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Exam 13: Monopolistic Competition

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Question 21

True/False

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That one thing that monopolistic competition provides, which is not assured in the other market structures, is product variety.

A) True
B) False

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Question 22

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A significant benefit of monopolistic competition compared with pure competition is

A) less likelihood of X-inefficiency.
B) improved resource allocation.
C) greater product variety.
D) stronger incentives to achieve economies of scale.

E) None of the above
F) A) and D)

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Question 23

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Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million, respectively. We can conclude that

The demand curve of a monopolistically competitive producer is less elastic than that of a purely competitive producer.

A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from

Product differentiation in a monopolistically competitive market always entails more costs than benefits.

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. $\begin{array} { | c | c | c | c | } \hline \text { Price } & \begin{array} { c } \text { Quntity } \\\text { Dennded }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost }\end{array} & \text { Output } \\\hline \$ 20 & 1 & \$ 10 & 1 \\\hline 18 & 2 & 20 & 2 \\\hline 16 & 3 & 29 & 3 \\\hline 14 & 4 & 36 & 4 \\\hline 12 & 5 & 40 & 5 \\\hline 10 & 6 & 42 & 6 \\\hline\end{array}$ What will be the economic profit or loss for this monopolistically competitive firm at the profit-maximizing level of output?

Answer the question on the basis of the following demand and cost data for a specific firm. $\quad$$\quad$$\quad$$\quad$$\text { Demand Data }$ $\quad$$\quad$$\quad$ $\text { Cost Data }$ $\begin{array}{|c|c|c|c|c|}\hline&&(3) &\text { Total } \\\text { (1) } & \text { (2) } & \text { Quantit } & \text { Output } & \text { Total } \\\text { Price } & \text { Price } & \text { Y} & & \text { Cost }\\\hline \$ 50 & \$ 35 & 2 & 2 & \$ 45 \\\hline 45 & 30 & 3 & 3 & 55 \\\hline 40 & 25 & 4 & 4 & 70 \\\hline 35 & 20 & 5 & 5 & 90 \\\hline 30 & 15 & 6 & 6 & 115 \\\hline 25 & 10 & 7 & 7 & 145 \\\hline 20 & 5 & 8 & 8 & 180 \\\hline\end{array}$ If columns 1 and 3 are this firm's demand schedule, maximum economic profit will be

In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that

Which of the following statements is correct?

(Consider This) The main point of the 1987 Wendy’s commercial depicting a Soviet fashion show was to

Answer the question on the basis of the following demand and cost data for a specific firm. $\quad$$\quad$$\quad$$\quad$$\text { Demand Data }$ $\quad$$\quad$$\quad$ $\text { Cost Data }$ $\begin{array}{|c|c|c|c|c|}\hline&&(3) &\text { Total } \\\text { (1) } & \text { (2) } & \text { Quantit } & \text { Output } & \text { Total } \\\text { Price } & \text { Price } & \text { Y} & & \text { Cost }\\\hline \$ 50 & \$ 35 & 2 & 2 & \$ 45 \\\hline 45 & 30 & 3 & 3 & 55 \\\hline 40 & 25 & 4 & 4 & 70 \\\hline 35 & 20 & 5 & 5 & 90 \\\hline 30 & 15 & 6 & 6 & 115 \\\hline 25 & 10 & 7 & 7 & 145 \\\hline 20 & 5 & 8 & 8 & 180 \\\hline\end{array}$ In the long run, the number of firms in this monopolistic competitive industry will most likely

Long-run profits of individual firms in monopolistic competition will be larger than their short-run profits.

In monopolistic competition, if a firm advertises and effectively raises consumer awareness of its product, it tends to

In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits

In the long run, a monopolistically competitive firm

Brand names and packaging are forms of product differentiation under monopolistic competition.

In the long run, monopolistically competitive firms make normal profits because they are forced to operate at the minimum point on their average total cost curve.

The Herfindahl index is a measure of the degree of product differentiation in an industry.

Which of the following statements concerning a monopolistically competitive industry is correct?