Exam 16: Monopolistic Competition

In markets where the government imposes an excise tax on unit sales, it also has a tendency to dabble with restrictions on advertising (e.g.of cigarettes and liquor).Do potential (or actual) restrictions on advertising in these markets serve the interest of a government that is interested in maximising its tax revenue from the sale of these products? Explain your answer.

A price mark-up over marginal cost is inconsistent with market attributes of free entry and zero profit.

The profit-maximising rule for a firm in a monopolistically competitive market is to select the quantity at which marginal revenue is equal to long-run average total cost.

For a profit-maximising firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost.

A small number of sellers in a market makes rigorous competition:

Use a graph to demonstrate why a profit-maximising monopolistically competitive firm must operate at excess capacity.Explain why a perfectly competitive firm is not subject to the same constraint.

In the long-run equilibrium in a monopolistic market, a profit-maximising firm will see the price lower than average total cost.

Perfect competition and monopolistic competition share the attributes of having many sellers and free entry.

Firms in a monopolistically competitive market are operating at their efficient scale.

A business-stealing externality is:

The most likely effect of regulators requiring firms in monopolistically competitive markets to set price equal to marginal cost is that:

A monopolistically competitive firm chooses:

A law that restricts the ability of hotels/motels to advertise on billboards outside a resort community would likely lead to:

Graph 17-2 -Refer to Graph 17-2.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is making economic profits?

When a firm in a monopolistically competitive market earns zero economic profit, its product price must equal marginal cost.

A recent outbreak of hepatitis was linked to a national fast-food restaurant chain.This is an example where:

Brand names are likely to ensure product quality:

When poor-quality products are advertised using cheap advertising, consumers learn to ignore such cheap advertising.

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

A new brewing company announces that it is releasing a new organic ale into the beer market.You can assume that the market for beer is characterised by monopolistic competition.According to the information provided, existing brewing companies are likely to experience what kind of externality as a result of the new ale?