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If firms in a monopolistically competitive market are incurring economic losses, which of the following statements describes the changes that occur as the market adjusts to the long-run equilibrium?


A) Each existing firm's demand curve shifts to the right.
B) More firms exit the market.
C) Each firm eliminates its excess capacity.
D) Both a and b are correct.

E) B) and D)
F) A) and B)

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Firm A produces and sells in a market that is characterized by highly differentiated consumer goods. Firm B produces and sells industrial products. Firm C produces and sells an agricultural commodity. Which firm is likely to spend the greatest portion of its total revenue on advertising?


A) firm A
B) firm B
C) firm C
D) There is no reason to believe that any one of the three firms would spend a greater portion of its total revenue on advertising than the other two firms.

E) B) and D)
F) A) and D)

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Which of the following industries has the lowest concentration ratio?


A) breakfast cereal
B) electric lamp bulbs
C) household laundry equipment
D) cigarettes

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

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Which of the following represents the best government policy to reduce the deadweight loss associated with a monopolistically competitive market?


A) The government should regulate firms in a manner similar to natural monopolies.
B) The government should encourage more firms to enter the industry because without government intervention, there are likely to be "too few" firms.
C) The government should encourage some firms to exit the industry because without government intervention, there are likely to be "too many" firms.
D) There is no government policy that can reduce deadweight loss without creating other problems.

E) C) and D)
F) B) and C)

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Suppose there is a market in which the firms hold the following market shares: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1%. What is the concentration ratio for this market?

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Figure 16-7 Figure 16-7 -Refer to Figure 16-7. If a firm in a monopolistically competitive market was producing the level of output depicted as Q<sub>d</sub> in panel (d) , it would A) not be maximizing its profit. B) be minimizing its losses. C) be losing market share to other firms in the market. D) be operating at excess capacity. -Refer to Figure 16-7. If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d) , it would


A) not be maximizing its profit.
B) be minimizing its losses.
C) be losing market share to other firms in the market.
D) be operating at excess capacity.

E) C) and D)
F) B) and C)

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Entry of new firms in monopolistically competitive industries can convey a negative externality on producers because firms lose customers and profits from the entry of new competitors. This externality is called the

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business-s...

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A monopolistically competitive firm chooses


A) the quantity of output to produce, but the market determines price.
B) the price, but competition in the market determines the quantity.
C) price, but output is determined by a cartel production quota.
D) the quantity of output to produce and the price at which it will sell its output.

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

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Monopolistically competitive firms could reduce the average total cost of producing by increasing output; therefore, these firms have

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How does advertising signal to consumers that the product is a good one?


A) By seeing famous people using the product, consumers infer that they too can be famous.
B) By being willing to spend money on advertising, firms let consumers know the product is likely a good one since firms would not likely advertise a poor product.
C) By making consumers laugh during commercials, firms are associating positive experiences with the product.
D) Without allowing consumers to actually use the product, it is not possible for firms to signal to consumers the product's quality.

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

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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. Which friend is a critic of brand names?

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Figure 16-10 The figure is drawn for a monopolistically-competitive firm. Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. In order to maximize its profit, the firm will choose to produce A) 100 units of output. B) between 100 and 133.33 units of output. C) 133.33 units of output. D) 154.92 units of output. -Refer to Figure 16-10. In order to maximize its profit, the firm will choose to produce


A) 100 units of output.
B) between 100 and 133.33 units of output.
C) 133.33 units of output.
D) 154.92 units of output.

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

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The market for wheat is most likely considered a monopolistically competitive market.

A) True
B) False

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Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. -Refer to Table 16-3. What is the concentration ratio for Industry C? A) approximately 44% B) approximately 48% C) approximately 53% D) approximately 56% -Refer to Table 16-3. What is the concentration ratio for Industry C?


A) approximately 44%
B) approximately 48%
C) approximately 53%
D) approximately 56%

E) B) and D)
F) C) and D)

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A monopolistically competitive firm chooses its


A) price and quantity just as a monopoly does.
B) quantity but faces a horizontal demand curve just as a competitive firm does.
C) price but can sell any quantity at the market price just as an oligopoly does.
D) price and quantity based on the decisions of the other firms in the industry just as an oligopoly does.

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

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Which of the following industries has the highest concentration ratio?


A) dresses
B) apples
C) books
D) cigarettes

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

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Free entry eliminates long-run profits for firms in competitive and monopolistic industries.

A) True
B) False

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In a long-run equilibrium,


A) only a perfectly competitive firm operates at its efficient scale.
B) only a monopolistically competitive firm operates at its efficient scale.
C) neither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost.
D) both a perfectly competitive firm and a monopolistically competitive firm operate at their efficient scale of production.

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

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In a monopolistically competitive industry, a firm's demand curve also represent its


A) marginal revenue.
B) marginal cost.
C) average revenue.
D) profit.

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

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Table 16-6 Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's. Table 16-6 Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's. -Refer to Table 16-6. Given the cost and revenue data, Beatrice's is A) not in a long-run equilibrium. More businesses will enter the bakery market in the long-run. B) not in a short-run equilibrium. C) not in a long-run equilibrium. Some businesses currently in the bakery market will exit the market in the long-run. D) in a long-run equilibrium. -Refer to Table 16-6. Given the cost and revenue data, Beatrice's is


A) not in a long-run equilibrium. More businesses will enter the bakery market in the long-run.
B) not in a short-run equilibrium.
C) not in a long-run equilibrium. Some businesses currently in the bakery market will exit the market in the long-run.
D) in a long-run equilibrium.

E) C) and D)
F) B) and D)

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