Deck 16: Monopolistic Competition

Question 1

The "monopoly" in monopolistically competitive markets is most likely a result of firms having some pricing power due to product differentiation.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Oligopoly and monopolistic competition are examples of a market structure called imperfect competition.

Answer 3

True

Question 4

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

Question 5

A monopolistically competitive market is characterized by barriers to entry.

Question 6

A profit-maximizing firm in a monopolistically competitive market always operates on the downward-sloping portion of its marginal cost curve.

Question 7

Monopolistic competition and monopoly are examples of a market structure called imperfect competition.

Question 8

A firm in a monopolistically competitive market can earn both short-run and long-run profits.

Question 9

In the long run,monopolistically competitive firms produce where demand equals marginal cost.

Question 10

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

Question 11

Monopolistically competitive firms,like monopoly firms,maximize their profits by charging a price that exceeds marginal cost.

Question 12

Product differentiation always leads to some measure of market power.

Question 13

For a profit-maximizing firm in a monopolistically competitive market,when price is equal to average total cost,price must lie above marginal cost.

Question 14

A markup of price over marginal cost is inconsistent with free entry and zero profit.

Question 15

A firm in a monopolistically competitive market can earn short-run profits but not long-run profits.

Question 16

A profit-maximizing firm in a monopolistically competitive market charges a price equal to marginal cost.

Question 17

A profit-maximizing firm in a monopolistically competitive market can earn positive,negative,or zero profits in the short run.

Question 18

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

Question 19

Monopolistic competition is characterized by a few sellers offering similar products,whereas oligopoly is characterized by many sellers offering differentiated products.

Question 20

Oligopoly is characterized by a few sellers offering similar products,whereas monopolistic competition is characterized by many sellers offering differentiated products.

Question 21

When a firm operates with excess capacity,it must be in a monopolistically competitive market.

Question 22

When a firm operates at efficient scale,it is producing at the minimum point on its average total cost curve.

Question 23

When a firm in a monopolistically competitive market earns zero economic profit,its product price must equal marginal cost.

Question 24

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

Question 25

The claim that advertising reduces the elasticity of demand is likely to be made by a defender of advertising.

Question 26

When McDonald's opens a store in Dhaka,Bangladesh,it has a strong incentive to enforce product quality consistent with stores in the United States.

Question 27

In the long run,monopolistically competitive firms produce where demand equals average total cost.

Question 28

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

Question 29

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,marginal cost must lie below average total cost.

Question 30

The term excess capacity refers to the fact that a firm operates on the upward-sloping portion of its average-total-cost curve.

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

Excess capacity characterizes firms in monopolistically competitive markets,even in situations of long-run equilibrium.

Question 36

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

Question 37

A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door,since a sale to that customer will not increase the firm's profit.

Question 38

When advertising is used to relay information about price,each firm is able to enhance market power.

Question 39

Defenders of advertising argue that firms use advertising as a signal of quality,even if the advertising delivers little helpful information about the product.

Question 40

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.

Question 41

Empirical evidence suggests that advertising usually leads to an increase in the price for advertised products.

Question 42

The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York.This is an example of a brand name enhancing market efficiency for U.S.tourists visiting the Philippines.

Question 43

Free entry eliminates long-run profits for firms in competitive and monopolistic industries.

Question 44

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?

Question 45

Entry of firms in a monopolistically competitive industry is characterized by two externalities.List them and briefly describe how consumers and existing firms are influenced by them.

Question 46

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

Question 47

The debate over whether advertising serves a valuable purpose in society is definitively answered by economists who study the tastes and preferences of individuals.

Question 48

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy.Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.

Question 49

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.

Question 50

In many college towns,private independent bookstores typically locate on the periphery of the college campus.However,in some college towns,the university has used political power to restrict private bookstores near campus through community zoning laws.Use your knowledge of markets to predict the price and quality of service differences in the market for college textbooks under the two different market regimes.

Question 51

Why does a typical monopolistically competitive firm face a downward-sloping demand curve?

Question 52

The government may not be able to improve the inefficiencies of a monopolistically competitive market.

Question 53

What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?

Question 54

If advertising decreases the elasticity of demand for specific brand names of hard liquor,we would expect firms to be able to charge a larger markup over marginal cost.

Question 55

Advertising during the Super Bowl is an example of information about quality contained primarily in the existence and expense of the advertising.

Question 56

Use a graph to demonstrate why a profit-maximizing monopolistically competitive firm must operate at excess capacity.Explain why a perfectly competitive firm is not subject to the same constraint.

Question 57

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.

Question 58

Brand names are rarely used to convey information about product quality.

Question 59

Evaluate the following statement in the context of business-stealing and product-variety externalities: "We have too many student apartments in this town already.Statistics show that vacancy rates average 15 percent during any given semester."

Question 60

List five goods that are likely sold in a monopolistically competitive market.

Question 61

The two types of imperfectly competitive markets are

A) markets with differentiated products and monopoly.
B) markets with differentiated products and oligopoly.
C) oligopoly and monopoly.
D) monopolistic competition and oligopoly.

Question 62

The general term for market structures that fall somewhere in-between monopoly and perfect competition is

A) incomplete markets.
B) imperfectly competitive markets.
C) oligopoly markets.
D) monopolistically competitive markets.

Question 63

Which of the following statements is not correct?

A) Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs.
B) Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry.
C) Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry.
D) Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers.

Question 64

Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

Question 65

Professional organizations (for example,the American Medical Association and the American Bar Association)have been active advocates for regulation to restrict the right of professionals to advertise.Describe what economic incentives might exist for existing professionals to restrict advertising.

Question 66

Assume the role of a defender of advertising.Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

Question 67

In a market that is characterized by imperfect competition,

A) firms are price takers.
B) there are always a large number of firms.
C) there are at least a few firms that compete with one another.
D) the actions of one firm in the market never have any impact on the other firms' profits.

Question 68

A typical firm in the U.S.economy would be classified as

A) perfectly competitive.
B) imperfectly competitive.
C) a duopolist.
D) an oligopolist.

Question 69

Discuss how brand names may enhance the efficiency of markets in a less developed country.

Question 70

The market for novels is

A) perfectly competitive.
B) a monopoly.
C) monopolistically competitive.
D) an oligopoly.

Question 71

Which of the following pairs illustrates the two extreme examples of market structures?

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

Question 72

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.

Question 73

A monopolistically competitive market has characteristics that are similar to

A) a monopoly only.
B) a competitive firm only.
C) both a monopoly and a competitive firm.
D) neither a monopoly nor a competitive firm.

Question 74

Which of the following statements is not correct?

A) Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry,whereas monopoly is characterized by barriers to entry.
B) Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly.
C) Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market,whereas each seller can affect the actions of other sellers in an oligopoly.
D) Both monopolistic competition and perfect competition are characterized by product differentiation.

Question 75

The typical firm in the U.S.economy

A) has some degree of market power.
B) sells its product for a price that is equal to the marginal cost of producing the last unit.
C) is perfectly competitive.
D) is a monopoly.

Question 76

Which of the following is a characteristic of monopolistic competition?

A) ownership of a key resource by a single firm
B) free entry
C) identical product
D) patents

Question 77

The two types of imperfectly competitive markets are

A) monopoly and monopolistic competition.
B) monopoly and oligopoly.
C) monopolistic competition and oligopoly.
D) monopolistic competition and cartels.

Question 78

Monopolistic competition is a type of

A) oligopoly.
B) market structure.
C) price discrimination.
D) advertising strategy.

Question 79

In markets where the government imposes an excise tax on unit sales,it also has a tendency to dabble with restrictions on advertising (for example,cigarettes and hard liquor).Do potential (or actual)restrictions on advertising in these markets serve the interest of a government that is interested in maximizing its tax revenue from the sale of these products? Explain your answer.

Question 80

As developing countries make a transition to market-based economies,one of the first major capital investments is in "Western-quality" hotels.Explain why brand-name hotel accommodations are a critical step in attracting foreign investment.