Exam 15: Monopolistic Competition and Product Differentiation

Suppose a monopolistically competitive firm is making a profit, but it can increase its profits by increasing output. At the current level of output:

An industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit of firms is:

Suppose a monopolistically competitive firm can increase its profits by decreasing its output. At the current output:

When the profit-maximizing level of output is less than the output associated with the minimum possible average total cost of production, a firm is said to have:

In long-run equilibrium, a firm in monopolistic competition is similar to a monopoly because it:

Firm A and firm B have identical cost curves. Firm A operates in perfect competition and firm B operates in monopolistic competition. In the long run, firm A will charge _____ and produce _____ than firm B.

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which of the following must be TRUE for this firm?

Use the following to answer questions: Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A positive economic profit is earned if the profit-maximizing price is _____ in panel _____.

Advertising is an economically productive activity and NOT a waste of resources because it:

An industry characterized by many competitors, each producing identical products, with free entry and exit, is described as:

Critics of advertising argue that it:

Your friend Stan owns a coffee shop in a monopolistically competitive industry. One day Stan tells you (an economist) that he is earning an economic profit and is setting his price equal to his marginal cost. Is Stan producing the profit-maximizing amount of coffee? What should he do?

Use the following to answer questions: Figure: The Restaurant Market -(Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the restaurant market. In long-run equilibrium, the economic profit earned by the typical restaurant in the community will be:

Suppose Susan owns a business that operates in a market characterized by monopolistic competition. Susan's profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits are $1,800 per week. Susan decides that she needs more profits and therefore raises her price to $15. At the new price of $15:

A monopolistic competitor will advertise to:

In long-run equilibrium in perfect competition, price is:

Use the following to answer questions: Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. A long-run equilibrium is illustrated at the profit-maximizing price _____ in panel _____.

Brand names offer some assurance that the seller has a reputation to protect and hopes to be engaged in repeated transactions with its customers.

A wheat farmer is more likely to advertise than a restaurant that sells fast food hamburgers.

Use the following to answer questions: Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) In panel (B) of the figure Profits in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point: