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Exam 14: Monopolistic Competition

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Question 61

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Explain the role of advertising in monopolistic competition. Describe how advertising by all firms in a monopolistically competitive industry impacts a firm's ATC curve, its MC curve, its demand curve, and its MR curve.

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Question 62

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Small pizza parlors exist in just about every town. Anyone can open a pizza parlor, and the pizzas from one parlor typically have different tastes and sizes than pizzas from another parlor. Thus, the pizza industry is an example of

A) perfect competition.
B) monopoly.
C) oligopoly.
D) monopolistic competition.

E) A) and B)
F) A) and C)

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Question 63

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ACME, Inc. operates in a market structure in which there are many other firms that find it easy to enter or exit. ACME is operating in ________ market.

"One of the defining features of monopolistic competition is product variety." Is the previous statement correct or incorrect?

-In the above figure of a monopolistically competitive firm, the marginal cost of the last unit produced is equal to ________ and is ________ marginal revenue.

A firm's markup is the amount by which ________ exceeds ________.

-The above figure represents a restaurant operating in monopolistic competition. a) What is the profit-maximizing level of output? b) What price will the firm charge? c) What is the firm's economic profit (or loss)? d) Is this a long-run equilibrium? Why or why not? e) Is this firm producing its capacity output?

If firms in a monopolistically competitive industry are making an economic profit, then

How is a monopolistically competitive firm similar to a perfectly competitive firm?

"A firm in monopolistic competition maximizes its profit by producing where its price is equal to its marginal cost." Is the previous statement correct or incorrect?

In monopolistic competition

-The above figure shows the demand and cost curves for a monopolistically competitive firm in the long run. The maximum economic profit this firm can make equal equals

A textbook publisher is in monopolistic competition. If the firm spends nothing on advertising, it can sell no books at $100 a book, but for each $10 cut in price, the quantity of books it can sell increases by 20 books a day. The firm's total fixed cost is $2,400 a day. Its average variable cost and marginal cost is a constant $20 per book. If the firm spends $1,200 a day on advertising, it can increase the quantity of books sold at each price by 50 percent. If the firm advertises, its maximum economic profit is

-The figure above shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. What quantity does the firm produce?

If a monopolistically competitive firm's marginal cost curve shifts upward, then the amount of output it produces

Brand name drugs are chemically identical to their generic counterparts. Yet, consumers often prefer the brand name product to the generic product. Making consumers think that a brand name drug differs from its generic counterpart is an example of

The figure shows the demand curve for Nike shoes (D) , and Nike's marginal revenue curve (MR) , marginal cost curve (MC) , and average total cost curve (ATC) . -In the figure above, Nike's economic profit is ________.

Which one of the following statements is TRUE for BOTH perfect competition and monopolistic competition?

Excess capacity refers to any unsold output due to insufficient demand.

The figure shows the demand curve for Gap jackets (D) , and Gap's marginal revenue curve (MR) , marginal cost curve (MC) , and average total cost curve (ATC) . -In the figure above, Gap maximizes its profit if it charges ________ per jacket.