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Compared to perfect competition, monopolistic competition is characterized by excess capacity because
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firms incur additional marketing and advertising costs to create product differentiation.
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"Variety is the spice of life" is best applied to which market structure?
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monopolistic competition
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Monopolistic competition is characterized by a
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large number of firms and low entry barriers.
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If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is
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2,500
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Excess capacity in an industry implies
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productive inefficiency.
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In the long run, a profit-maximizing monopolistically competitive firm sets it price
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above marginal cost of production.
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In monopolistic competition, which of the following would make an individual firm's demand curve less price elastic?
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increased brand loyalty toward the firm's product
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In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits
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will be equal to ATC, but not the minimum ATC.
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An industry having a four-firm concentration ratio of 30 percent
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is monopolistically competitive.
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If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will
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shift to the right.
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In the long run, the economic profits for a monopolistically competitive firm will be
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the same as the profits for a purely competitive firm.
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Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be
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160.
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In the long run, a representative firm in a monopolistically competitive industry will end up
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earning a normal profit, but not an economic profit.
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Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a
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higher price and lower output.
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Which of the following statements concerning a monopolistically competitive industry is correct?
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If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms in the industry will shift to the right.
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In which of these continuums of degrees of competition (highest to lowest) is monopolistic competition properly placed?
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pure competition, monopolistic competition, oligopoly, pure monopoly
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If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation decreases,
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the industry would more closely approximate pure competition.
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The monopolistically competitive seller maximizes profit by producing at the point where
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marginal revenue equals marginal cost of production.
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A monopolistically competitive firm is producing at an output level in the short run where average total cost (ATC) is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating
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with a loss.
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Suppose the Herfindahl indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that
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market power is greatest in industry C.
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Refer to the data. The Herfindahl index for the industry is
Firm . Market Share(%)
A 20
B 20
C 20
D 20
E 10
F 10
Firm . Market Share(%)
A 20
B 20
C 20
D 20
E 10
F 10
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1,800.
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Which of the following is correct for a monopolistically competitive firm in long-run equilibrium?
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P exceeds minimum ATC.
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A monopolistically competitive industry combines elements of both competition and monopoly. The competition element results from
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low entry barriers to entry of new firms in the industry.
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In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the profit-maximizing firm will
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set price above marginal cost.
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The goal of product differentiation and advertising in monopolistic competition is to make
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price less of a factor and product differences more of a factor in consumer purchases.
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Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic
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profit of $480.
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The Herfindahl index
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gives much greater weight to larger firms than to smaller firms in an industry.
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Firms in an industry will not earn long-run economic profits if
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there is free entry and exit of firms in the industry.
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Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be
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16
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The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers would suggest that the industry was monopolistically competitive?
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25 and 207
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Refer to the diagram for a monopolistically competitive producer. The firm is
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realizing a normal profit in the long run.
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Excess capacity refers to the
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amount by which actual production falls short of the minimum ATC output.
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In the short run, a profit-maximizing monopolistically competitive firm sets it price
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above marginal cost of production.
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If the four-firm concentration ratio for industry X is 80,
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the four largest firms account for 80 percent of total sales.
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Which of the following is a measure of the degree of industry concentration (or market power of firms in an industry)?
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Herfindahl Index
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In the long run, economic theory predicts that a monopolistically competitive firm will
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have excess production capacity.
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Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will
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attract other firms to enter the industry, causing the existing firms' profits to shrink.
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The Herfindahl index for a pure monopolist is
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10,000.
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Refer to the diagram for a monopolistically competitive producer. This firm is experiencing
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excess capacity of DE.
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The economic inefficiencies of monopolistic competition may be offset by the fact that
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consumers have increased product variety.
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Concentration ratios measure the
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percentage of total industry sales accounted for by the largest firms in the industry.
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Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264. These data suggest
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greater market power in Y than in X.
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Nonprice competition refers to
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advertising, product promotion, and changes in the real or perceived characteristics of a product.
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Compared to pure competition, monopolistic competition
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provides greater product differentiation at the cost of lower productive efficiency.
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Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million, respectively. We can conclude that
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this industry is monopolistically competitive.
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A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from
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product differentiation.
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The restaurant, legal assistance, and clothing industries are each illustrations of
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monopolistic competition.
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A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost (ATC) is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should
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make no change in the level of output.
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Monopolistic competition means
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A monopolistically competitive firm is producing at a short-run output level where average total cost (ATC) is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should
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A monopolistically competitive firm is producing at a short-run output level where average total cost (ATC) is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should
answer
increase the level of output.
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