Ch 17 Monopolistic Competition

Monopolistic competition and monopoly are examples of a market structure called imperfect competition

• True

• False

Critics of advertising argue that in some markets advertising may

• attract products of lower quality into the market

• decrease elasticity of demand allowing firms to charge a larger markup over marginal cost.

• enhance competition in markets to an unnecessary degree

• attract less informed buyers into the market

Describe the shape of the monopolistically competitive firm’s demand curve

Answer explanation

Downward-sloping

Monopolistically competitive firms could reduce the average total cost of producing by increasing output; therefore, these firms have

Answer explanation

Excess capacity

The government may not be able to improve the inefficiencies of a monopolistically competitive market

• True

• False

Which letter represents the profit-maximizing price

(a)  

Which letter represents the profit-maximizing quantity

(a)  

As developing countries make a transition to market-based economies, one of the first major capital investments is in "Western-quality" hotels. Explain why brand-name hotel accommodations are a critical step in attracting foreign investment.

Answer explanation

Brand-name hotels are a critical first step to economic development because their recognized signal of quality reduces the barriers of facilitating foreign visitors (and their money)

Does this monopolistically competitive market produce the welfare-maximizing level of output

Answer explanation

No

Use the letters to identify the deadweight loss associated with this firm’s profit-maximizing production

Answer explanation

CEH