Fall 2015 Econ 160 Microeconomics

The wedding dress industry is monopolistically competitive. As a result:

[removed]	prices tend to be lower than if the dress industry approximated perfect competition.
[removed]	it has freedom of entry but not exit.
[removed]	thousands of dress suppliers all sell identical products.
[removed]	dresses tend to be differentiated among the many sellers serving this market.

A feature of monopolistic competition that makes it different from monopoly is the:

[removed]	fact that firms in monopolistically competitive industries follow the marginal decision rule, while monopolies do not.
[removed]	downward-sloping demand curve.
[removed]	number of firms in the industry.
[removed]	downward-sloping marginal revenue curve.

The market for grade A large eggs in California is best considered to be an example of:

[removed]	monopoly.
[removed]	monopolistic competition.
[removed]	perfect competition.
[removed]	oligopoly.

When initially a monopolistically competitive industry earns economic profit, the result of competition among sellers is usually that:

[removed]	the price of the product quickly reaches the perfectly competitive level.
[removed]	firms in the industry lose market share.
[removed]	the price of the product increases to monopoly level.
[removed]	firms in the industry gain market share.

A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily because:

[removed]	the price is greater than the marginal revenue.
[removed]	there are no barriers to entry or exit in the long run.
[removed]	its product is differentiated.
[removed]	there are many sellers in the industry.

Figure: Profit Maximization for a Firm in Monopolistic Competition

Reference: Ref 15-2

(Figure: Profit Maximization for a Firm in Monopolistic Competition) Look at the figure Profit Maximization for a Firm in Monopolistic Competition. Suppose that an innovation reduces a firm's costs from ATC to ATC′. Before the innovation reduced the cost, the firm's maximum economic profit was:

[removed]	$0.
[removed]	$30.
[removed]	$4,500.
[removed]	$750.

The model of monopolistic competition characterizes the market for plumbing services in a city. Suppose that the market is in long-run equilibrium. For a typical plumbing firm, price:

[removed]	is greater than the average for all other firms in the market.
[removed]	equals average total cost.
[removed]	exceeds average total cost.
[removed]	is less than average total cost.

Figure: Profits in Monopolistic Competition

Reference: Ref 15-5

(Figure: Profits in Monopolistic Competition) In panel (A) of the figure Profits in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:

[removed]	H.
[removed]	F.
[removed]	G.
[removed]	C.

Figure: The Restaurant Market

Reference: Ref 15-6

(Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the market. In the long run:

[removed]	Not enough information is given to answer the question.
[removed]	restaurants will leave the market.
[removed]	restaurants will enter the market.
[removed]	restaurants will neither enter nor exit the market.

10.

Figure: Monopolistic Competition IV

Reference: Ref 15-10

(Figure: Monopolistic Competition IV) The firm in the figure Monopolistic Competition IV is producing at the output level that maximizes profits (minimizes losses). The shaded rectangle depicts the level of:

[removed]	variable cost.
[removed]	loss.
[removed]	fixed cost.
[removed]	profit.

11.

Figure: Profit Maximization in Monopolistic Competition

Reference: Ref 15-13

(Figure: Profit Maximization in Monopolistic Competition) Look at the figure Profit Maximization in Monopolistic Competition. When the demand curve for a firm in monopolistic competition shifts, the marginal revenue curve:

[removed]	must also shift.
[removed]	will stay the same.
[removed]	will shift, but the profit-maximizing quantity will not change.
[removed]	shifts in the opposite direction.

12.

A monopolistically competitive firm has excess capacity in the long run. This means that it:

[removed]	produces less than the output at which average total costs are minimized.
[removed]	could produce more by moving to a larger plant.
[removed]	doesn't maximize profits.
[removed]	produces less than the output at which price and marginal cost are equal.

13.

Which of the following is TRUE?

[removed]	The inefficiency of monopolistic competition is a result of advertising expenses.
[removed]	The inefficiency of monopolistic competition may be a small price to pay for the wide range of product choices it offers.
[removed]	Monopolistic competition is efficient because of product differentiation.
[removed]	Monopolistic competition and perfect competition are both inefficient.

14.

Defenders of advertising argue that it:

[removed]	encourages artificial product differentiation.
[removed]	provides education and information about products.
[removed]	facilitates the concentration of monopoly power.
[removed]	seeks to persuade rather than inform buyers.

15.

Reference: Ref 15-15

(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. At the profit-maximizing output, profit per unit is:

[removed]	$10.00.
[removed]	$11.75.
[removed]	$1.17.
[removed]	$8.83.

16.

Industries that are made up of many competing producers, each selling a differentiated product, and whose firms earn zero economic profits in the long run are:

[removed]	oligopolies.
[removed]	monopolies.
[removed]	perfectly competitive.
[removed]	monopolistically competitive.

17.

Monopolistically competitive firms:

[removed]	engage in collusive activity to maximize profit.
[removed]	earn a positive economic profit if price is greater than ATC.
[removed]	are very similar to perfect competitors in producing at the minimum ATC.
[removed]	will set price where MC > MR.

18.

Both monopolists and monopolistic competitors:

[removed]	have high barriers to entry.
[removed]	charge a price that is greater than the marginal cost of production.
[removed]	make positive economic profits in the long run.
[removed]	produce a product for which there are no substitutes.

19.

There are 10 burger joints in Eastville and each one sells a slightly different variety of burger. The burger market in Eastville can be characterized by monopolistic competition. The following diagram shows the demand curve (D), marginal revenue curve (MR), marginal cost curve (MC) and average total cost curve (ATC) for a typical burger joint in this market.

Part 1: Use a vertical drop line to indicate the short-run quantity produced by a typical burger joint in this market (Qp). Make sure that the highest point of the drop line for Qp is placed on the marginal cost curve.

Part 2: Use a horizontal drop line to indicate the short-run price charged by a typical burger joint (Pp). Make sure that the end of the drop line for Pp is placed on the demand curve.

Part 3: Use a horizontal drop line to indicate the average total cost incurred by a typical burger joing in the short run (ATCp). Make sure that the end of the drop line is placed on the average total cost curve.

Part 4: Use the quadrilateral tool to show the level of profit or loss for the typical burger joint, and label accordingly.

20.

There are 6 pizza restaurants in Seaside, Oregon. Each sells a slightly different type of pizza (Chicago style, take and bake, organic, New York style, gourmet, and deep dish), thus the market can be characterized by monopolistic competition. The following diagram shows the demand curve for a typical restaurant in this market. Assume that economic profits are positive for the typical restaurant.

If the situation persists in the pizza restaurant market in Seaside, what will happen to the number of restaurants in the pizza market? Use the line drawing tool to illustrate what this will do to the typical restaurant's demand curve. Label the new curve D2.

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