Exam 16: Monopolistic Competition

Scenario 16-1 Suppose the following are the sales for all of the firms in two different industries. -Refer to Scenario 16-1. Which of the following statements is correct regarding the competitiveness of these two industries?

Entry of new firms in monopolistically competitive industries can convey a positive externality on consumers because new products result in more consumer surplus. This externality is called the

A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door, since a sale to that customer will not increase the firm's profit.

Scenario 16-7 Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product is a constant $2, and the only fixed cost is for advertising. Each company knows that if it spends $12 million on advertising it will get 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year. On the basis of its market research, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units. -Refer to Scenario 16-7. By its willingness to spend money on advertising, Bertollini

In monopolistically competitive markets, free entry and exit suggests that

Each firm in a monopolistically competitive market

Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. As the figure is drawn, the firm is in

Figure 16-13 -Refer to Figure 16-13. Use the letters to identify the area of profit for this 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?

Which of the following statements is not correct?

Figure 16-13 -Refer to Figure 16-13. Use the letters to identify the area of total cost for this firm.

If firms in a monopolistically competitive market are earning positive profits, then

Figure 16-11 -Refer to Figure 16-11. How much consumer surplus will be derived from the purchase of this product at the monopolistically competitive price?

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?

Scenario 16-3 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.) -Refer to Scenario 16-3. Which of the following statements best describes the long run adjustment in this market?

Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. -Refer to Table 16-2. Which industry is the least competitive?

Figure 16-4 -Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has total costs of approximately

Under which of the following market structures would the highest output of a particular good be produced?

Since a firm in a monopolistically competitive market faces a

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