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Table 16-4 This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm. Table 16-4 This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm. -Refer to Table 16-4. At the profit­maximizing level of output, what is this firm's total cost? A) $10 B) $40 C) $88 D) $100 -Refer to Table 16-4. At the profit­maximizing level of output, what is this firm's total cost?


A) $10
B) $40
C) $88
D) $100

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The product-variety externality arises in monopolistically competitive markets because


A) firms produce with excess capacity.
B) firms try to differentiate their products.
C) firms would like to produce homogeneous products, but the large number of firms prohibits it.
D) entry and exit is restricted.

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Monopolistic competition is an


A) inefficient market structure because there is deadweight loss.
B) inefficient market structure because price exceeds marginal cost.
C) efficient market structure because free entry drives long-run profits to zero.
D) Both a and b are correct.

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There is general disagreement among economists about the role of advertising, but there is widespread agreement about the role of brand names on market efficiency.

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Adibok knows that it produces and sells high quality athletic shoes. Wurkout knows that it produces and sells low quality athletic shoes. According to the signaling theory of advertising,


A) both Adibok and Wurkout have incentives to spend large amounts of money on advertising for their athletic shoes.
B) Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes, but Wurkout does not.
C) Wurkout has an incentive to spend a large amount of money on advertising for its athletic shoes, but Adibok does not.
D) neither Adibok nor Wurkout has an incentive to spend a large amount of money on advertising for their athletic shoes.

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The market for wheat is most likely considered a monopolistically competitive market.

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In a monopolistically competitive market, the number of firms adjusts until economic profits are driven to zero.

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A monopolistically competitive market is like both a competitive market and a monopoly in that firms in all three market structures


A) can earn economic profits in the short run.
B) can earn economic profits in the long run.
C) charge a price above marginal cost.
D) All of the above are correct.

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Which of the following industries has the highest concentration ratio?


A) jeans
B) fruit
C) household laundry equipment
D) restaurants

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A firm has the following cost structure: A firm has the following cost structure: If this firm is in a typical perfectly competitive market, in the long run it will likely produce A) 8 or fewer units of output. B) 10 units of output. C) more than 10 units of output. D) None of the above are necessarily correct because there is not enough information to tell. If this firm is in a typical perfectly competitive market, in the long run it will likely produce


A) 8 or fewer units of output.
B) 10 units of output.
C) more than 10 units of output.
D) None of the above are necessarily correct because there is not enough information to tell.

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In a small college town, four microbreweries have opened in the last two years. Demonstrate the effect of new market entrants on demand for existing firms (microbreweries) that already served this market. Assume that the local community now places a moratorium on new liquor licenses for microbreweries. How will this moratorium affect the long-run profitability of incumbent firms?

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blured image The arrival of a new entrant should be ...

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For a monopolistically competitive firm,


A) marginal revenue and price are the same.
B) average revenue and price are the same.
C) at the profit-maximizing quantity of output, price equals marginal cost.
D) at the profit-maximizing quantity of output, price equals the minimum of average total cost.

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Assume the role of a critic of advertising. Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.

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Advertising manipulates people's tastes ...

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Figure 16-5 Figure 16-5 -Refer to Figure 16-5. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits? A) panel a B) panel b C) panel c D) panel d -Refer to Figure 16-5. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?


A) panel a
B) panel b
C) panel c
D) panel d

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Table 16-7 A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to 20. Table 16-7 A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to 20. -Refer to Table 16-7. If this firm has a constant marginal cost of $7, what is the profit-maximizing level of output? -Refer to Table 16-7. If this firm has a constant marginal cost of $7, what is the profit-maximizing level of output?

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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.

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In the debate between the critics and defenders of advertising, what conclusion have policymakers come to regarding the effect of advertising on competition - advertising makes markets more competitive or less competitive?

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The administrative burden of regulating price in a monopolistically competitive market is


A) small due to economies of scale.
B) large because price is usually below marginal cost.
C) large because of the large number of firms that produce differentiated products.
D) small because firms produce with excess capacity.

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An important difference between the situation faced by a profit-maximizing monopolistically competitive firm in the short run and the situation faced by that same firm in the long run is that in the short run,


A) price may exceed marginal revenue, but in the long run, price equals marginal revenue.
B) price may exceed marginal cost, but in the long run, price equals marginal cost.
C) price may exceed average total cost, but in the long run, price equals average total cost.
D) there are many firms in the market, but in the long run, there are only a few firms in the market.

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Which of the following markets is not likely characterized by a monopolistically competitive market?


A) mobile telephone service
B) auto mechanic service
C) barbershops
D) jewelry

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