Question 1

Recall the Application about the costs involved in opening a motel to answer the following question(s).
-Recall the Application.What should an owner of a Motel 6 expect in a monopolistically competitive market?

Accepted Answer

In a monopolistically competitive market, firms face keen competition for consumers due to the presence of many competitors offering differentiated products. Over the long run, firms can expect to earn zero economic profit as any short-term profits attract new entrants, increasing competition and driving down prices. Thus, total revenue will equal total cost in the long run, making all of the statements correct.

Question 2

A monopolistically competitive firm influences market price by virtue of its size.

Accepted Answer

In monopolistic competition, firms have some degree of market power due to product differentiation, but no single firm is large enough to influence market price significantly because there are many competitors.

Question 3

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

Monopolistic competition is a market structure where many firms compete for essentially the same customers, but each firm produces a slightly different product. Competitors in this market have some price-setting power, but it is limited due to the many close substitutes available. Additionally, entry into this market is relatively inexpensive, allowing new firms to enter and compete with established firms. Therefore, all of the above characteristics are true of monopolistic competition.

Question 4

Under a monopolistically competitive market structure,firms will continue to enter the market until the economic profit is eliminated.

Accepted Answer

In a monopolistically competitive market structure, firms will keep entering the market until the economic profit is eliminated because there are no significant barriers to entry. However, in the long run, each firm will end up producing at a point where the marginal cost equals the marginal revenue, and there will be zero economic profit. This means that firms in monopolistically competitive industries will continue to operate, but they will earn normal profits instead of economic profits.

Question 5

-Refer to Figure 11.2.In the long run,the monopolistic competitor would earn an economic profit equal to the area

Accepted Answer

In the long run, a monopolistic competitor earns zero economic profit because of the entry and exit of firms in the market. This results in the firm's demand curve being tangent to its average total cost curve, meaning it covers its costs exactly, including a normal profit, but does not earn an economic profit.

Question 6

In the short run,a firm in monopolistic competition operates much like a

Accepted Answer

In the short run, a firm in monopolistic competition has some degree of market power, allowing it to have control over its price and output. This is similar to a monopolist. However, unlike a monopolist, a firm in monopolistic competition faces competition from other similar firms, which means it cannot charge a price as high as it wants, and must consider the prices charged by its competitors. Therefore, options B and C, firm in perfect competition and price taker, are not accurate descriptions of a firm in monopolistic competition, as it has some degree of market power and faces competition.

Question 7

Firms in a monopolistically competitive industry have small economies of scale which causes no barriers to entry.

Accepted Answer

Monopolistically competitive firms have some slight control over the market price due to product differentiation, but they do not have significant economies of scale that would create barriers to entry for new firms. This means new firms can enter the market without facing major obstacles, which can lead to increased competition.

Question 8

In the long run,which two curves are tangent for a firm in monopolistic competition?

Accepted Answer

In the long run, for a firm in monopolistic competition, the average total cost curve and the demand curve are tangent. This reflects the point where the firm is making zero economic profit, as it is producing at a level where price equals average total cost.

Question 9

When a profit-maximizing firm in monopolistic competition is in long-run equilibrium,

Accepted Answer

In long-run equilibrium, a firm in monopolistic competition will produce where marginal revenue equals marginal cost. However, due to the presence of differentiated products, the firm will have some level of market power and be able to charge a price higher than its marginal cost. Therefore, its price will be greater than its marginal cost.

Question 10

In some monopolistically competitive markets,differentiation is obtained simply by location.Which of the followings is NOT a good example of differentiation by location?

Accepted Answer

The answer of In some monopolistically competitive markets,differentiation is obtained...

Question 11

Firms in monopolistically competitive markets sell identical products.

Accepted Answer

Firms in monopolistically competitive markets sell differentiated products, meaning that while the products are similar, they are not identical. This differentiation allows firms to have some pricing power and compete based on product differentiation rather than solely on price.

Question 12

Firms gain control over price in monopolistic competition by differentiating their products.

Accepted Answer

By offering products that are perceived as unique or different from their competitors, firms in monopolistic competition are able to have some degree of control over the price they charge. Consumers may be willing to pay a higher price for a product they believe is better or more desirable than comparable products from other firms.

Question 13

Monopolistic competition is NOT characterized by

Accepted Answer

Monopolistic competition is characterized by slightly different products, many sellers, and the absence of barriers to entry. However, firms have some control over price in monopolistic competition, which differentiates it from perfect competition where firms have no control over price.

Question 14

The toothpaste industry with 5 firms is monopolistically competitive.If a sixth firm decides to entry the market,what will happen to firms' specific demand curves?

Accepted Answer

In a monopolistically competitive market, when a new firm enters the market, it increases the number of products available. This diversification means consumers have more options to choose from, leading to a decrease in demand for the existing firms' products. Hence, the specific demand curves for the existing firms will shift to the left.

Question 15

In monopolistic competition,the presence of free entry suggests that

Accepted Answer

In monopolistic competition, the presence of free entry suggests that new firms can enter the market easily, leading to an increase in competition. This competition will eventually drive down the economic profits earned by the existing firms, making it harder for firms to earn economic profits in the long run. In the long run, all firms will earn zero economic profit because new firms will continue to enter until economic profits are driven to zero.

Question 16

There are patents and regulations that can prevent firms from entering a monopolistically competitive market.

Accepted Answer

In a monopolistically competitive market, there are low barriers to entry and exit, meaning patents and regulations do not significantly prevent new firms from entering the market. This is in contrast to a monopoly, where patents and regulations can indeed prevent entry.

Question 17

When a profit-maximizing firm in monopolistic competition is producing its long-run equilibrium quantity,

Accepted Answer

In long-run equilibrium in monopolistic competition, the firm will be producing at the minimum point of its average total cost curve, where price is equal to average total cost. This means the firm is earning zero economic profit, and marginal revenue is equal to marginal cost. Therefore, choices A and B are incorrect, and choice C is only true in perfect competition.

Question 18

Since a firm in monopolistic competition has some market power,its long-run price will be greater than its

Accepted Answer

In monopolistic competition, a firm has some degree of market power, meaning it can set a price slightly above its marginal cost. However, in the long run, other firms may enter the market, increasing competition and driving down prices. In the long run, a firm's price will approach its marginal cost as it maximizes profit. Therefore, the long-run price will be closer to the marginal cost than the average total cost or total cost.

Question 19

Recall the Application about the costs involved in opening a motel to answer the following question(s).
-Recall the Application.Which of the following is NOT required to operate a Motel 6 franchise?

Accepted Answer

Earning an economic profit is not a requirement to operate a Motel 6 franchise, as it is a performance outcome rather than a requirement. However, paying a franchise fee, paying a royalty rate on profits, and possessing hotelier skills are all required to operate a Motel 6 franchise.

Question 20

Which of the following goods are NOT sold in a monopolistically competitive market?

Accepted Answer

Oil is typically sold in an oligopoly market, rather than monopolistically competitive market, due to the high level of barriers to entry in the industry. Computer software, toothpaste, and toilet paper are often sold in monopolistically competitive markets because there are relatively low barriers to entry for firms and consumers perceive differences in the products.

Quiz 11: Market Entry and Monopolistic Competition

Recall the Application about the costs involved in opening a motel to answer the following question(s) . -Recall the Application.What should an owner of a Motel 6 expect in a monopolistically competitive market?