Monopolistic Competition Test 6

If the toothpaste market is monopolistically competitive, product differentiation may take form of:

• All of the above

• Quality differences among the various brands

• Differentiation in the locations where certain toothpastes are available

• Production of many varieties of toothpaste, including those with whitening agents.

Both monopolistist and monopolistic competitors

• Produce a product for which there are no subsitutes.

• Charge a price that is higher than the marginal cost of production.

• Have high barriers to entry.

• Make positive economic profits in the long run.

General snacks is a typical firm in monopolistic competition. Initially, the market is in long-run equilibrium, and then there is an increase in the market demand for snack. In the long run, the economic profits of typical firms in the industry will be:

• Negative

• Positive but less than the level typically earned by monopoly firms.

• Zero

• Typical of those earned by monopoly firms.

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

• ownward-sloping demand curve.

• fact that firms in monopolistically competitive industries follow the marginal decision rule, while monopolies do not.

• number of firms in the industry

• downward-sloping marginal revenue curve.

The downward-sloping demand curve for a monopolistically competitive firm:

• eventually will become perfectly elastic as more firms enter.

• indicates collusion among firms in the industry.

• ensures that the firm will produce at minimum average cost in the long run.

• reflects products differentiation.

Which of the following is TRUE?

• Monopolistic competition results in excess capacity, since in the long run the point where MR = MC is to the right of the minimum of the ATC curve.

• In monopolistic competition firms earn large economic profits in the long run.

• All markets should be monopolies because that is the most efficient market structure.

• In monopolistic competition firms earn zero economic profits in the long run.

If the market demand curve for a commodity has a negative slope then the market structure must be

• Perfect competition

• Imperfect competition

• The market structure cannot be determined from the information given

• Monopoly

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of java. For these customers, coffee is differented by:

• style

• location

• type

• quality

The model of monopolistic competition characteristizes a city's market for plumbing services. Suppose that the market is initiallyin lon-run equilibrium, and then demand for plumbing services increases. In the short run, plumbing services' price will ___ and total market output will ___.

• rise; rise

• rise; fall

• fall; fall

• not change; not change

Which of the following industries is MOST likely to be monopolistically competitive?

• Fresh bagel shops

• Corn farming

• Electric utility production

• Automobile production