Econ Ch16 - Monopolistic Competition

Which of the following conditions does NOT describe a

firm in a monopolistically competitive market?

• It has the freedom to enter or exit in the long run.

• It maximizes profit both in the short run and in

  the long run.

• It takes its price as given by market conditions.

• It sells a product different from its competitors.

Which of the following markets best fits the

definition of monopolistic competition?

• haircuts

• crude oil

• tap water

• wheat

A monopolistically competitive firm will increase its

production if

• price is greater than average total cost.

• price is greater than marginal cost.

• marginal revenue is greater than average total cost.

• marginal revenue is greater than marginal cost.

New firms will enter a monopolistically competitive

market if

• price is greater than average total cost.

• price is greater than marginal cost.

• marginal revenue is greater than average total cost.

• marginal revenue is greater than marginal cost.

What is true of a monopolistically competitive

market in long-run equilibrium?

• Firms produce at the minimum of average total

  cost.

• Firms make positive economic profits.

• Price is equal to marginal revenue.

• Price is greater than marginal cost.

If advertising makes consumers more loyal to

particular brands, it could _________ the elasticity

of demand and _________ the markup of price over

marginal cost.

• increase; increase

• increase; decrease

• decrease; increase

• decrease; decrease

If advertising makes consumers more aware of

alternative products, it could _________ the

elasticity of demand and _________ the markup of price over

marginal cost.

• increase; increase

• increase; decrease

• decrease; increase

• decrease; decrease

Advertising can be a signal of quality

• if advertising is freely available to all firms.

• if the benefit of attracting customers is greater

  for firms with better products

• only if consumers are irrationally attracted to

  products they see advertised.

• only if the content of the ads contains credible

  information about the products.