Question 1

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

Accepted Answer

The answer of A monopolistically competitive market is like both...

Question 2

Which of the following statements is correct?

Accepted Answer

In a perfectly competitive market, there are no barriers to entry, allowing firms to enter and exit freely. Similarly, in a monopolistically competitive market, there are low barriers to entry, enabling firms to enter the industry relatively easily.

Question 3

Which of the following statements is correct?

Accepted Answer

In perfect competition, firms will earn zero economic profit in the long run, while in monopolistic competition and monopoly, firms can earn economic profits in the short and long run. Both perfectly competitive and monopolistically competitive firms do not charge a price equal to marginal cost. Firms in perfect competition maximize profits by producing where marginal cost equals marginal revenue, while firms in monopolistic competition and monopoly produce where marginal revenue equals marginal cost. Additionally, monopolistically competitive firms do not produce the welfare-maximizing level of output. Therefore, option C is the correct statement.

Question 4

Which of the following statements is not correct?

Accepted Answer

In perfect competition, firms produce at the point where price equals marginal cost, which is the socially optimal level of output. However, in monopolistic competition, firms have some market power and may produce less than the socially optimal level.

Question 5

Firms in a monopolistically competitive market

Accepted Answer

In the long run, firms in monopolistically competitive markets must contend with competition from other firms producing similar but not identical products. This means that as new firms enter the market or existing firms adjust their product offerings, the demand curve facing an individual firm will shift leftward, reducing the firm's market power and ability to charge a price above marginal cost. Thus, firms in a monopolistically competitive market cannot earn economic profits in the long run.

Question 6

A monopolistically competitive market is like both a competitive market and a monopoly in that

Accepted Answer

Monopolistically competitive markets are like competitive markets in that there are many firms, making it easy for new firms to enter in the long run. However, they are like monopolies in that each firm has some degree of market power, meaning they can raise prices without losing all their customers. In terms of profit maximization, firms in both monopolistically competitive markets and monopolies produce where marginal revenue equals marginal cost. However, this output is not necessarily the welfare-maximizing level of output in the case of monopolistically competitive markets. Therefore, choice C is incorrect.

Question 7

A monopolistically competitive market is like a monopoly in that

Accepted Answer

Monopolistically competitive firms have some market power, which allows them to set prices above marginal cost, similar to a monopoly. However, unlike a monopoly, there is some degree of competition in the market, leading to a slightly lower level of profits and output.

Question 8

A market is comprised of many firms as opposed to just one firm or a few firms

Accepted Answer

The answer of A market is comprised of many firms...

Question 9

Which of the following statements is not correct?

Accepted Answer

Monopolies can earn economic profits in the long run due to barriers to entry and lack of competition, but monopolistically competitive firms can only earn zero economic profits in the long run due to easy entry and product differentiation leading to competition.

Question 10

A firm produces the welfare-maximizing level of output

Accepted Answer

The answer of A firm produces the welfare-maximizing level of...

Question 11

A monopolistically competitive market is like a competitive market in that

Accepted Answer

Both monopolistically competitive and competitive markets have easy entry of new firms in the long run.

Question 12

Scenario 16-3
Consider the problem facing two firms,Firm A and Firm B,in the fast-food restaurant market.Each firm has just come up with an idea for a new fast-food menu item which it would sell for $4.Assume that the marginal cost for each new menu item is a constant $2,and the only fixed cost is for advertising.Each company knows that if it spends $12 million on advertising it will get 2 million consumers to try its new product.Firm A has done market research which suggests that its product does not have any "staying" power in the market.Even though it could get 2 million consumers to buy the product once,it is unlikely that they will continue to buy the product in the future.Firm B's market research suggests that its product is very good,and consumers who try the product will continue to be consumers over the ensuing year.On the basis of its market research,Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year,for a total of 24 million units.
-Refer to Scenario 16-3.By its willingness to spend money on advertising,Firm B

Accepted Answer

Firm B's willingness to spend money on advertising signals to consumers that it has confidence in the quality of its new product, and that it expects consumers to continue purchasing it for a year. This is a way for Firm B to differentiate itself from Firm A and attract more consumers, potentially leading to higher profits in the long run.

Question 13

Scenario 16-3
Consider the problem facing two firms,Firm A and Firm B,in the fast-food restaurant market.Each firm has just come up with an idea for a new fast-food menu item which it would sell for $4.Assume that the marginal cost for each new menu item is a constant $2,and the only fixed cost is for advertising.Each company knows that if it spends $12 million on advertising it will get 2 million consumers to try its new product.Firm A has done market research which suggests that its product does not have any "staying" power in the market.Even though it could get 2 million consumers to buy the product once,it is unlikely that they will continue to buy the product in the future.Firm B's market research suggests that its product is very good,and consumers who try the product will continue to be consumers over the ensuing year.On the basis of its market research,Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year,for a total of 24 million units.
-Refer to Scenario 16-3.On the basis of a theory that people buy a product because it is advertised,the content of advertisements for Firm B's product

Accepted Answer

Since Firm B's product has strong staying power and consumers are likely to continue purchasing it after trying it once, the content of the advertisement is less critical to its success. The product's inherent quality and consumer satisfaction will drive repeat purchases, making the advertisement's content less relevant.

Question 14

A firm is a price taker

Accepted Answer

The answer of A firm is a price taker
...

Question 15

A firm maximizes its profit by producing output up to the point where marginal revenue equals marginal cost

Accepted Answer

This statement applies to all market structures where the firm has some control over the price, which includes perfectly competitive, monopolistically competitive, and monopolistic markets. In perfect competition, the firm is a price taker and sets output at the point where marginal cost equals price. However, in monopolistically competitive and monopolistic markets, the firm can influence the price by differentiating its product and branding, so it will choose the output level where marginal revenue equals marginal cost to maximize profit.

Question 16

Scenario 16-3
Consider the problem facing two firms,Firm A and Firm B,in the fast-food restaurant market.Each firm has just come up with an idea for a new fast-food menu item which it would sell for $4.Assume that the marginal cost for each new menu item is a constant $2,and the only fixed cost is for advertising.Each company knows that if it spends $12 million on advertising it will get 2 million consumers to try its new product.Firm A has done market research which suggests that its product does not have any "staying" power in the market.Even though it could get 2 million consumers to buy the product once,it is unlikely that they will continue to buy the product in the future.Firm B's market research suggests that its product is very good,and consumers who try the product will continue to be consumers over the ensuing year.On the basis of its market research,Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year,for a total of 24 million units.
-Refer to Scenario 16-3.Which of the following is most likely?

Accepted Answer

Firm B has market research suggesting its product has staying power, so it makes sense for it to invest in advertising to reach the initial 2 million customers who will become repeat buyers. Firm A, on the other hand, has market research suggesting its product does not have staying power, so it would not make sense for it to invest in advertising. Therefore, Firm B will advertise and Firm A will not.

Quiz 16: Monopolistic Competition

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

Which of the following statements is correct?

Which of the following statements is correct?

Which of the following statements is not correct?

Firms in a monopolistically competitive market

A monopolistically competitive market is like both a competitive market and a monopoly in that

A monopolistically competitive market is like a monopoly in that

A market is comprised of many firms as opposed to just one firm or a few firms

Which of the following statements is not correct?

A firm produces the welfare-maximizing level of output

A monopolistically competitive market is like a competitive market in that

A firm is a price taker

A firm maximizes its profit by producing output up to the point where marginal revenue equals marginal cost