Which term best defines the pricing difference between monopolistic competition and competitive
Despite ________ prices than can be reached under perfect competition, monopolistic competition resus in ________ variety than can be reached in any other market.
more inefficient; more excessive
All of the following are examples of product differentiation, EXCEPT
catchy and memorable television advertisements
perfect substitution for another brand
exciting and attractive packaging
touting superior quality
Which of the following is evidence of market power?
The firm has perfect control over price.
The demand curve for the firm is horizontal.
Output is fixed despite cost changes.
Optimal output is less than industry output.
When economists say that monopolistic competition drives long-run profits to zero, it implies that the demand curve is ________ to the average total cost curve.
Entry by firms in the long run means that, for a monopolistic competitor, price
always produces a loss.
remains the same.
exceeds marginal revenue.
Siyed, an economics student, believes that a beer sold by one particular shack on the beach is completely different from an identical beer produced by the same factory and sold by the luxury hotel adjacent to the shack. Siyed most likely thinks that
the luxury hotel and the shack are in a perfectly competitive industry.
the luxury hotel and the shack are in a monopolistically competitive industry.
the luxury hotel is a monopoly seller of the beer.
while beer is homogeneous, the product is differentiated among the sellers.
the shack is in a perfectly competitive industry, but the luxury hotel is in an oligopoly industry.
When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit
the price of the output will rise in the long run.
market demand shifts to the right.
those firms who don’t differentiate their product sufficiently will want to leave the market.
those firms who wish to differentiate their product more will want to enter the market.
the industry is in equilibrium; no firms will want to enter or exit.
A unique feature of monopolistic competition is
significant barriers to entry and exit
free entry and exit
With monopolistic competition, firms have demand curves that are ________ the lowest possible cost.
Examining the cost, revenue, and demand curves for a monopolistic competitor reveals that, at optimal output, the demand curve lies above the average total cost curve. Which of the following is true?
Firms will exit the industry in the long run.
Firms will enter the industry in the long run.
There is not enough information because demand is an imperfect benchmark for measuring profitability.
There is an economic loss in the long run.
There is economic profit in the long run.
The gap between the actual quantity produced by a monopolistically competitive firm and the optimal quantity in a competitive market is known as
If a monopolistically competitive firm wants to maximize profits, it will increase production until marginal
revenue equals marginal cost.
revenue equals average revenue.
revenue equals average total cost.
cost is greater than marginal revenue.
revenue is greater than average variable cost.
Advertising is designed to
cause the income elasticity of consumers to become zero.
decrease the price elasticity of demand for the industry, but have no effect on the firm’s demand.
increase the price elasticity of demand for the industry and shift the firm’s demand curve rightward.
decrease the price elasticity of demand for the firm and shift the firm’s demand curve rightward.
increase the price elasticity of demand for the firm and shift the firm’s demand curve rightward.
When would advertising be least effective for an individual firm?
Never; advertising is equally effective in all industries.
in a perfectly competitive industry
in a monopoly industry
in a monopolistically competitive industry
in an oligopolistic industry
A franchise might be worth $1 million or more because
it guarantees the owner a long-run economic profit.
it allows the franchisee to sell a homogeneous product.
it gives the owner a pure monopoly.
it guarantees the owner positive economic profit.
product differentiation resus in brand loyay, which can be very profitable.
Monopolistic competition means that
firms differentiate their output, which makes them price makers, but barriers to entry are low or nonexistent.
firms are in perfect competition, but they collude similar to monopolies.
oligopoly firms collude until they become monopolies.
firms have downward-sloping demand.
firms are in a monopoly, but they compete.
Anderson watches advertising that makes him want to consume Bugles, a corn snack, after he hears that, for Bugles, more is better. Most people consider that all corn snack foods are not the same, and that Doritos and other corn snacks are not perfect substitutes for Bugles. Based on this information, we would most accurately say that this advertising probably caused
Anderson’s demand to be less elastic, and the corn snack industry is likely to be a monopolistically competitive industry.
the corn snack industry demand to be less elastic, and Anderson’s demand was unaffected.
Anderson’s demand to be more elastic, and the corn snack industry is likely to be a monopolistically competitive industry.
the corn snack industry to become a monopoly, whereas prior to advertising, it was probably perfectly competitive.
Anderson’s demand to be less elastic, and the corn snack industry is likely to be a monopoly industry.
According to the discussion in the textbook, Kevin Trudeau
was sued by the Federal Trade Commission (FTC) for false advertising in 1998.
is the former CEO of Enron.
is the former head of the FTC.
is the head of the Securities and Exchange Commission (SEC).
is the former prime minister of Canada.
Demand elasticity for monopolistically competitive firms is best described as
relatively elastic, because differentiation offsets the perfect elasticity of a perfectly competitive market.
monopolistically elastic, as the forces of competition mitigate the market power created by significant entry barriers.
perfectly elastic, because market competition eliminates pricing power.
perfectly inelastic, because differentiation is awarded with monopoly pricing.
competitively inelastic, as the forces of competition generate demand that is not sensitive to changes in price.