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Exam 16: Monopolistic Competition

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Question 161

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Crude oil is primarily supplied to the world market by a few Middle Eastern countries. Such a market is an example of a(n)

A) (i) and (ii) only
B) (ii) and (iii) only
C) (i) and (iii) only
D) (iii) only

E) A) and D)
F) C) and D)

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Question 162

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Monopolistic competition differs from perfect competition because in monopolistically competitive markets

A) there are barriers to entry.
B) all firms can eventually earn economic profits.
C) each of the sellers offers a somewhat different product.
D) strategic interactions between firms are important.

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

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Question 163

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If "too much choice" is a problem for consumers, it would occur in which market structure(s) ?

Scenario 16-9 Dean goes to the grocery store to buy chips and soda for a party. He purchases brand name products even though generic versions are available at lower prices. His friend John says he was irrational to spend more for a nearly identical product. His friend Martina agreed with Dean's decision to spend more for the brand name products. -Refer to Scenario 16-9. Martina offers two reasons for agreeing with Dean's decision. What are they?

Scenario 16-7 Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product 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 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini'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, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units. -Refer to Scenario 16-7. On the basis of a theory that people buy a product because it is advertised, the content of advertisements for Bertollini's product

Critics of advertising argue that firms use advertising to manipulate consumers' tastes.

A market structure in which there are many firms selling products that are similar but not identical is known as

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,

Figure 16-14 -Refer to Figure 16-14. Which letter identifies the efficient level of output for this firm?

A monopolistically competitive market is like a monopoly in that

Figure 16-14 -Refer to Figure 16-14. The deadweight loss from production for this firm is represented by which of the following areas?

Figure 16-8 The lines in the figures below illustrate the potential effect of entry and exit in a monopolistically competitive market on either the demand curve or the marginal cost curve of existing firms. -Refer to Figure 16-8. Panel (d) illustrates the change that would occur if existing firms faced

When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that

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

New firms will likely enter a monopolistically competitive market when price exceeds

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.

Which of the following market structures is considered a differentiated products market?

Evidence suggests that, in markets with differentiated products but little advertising,

Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1. Which industry is the least competitive?

Figure 16-12 -Refer to Figure 16-12. Does this monopolistically competitive market produce the welfare-maximizing level of output?