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Exam 16: Monopolistic Competition

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Question 1

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

A) True
B) False

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Question 2

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Table 16-2 A monopolistically competitive firm has the following cost structure: ​ ​ $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { T otal Cost } \\\text { (Dollars) }\end{array} \\\hline 10 & 800 \\\hline 20 & 875 \\\hline 30 & 1,025 \\\hline 40 & 1,250 \\\hline 50 & 1,550 \\\hline 60 & 1,925 \\\hline 70 & 2,375 \\\hline\end{array}$ ​ -Refer to Table 16-2. Suppose the monopolistically competitive firm faces the following demand curve: ? $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Price } \\\text { (Dollars per unit) }\end{array} \\\hline 10 & 50 \\\hline 20 & 42 \\\hline 30 & 34 \\\hline 40 & 26 \\\hline 50 & 18 \\\hline 60 & 10 \\\hline 70 & 2 \\\hline\end{array}$ To maximize profit (or minimize losses) , the firm will produce

A) 20 units.
B) 30 units.
C) 40 units.
D) 50 units.

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

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Question 3

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Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Figure 16-7 ​ -Refer to Figure 16-7. Which of the following areas represents the profit for this profit maximizing monopolistically competitive firm?

A new Mexican restaurant opens in the city of Manchester. The other restaurant owners are not happy about this new restaurant because they are experiencing what externality?

Monopolistic competition is characterized by a few sellers offering similar products, whereas oligopoly is characterized by many sellers offering differentiated products.

In the long run, monopolistically competitive firms produce where demand equals average total cost.

Critics of advertising argue that advertising leads to less elastic demand for products and a larger markup of price over marginal cost.

Figure 16-5 The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-5. When the firm is maximizing its profit, the markup over marginal cost amounts to

Oligopoly is characterized by a few sellers offering similar products, whereas monopolistic competition is characterized by many sellers offering differentiated products.

In many college towns, private independent bookstores typically locate on the periphery of the college campus. However, in some college towns, the university has used political power to restrict private bookstores near campus through community zoning laws. Use your knowledge of markets to predict the price and quality of service differences in the market for college textbooks under the two different market regimes.

Table 16-4 Beatrice's Birthday Cakes operates in a monopolistically competitive market, so it 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 16-4. When maximizing profit, what price does Beatrice's charge for a cake?

When McDonald's opens a store in Dhaka, Bangladesh, it has a strong incentive to enforce product quality consistent with stores in the United States.

Table 16-4 Beatrice's Birthday Cakes operates in a monopolistically competitive market, so it 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 16-4. Suppose the government forced Beatrice's to produce at the efficient scale of output. Who would be better off as a result of this policy? Who would be worse off as a result of this policy?

Figure 16-10 ​ ​ -Refer to Figure 16-10. Does this monopolistically competitive market produce the welfare-maximizing level of output?

As developing countries make a transition to market-based economies, one of the first major capital investments is in "Western-quality" hotels. Explain why brand-name hotel accommodations are a critical step in attracting foreign investment.

Which of the following is not an argument made by critics of advertising?

Figure 16-3 -Refer to Figure 16-3. The firm in this figure is monopolistically competitive and maximizing profit. This firm

When a market is monopolistically competitive, the typical firm in the market is likely to experience a

Figure 16-6 The figure is drawn for a monopolistically competitive firm. ​ -Refer to Figure 16-6. Efficient scale is reached