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Exam 16: Monopolistic Competition

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Question 241

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Suppose that monopolistically competitive firms in a certain market are earning positive profits. In the transition from this initial situation to a long-run equilibrium,

A) the number of firms in the market decreases.
B) each existing firm experiences a decrease in demand for its product.
C) each existing firm experiences a rightward shift of its marginal revenue curve.
D) each existing firm experiences an upward shift in its average total cost curve.

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Question 242

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​In the long run, a monopolistically competitive firm's demand curve becomes more elastic and shifts to the left

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Question 243

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Critics of advertising argue that advertising leads to less elastic demand for products and a larger markup of price over marginal cost.

Defenders of advertising

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. Suppose that average total cost is $36 when Q=24. What is the profit-maximizing price and resulting profit?

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.

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. What is the concentration ratio for Industry B?

Examples of monopolistically competitive markets include the markets for

Economists are unanimous in their belief that advertising is socially inefficient.

The higher the concentration ratio, the

Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. In order to maximize its profit, the firm will choose to produce

Critics of advertising argue that advertising

Critics of advertising argue that firms use advertising to manipulate consumers' tastes.

On a vacation to China, you find yourself eating every meal at the local Burger King rather than buying a meal from one of the street vendors. Your traveling companion claims that you are irrational, since you never eat Burger King hamburgers when you are home, and Burger King's hamburgers cost more than the meals prepared and sold by China's street vendors. An economist would most likely explain your behavior by suggesting that

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 can consumers conclude from Burger Bonanza's willingness to spend $4 million on an advertising campaign?

In monopolistically competitive markets, economic losses

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the ATC=40 at the profit-maximizing level of output, which of the following will occur in the long run in this industry?

Firms in monopolistically competitive markets and monopolies can earn long-run profits due to barriers to entry.

Under which of the following market structures would consumers likely pay the highest price for a product?

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 is the maximum amount of profit that Peter can earn per day?