Question 1

Empirical studies show that entry into markets increases both price and quantity of goods supplied.

Accepted Answer

Empirical studies generally show that entry into markets increases the quantity of goods supplied but tends to decrease the price due to increased competition.

Question 2

Which of the following is NOT a characteristic of a monopolistically competitive market?

Accepted Answer

In a monopolistically competitive market, there are many firms selling products that are similar but not identical, and there are no artificial barriers to entry. However, there is not only one firm selling a product, and there are many firms that have some control over price.

Question 3

Entry of a second firm will result in a downward shift in the ATC curve.

Accepted Answer

Entry of a second firm will increase competition and may result in a downward shift in the market demand curve. This will lead to a lower market price which will, in turn, lead to a new equilibrium point for both firms with a lower but parallel ATC curve. The ATC curve of the first firm will not shift downward, but rather the new equilibrium price will be lower, resulting in a lower average cost for both firms.

Question 4

Entry leads reduces firm profits because it leads to a lower price.

Accepted Answer

Entry of new firms increases competition, which can drive prices down, potentially reducing profits for existing firms.

Question 5

Which of the following is NOT a characteristic of a monopolistically competitive market?

Accepted Answer

Firms holding patents on their products is not a characteristic of a monopolistically competitive market. Monopolistic competition is characterized by firms selling similar but differentiated products, some control over price, and no significant barriers to entry.

Question 6

What entices a second firm to enter a market that was previously a single price monopoly?

Accepted Answer

The answer of What entices a second firm to enter...

Question 7

Which of the following is NOT a characteristic of a monopolistically competitive market?

Accepted Answer

Monopolistically competitive markets do not have substantial barriers to entry, as there are many firms with differentiated products that can enter and exit the market easily. The other characteristics listed, including many firms, differentiated products, and firms having some control over price, are all typical of monopolistically competitive markets.

Question 8

Why does entry into markets decrease firm profits?

Accepted Answer

The answer of Why does entry into markets decrease firm...

Question 9

Why does the government work to eliminate artificial barriers to entry?

Accepted Answer

The answer of Why does the government work to eliminate...

Question 10

The entry of an additional firm into a market shifts the demand curve for the original firm to the left.

Accepted Answer

The entry of a new firm into a market increases the competition, leading to a decrease in the demand for the original firm's product. This shift is indicated by a leftward shift in the demand curve.

Question 11

For many years North Carolina-based Krispy Kreme Doughnuts have been the choice of many Southerners.
But now rival Dunkinʹ Donuts is working on changing the way Southerners expect a doughnut to taste. The
Northeastern-based Dunkinʹ Donuts has plans to become a national brand in the next 15 years by tripling the
number of stores in the USA. The difference is in the doughnut itself. Krispy Kreme offers a glazed, hot,
lighter doughnut while the product of Dunkinʹ Donuts can be described as ʺthicker and cakier.ʺ Do
consumers notice the difference? Rosemary Evans from Alabama states, ʺDunkinʹ Donuts just donʹt have
much flavor.ʺ And Jack Lehnhart from Ohio says Krispy Kremes are ʺwax doughnuts.ʺ As the size of the
industry grows the efforts to differentiate each product remain strong. Dunkinʹ Donuts focuses on coffee and
baked goods as important components in its long term business plan. When discussing the two companies
and their approaches to success, the brand officer at Dunkinʹ Donuts succinctly said, ʺWeʹre very different.ʺ
Just take note of the different ways they spell the product they produce!
Source: Beth Rucker, ʺDunkinʹ Donuts Raids Krispy Kremeʹs Turf,ʺ October 22, 2006,
http://hosted.ap.org/dynamic/stories/D/DONUT_WARS, accessed 10/30/2006
-As more Dunkinʹ Donuts outlets open in the areas where Krispy Kreme has been dominant, market prices will _______ and profits will _______.

Accepted Answer

The answer of For many years North Carolina-based Krispy Kreme...

Question 12

Recall the Application about the price competition between name brands and store brands to answer the following question(s).
-Recall the Application. Which of the following NOT an example of a good that has both name brands and store brands?

Accepted Answer

Automobiles are typically not categorized into name brands and store brands, unlike the other options which have both types available in the market.

Question 13

For many years North Carolina-based Krispy Kreme Doughnuts have been the choice of many Southerners.
But now rival Dunkinʹ Donuts is working on changing the way Southerners expect a doughnut to taste. The
Northeastern-based Dunkinʹ Donuts has plans to become a national brand in the next 15 years by tripling the
number of stores in the USA. The difference is in the doughnut itself. Krispy Kreme offers a glazed, hot,
lighter doughnut while the product of Dunkinʹ Donuts can be described as ʺthicker and cakier.ʺ Do
consumers notice the difference? Rosemary Evans from Alabama states, ʺDunkinʹ Donuts just donʹt have
much flavor.ʺ And Jack Lehnhart from Ohio says Krispy Kremes are ʺwax doughnuts.ʺ As the size of the
industry grows the efforts to differentiate each product remain strong. Dunkinʹ Donuts focuses on coffee and
baked goods as important components in its long term business plan. When discussing the two companies
and their approaches to success, the brand officer at Dunkinʹ Donuts succinctly said, ʺWeʹre very different.ʺ
Just take note of the different ways they spell the product they produce!
Source: Beth Rucker, ʺDunkinʹ Donuts Raids Krispy Kremeʹs Turf,ʺ October 22, 2006,
http://hosted.ap.org/dynamic/stories/D/DONUT_WARS, accessed 10/30/2006
-What market structure best describes the doughnut industry discussed in the article above?

Accepted Answer

The article describes two major players in the doughnut industry, Krispy Kreme and Dunkin' Donuts, who are differentiated by the taste of their doughnuts. This suggests that there are many firms selling similar but not identical products, which is characteristic of monopolistic competition.

Question 14

Recall the Application about the price competition between name brands and store brands to answer the following question(s).
-Recall the Application. The introduction of store brands is a form of:

Accepted Answer

The introduction of store brands is a form of market entry as it involves new products entering the market to compete with existing name brands, often at lower prices.

Question 15

Entry leads to higher prices and profits in an industry.

Accepted Answer

Entry into an industry typically leads to increased competition, which can lead to lower prices and lower profits as companies compete for market share.

Question 16

The entry of an additional firm into a market decreases the profit per unit of output because entry decreases the price.

Accepted Answer

When a new firm enters a market, it increases the supply of goods, which can lead to a decrease in market price. As a result, the profit per unit of output decreases for all firms in the market.

Question 17

What are the effects on a market when there is entry?

Accepted Answer

The answer of What are the effects on a market...

Question 18

Which of the following is NOT a characteristic of a monopolistically competitive market?

Accepted Answer

In a monopolistically competitive market, firms have some control over the market price as they offer differentiated products, which makes their products slightly different from their competitors' products. Therefore, firms do not have to take the market price as given. Instead, they can set a slightly higher price, reflecting the perceived value of their unique product features.

Question 19

Recall the Application about the price competition between name brands and store brands to answer the following question(s).
-Recall the Application. Which of the following is/ are examples of goods with name brands and store brands?

Accepted Answer

All of the options listed (light bulbs, aspirin, and disposable diapers) are examples of goods that typically have both name brands and store brands available in the market.

Question 20

For many years North Carolina-based Krispy Kreme Doughnuts have been the choice of many Southerners.
But now rival Dunkinʹ Donuts is working on changing the way Southerners expect a doughnut to taste. The
Northeastern-based Dunkinʹ Donuts has plans to become a national brand in the next 15 years by tripling the
number of stores in the USA. The difference is in the doughnut itself. Krispy Kreme offers a glazed, hot,
lighter doughnut while the product of Dunkinʹ Donuts can be described as ʺthicker and cakier.ʺ Do
consumers notice the difference? Rosemary Evans from Alabama states, ʺDunkinʹ Donuts just donʹt have
much flavor.ʺ And Jack Lehnhart from Ohio says Krispy Kremes are ʺwax doughnuts.ʺ As the size of the
industry grows the efforts to differentiate each product remain strong. Dunkinʹ Donuts focuses on coffee and
baked goods as important components in its long term business plan. When discussing the two companies
and their approaches to success, the brand officer at Dunkinʹ Donuts succinctly said, ʺWeʹre very different.ʺ
Just take note of the different ways they spell the product they produce!
Source: Beth Rucker, ʺDunkinʹ Donuts Raids Krispy Kremeʹs Turf,ʺ October 22, 2006,
http://hosted.ap.org/dynamic/stories/D/DONUT_WARS, accessed 10/30/2006
-Why would Dunkinʹ Donuts want to keep their product different from Krispy Kreme?

Accepted Answer

Dunkinʹ Donuts wants to maintain a specific brand identity and differentiate its product from Krispy Kreme's in order to be successful in expanding to a national brand.

Quiz 8: Market Entry, Monopolistic Competition, and Oligopoly

Empirical studies show that entry into markets increases both price and quantity of goods supplied.

Which of the following is NOT a characteristic of a monopolistically competitive market?

Entry of a second firm will result in a downward shift in the ATC curve.

Entry leads reduces firm profits because it leads to a lower price.

Which of the following is NOT a characteristic of a monopolistically competitive market?

What entices a second firm to enter a market that was previously a single price monopoly?

Which of the following is NOT a characteristic of a monopolistically competitive market?

Why does entry into markets decrease firm profits?

Why does the government work to eliminate artificial barriers to entry?

The entry of an additional firm into a market shifts the demand curve for the original firm to the left.

Recall the Application about the price competition between name brands and store brands to answer the following question(s) . -Recall the Application. Which of the following NOT an example of a good that has both name brands and store brands?

Recall the Application about the price competition between name brands and store brands to answer the following question(s) . -Recall the Application. The introduction of store brands is a form of:

Entry leads to higher prices and profits in an industry.

The entry of an additional firm into a market decreases the profit per unit of output because entry decreases the price.

What are the effects on a market when there is entry?

Which of the following is NOT a characteristic of a monopolistically competitive market?

Recall the Application about the price competition between name brands and store brands to answer the following question(s) . -Recall the Application. Which of the following is/ are examples of goods with name brands and store brands?