Exam 16: Monopolistic Competition

In a small college town, four microbreweries have opened in the last two years. Demonstrate the effect of new market entrants on demand for existing firms (microbreweries) that already served this market. Assume that the local community now places a moratorium on new liquor licenses for microbreweries. How will this moratorium affect the long-run profitability of incumbent firms?

Figure 16-12 ​ ​ -Refer to Figure 16-12. Which letter identifies the efficient level of output for this firm?

Which of the following statements is correct?

The product-variety externality states the benefits to consumers from the introduction of a new product.

When a monopolistically competitive firm is in a long-run equilibrium, the values of marginal cost, average total cost, and price are all the same.

Figure 16-8 ​ -Refer to Figure 16-8. Which of the following best describes the profit-maximizing outcome for the firm depicted here?

Scenario 16-4 Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.) Quantity Price MR MC ATC 20 \ 5.60 \ 5.20 \ 2.20 \ 2.05 40 \ 5.20 \ 4.40 \ 2.40 \ 2.10 60 \ 4.80 \ 3.60 \ 2.60 \ 2.15 80 \ 4.40 \ 2.80 \ 2.80 \ 2.20 100 \ 4.00 \ 2.00 \ 3.00 \ 2.25 120 \ 3.60 \ 1.20 \ 3.20 \ 2.30 140 \ 3.20 \ 0.40 \ 3.40 \ 2.35 160 \ 2.80 -\ 0.40 \ 3.60 \ 2.40 180 \ 2.40 -\ 1.20 \ 3.80 \ 2.45 -Refer to Scenario 16-4. What is the maximum amount of profit that Peter can earn per day?

Figure 16-5 The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-5. The quantity of output at which the MC and ATC curves cross is the

The breakfast cereal industry, with its concentration ratio of 80%, would best be described as

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,

Figure 16-11 ​ ​ -Refer to Figure 16-11. Use the letters to identify the area of total revenue for this firm.

Scenario 16-1 Venya operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Venya's demand and cost values for sales per day are given in the following table. (Everyone who purchases Venya's ice cream buys a double scoop cone because it's so delicious.) ​ ​ ​ -Refer to Scenario 16-1. How much profit will Venya earn each day if he chooses the price and quantity that maximize his profit?

The claim that advertising reduces the elasticity of demand is likely to be made by a defender of advertising.

In both perfect competition and monopolistic competition, each firm

Scenario 16-1 Venya operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Venya's demand and cost values for sales per day are given in the following table. (Everyone who purchases Venya's ice cream buys a double scoop cone because it's so delicious.) ​ ​ ​ -Refer to Scenario 16-1. Which of the following statements best describes the long-run adjustment in this market?

Firms in monopolistically competitive markets and monopolies can earn long-run profits due to barriers to entry.

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. Given the cost and revenue data, Beatrice's is

Figure 16-2 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-2. Assuming the firm is maximizing profit, this firm is operating

Figure 16-3 -Refer to Figure 16-3. Assume the firm in the figure is currently producing 20 units of output and charging $925. The firm

A firm that would experience higher average total cost by increasing production is operating with excess capacity.