolistically competitive market

Table 16-1 A monopolistically competitive firm faces the following demand curve for its product: -Refer to Table 16-1.The firm has total fixed costs of $40 and a constant marginal cost of $2 per unit.Which outcome will result

Scenario 16-2 Consider the problem facing two firms in the fast-food restaurant market, Firm A and Firm B.Each company has just come up with an idea for a new fast-food menu item, which it would sell for $6.Assume that the marginal cost for each new menu item 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 2 million consumers to try its new product.Firm A has done market research which suggests that its product does not have any staying power in the market.Even though it could get 2 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future.Firm B'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, Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year, for a total of 24 million units. -Refer to Scenario 16-2.If Firm B decides to advertise its product,what can it expect to happen

What causes the deadweight loss that is associated with a monopolistically competitive market

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,what is the result

Product differentiation generally leads to some measure of market power.

Suppose the federal finance minister wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale.If this law were to pass and be enforced,what would we expect would happen to monopolistically competitive firms

With what is the product-variety externality associated

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

Why is a profit-maximizing firm in a monopolistically competitive market eager for another customer