question
A good way to describe ________ competition is that it mixes a small amount of monopoly power with a large amount of competition, while _________ blends a large amount of monopoly power with a small amount of competition through entry and considerable rivalry among firms.
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Blank 1: monopolistic
Blank 2: oligopoly or oligopolistic
Blank 2: oligopoly or oligopolistic
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_________ competition is a market characterized by having many sellers, differentiated products, and ease of entry and exit from an industry.
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Monopolistic or Monopolistically
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Which of the following are typical characteristics of monopolistic competition?
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Independent action
No collusion
Small market share
No collusion
Small market share
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Why does each monopolistically competitive firm generally have limited control over market price?
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Each firm has a relatively small percentage of the total market.
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In monopolistically competitive industries
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collusion is unlikely because there is a large number of firms.
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Two types of market models that closely approximate many markets in the real world are
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monopolistic competition and oligopoly.
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Select all that apply
Andrea and Robert are considering operating a retail jewelry store. Robert has been designing jewelry for a wholesaler since graduating from college. Andrea was a business major and is evaluating if they can increase their income by being in business for themselves. Which of the following characteristics show that the industry they wish to enter is a monopolistically competitive industry?
Andrea and Robert are considering operating a retail jewelry store. Robert has been designing jewelry for a wholesaler since graduating from college. Andrea was a business major and is evaluating if they can increase their income by being in business for themselves. Which of the following characteristics show that the industry they wish to enter is a monopolistically competitive industry?
answer
Opening a retail jewelry store is relatively easy.
There are many places to buy jewelry.
There are many places to buy jewelry.
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Monopolistic competition normally consists of 25 to 75 firms rather than hundreds or thousands and involves which of the following characteristics?
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small market shares
independent action
no collusion
independent action
no collusion
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Monopolistically competitive firms typically have a(n) ______ share of the market.
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relatively small
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Why is collusion unlikely in a monopolistically competitive industry?
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The industry has a relatively large number of firms.
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In monopolistically competitive industries
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firms feel independent of one another, allowing them to determine their own price without considering the possible reactions by rival firms.
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Which of the following is a characteristic of monopolistic competition?
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Differentiated products
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Which of the following correctly describes the difference between products under pure competition versus products under monopolistic competition?
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Standardized products are sold in pure competition, but differentiated products are sold in monopolistic competition.
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Firms in monopolistically competitive industries are ______ interdependent.
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not
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Which of the following scenarios does not illustrate the concept of product differentiation based on service?
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Some stores may charge different prices.
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Which of the following produce variations of a particular product?
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Monopolistically competitive firms
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When a business secures a convenient store location even if it means higher prices and less selection, it is known as
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product differentiation
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Compared with oligopoly and monopoly, entry of new firms into monopolistically competitive industries is
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relatively easy because economies of scale are few.
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A firm with more courteous and helpful clerks than its rivals enables the firm to differentiate their good based on which of the following?
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service
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Firms in monopolistic competition produce goods with ______.
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varying degrees of customer service
slightly varying physical characteristics
slightly varying physical characteristics
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In monopolistically competitive industries, small stores with high prices can compete with larger stores by
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having very convenient locations for customers.
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Entry into monopolistically competitive industries is
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easy compared to oligopoly.
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Entry to and exit from monopolistically competitive industries is ______.
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relatively easy
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Entry of new firms into monopolistically competitive industries is relatively easy because ______.
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capital requirements are low
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_________ competition is competition illustrated through product differentiation and advertising.
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Nonprice
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The four-firm concentration ratio and the Herfindahl index measure ______.
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industry concentration
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Suppose an industry has ten firms. Three of the firms produce 200 units of output each, one produces 150 units, two of the firms produce 75 units each, and four of the firms produce 25 units each. The four-firm concentration ratio for this industry equals ______.
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75%
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When measuring industry concentration, the ____ is the ratio of sales of the four largest firms in an industry relative to total industry sales.
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four-firm concentration ratio
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True or false: Concentration ratios that use national market share numbers are of limited help because they do not account for the fact that competition in many industries is concentrated in local markets.
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True
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The goal of advertising a product to differentiate it from competitor's products so that price is less of a factor when a consumer makes a purchase is considered ______ competition.
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nonprice
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Industry concentration measures the extent to which ______.
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the largest firms account for industry output
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If the four largest firms in an industry produce 20, 10, 7, and 3 units of output, respectively, and total industry output is 100 units, then the four-firm concentration ratio equals ______.
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40%
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Suppose an industry has 10 firms and each has a 10% share of the market. This industry's Herfindahl index is _______.
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1000
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The four-firm concentration ratio, expressed as a percentage, is the ratio of the total industry ________ of the four largest firms in an industry relative to total industry sales.
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sales, output, or production
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The Herfindahl index equals the ______.
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sum of the squared percentage market shares of all firms in an industry
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Concentration ratios that use national market share numbers are limited in usefulness because they ______.
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fail to account for highly localized industries
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Which statement is true about an industry and the Herfindahl index?
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The lower the index, the more likely the industry is monopolistically competitive.
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The demand curve faced by a monopolistically competitive firm is _____.
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highly but not perfectly elastic.
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Suppose an industry has two firms each with 50% market share. The Herfindahl index for this industry is ______.
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5,000
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Demand for monopolistically competitive firms is ______.
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less elastic than demand for firms in pure competition due to fewer rivals and relative product differentiation
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The monopolistically competitive firm's economic profit per unit when producing at Q1 units of output ______.
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is the difference between P1 and A1
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In the short run, monopolistically competitive firms maximize profits or minimize losses by producing the output level where
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marginal revenue equals marginal cost.
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In general, industries that typically have lower Herfindahl index values are ______.
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monopolistically competitive rather than oligopolistic
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A monopolistic competitor's demand curve is ______.
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more elastic than that of a pure monopoly but less elastic than that of a firm in pure competition
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The elasticities of the demand curves for firms in monopolistically competitive (MC) industries will become more like that of firms in pure competition as ______.
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the number of rivals increases and product differentiation grows weaker
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In the figure given, what is the economic profit of a monopolistically competitive firm when it is producing optimally?
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(P1- A1) x Q1
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What will happen to a monopolistically competitive firm in the long run?
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It will only break even.
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If a monopolistically competitive firm is producing where its marginal revenue is less than its marginal cost, then the firm
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should produce less output to increase profits or reduce losses.
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B-Balls, a manufacturer of athletic balls, is facing increased competition due to the entry of several new firms into the industry. These new competitors have resulted in reduced demand for B-Balls' basketballs, and the company is losing money. What should B-Balls do in regard to output for their basketballs to help minimize losses until some firms exit the industry?
answer
They should reduce output to wherever their new MR curve equals the MC curve caused by a leftward shift in demand.
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Which factors contribute to the likelihood of a monopolistically competitive firm sustaining a greater than normal profit in the long run?
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Increased financial barriers to entry due to product differentiation
Sufficient product differentiation that other firms cannot duplicate
Sufficient product differentiation that other firms cannot duplicate
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When a firm's price is equal to its minimum average total cost of producing a product, ___ exists.
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productive efficiency
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Economic efficiency occurs when firms produce ______.
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where P = MC = minimum ATC
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In long-run equilibrium, monopolistically competitive firms will show a(n) _____.
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normal profit
question
B-Balls, a manufacturer of athletic balls, is facing increased competition due to the entry of several new firms into the industry. These new competitors have resulted in reduced demand for B-Balls' basketballs, and the company is losing money. Which of the following steps should B-Balls take regarding price in order to minimize losses until some firms exit the industry?
answer
Set its price at its new reduced level of demand where the MC curve intersects the MR curve
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A monopolistically competitive firm may be able to continue earning greater than a normal profit in the long run ______.
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through further product differentiation
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The equality of price and minimum average total cost yields ________ efficiency; the equality of price and marginal cost yields ________ efficiency.
answer
Blank 1: productive
Blank 2: allocative
Blank 2: allocative
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Allocative efficiency is achieved in the short run when the equality of which of the following occurs?
answer
P = MC
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Achieving economic efficiency that uses the right amount of scarce resources to produce the right amount of output requires a triple equality. Which three components must be equal?
answer
Minimum average total cost
Marginal cost
Price
Marginal cost
Price
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In the long run, a monopolistic competitor fails to achieve which of the following?
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Allocative efficiency
Productive efficiency
Productive efficiency
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Monopolistically competitive firms are not productively efficient because output is less than society's optimal level because a producer's ______.
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average total cost per unit is not at its lowest possible cost
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The equality of price and marginal cost yields ___________ efficiency.
answer
allocative
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When Mary tried to get an appointment with a local dentist she was told that the earliest the doctor could see her was in three weeks. This may have been due to a lack of ______.
answer
excess capacity
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When plant and equipment are underutilized because firms are producing less than the minimum-ATC output, this is known as having ______.
answer
excess capacity
productive inefficiency
productive inefficiency
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Managers can identify excess capacity by measuring the gap between
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the minimum average total cost output and the profit-maximizing output.
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Productive efficiency in monopolistically competitive markets does not occur in the long run because firms set the price
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on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective.
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Why do firms engage in product differentiation if it adds to the firm's costs?
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Increased differentiation may increase demand enough to compensate for the added costs.
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Monopolistically competitive firms do not achieve allocative efficiency because the _____.
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price for a monopolistically competitive firm exceeds the marginal cost
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Which of the following best exemplifies a firm with excess capacity?
answer
A fast-food restaurant where customers never have to wait to place an order.
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Excess capacity is best described as underused plant resources that are a result of ______.
answer
a firm producing less output than what is associated with achieving minimum average total cost
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In the figure, excess capacity
answer
is the gap between Q3 and Q4.
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Which of the following factors is most likely to help a monopolistically competitive firm postpone earning only a normal profit?
answer
Product differentiation
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Which of the following represents the most significant benefits to society generated by monopolistically competitive markets?
answer
Product differentiation
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In order for a monopolistically competitive firm to maximize profits, it must juggle which of the following factors?
answer
the variety of product
the selling price of the product
the level of advertising
the selling price of the product
the level of advertising
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A major trade-off that occurs in monopolistically competitive industries is that, as product differentiation increases,
answer
excess capacity also increases.
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Monopolistically competitive firms to engage in ______ competition by means of product differentiation and advertising, which makes the market situation complex.
answer
nonprice
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