CH17 Monopolistic Competition

What is imperfect competition?

• A market that lies between perfect competition and monopoly
• A market with no competition
• A market with one firm
• A market where prices never change

What does a concentration ratio measure?

• The percentage of total output supplied by the four largest firms
• The average price of goods in the market
• The total number of firms in the market
• The market share of the smallest firm

In monopolistic competition, what ensures zero economic profit in the long run?

• Free entry and exit of firms
• Government regulation
• Consumer preferences
• Advertising budgets

What is the pricing effect?

• Loss of revenue from lowering price on all units sold
• Gain of revenue from selling additional units
• Cost of production per unit
• Increase in average total cost

What is the output effect?

• Gain in revenue from selling additional units
• Loss in revenue from price drops
• Fixed costs of production
• Increase in demand

What is excess capacity?

• The gap between actual output and efficient scale
• Maximum production level of a factory
• Production at marginal cost
• Surplus supply in the market

Why might advertising be beneficial?

• It can inform consumers and foster competition
• It always reduces prices
• It removes the need for regulation
• It guarantees brand loyalty

What is a product-variety externality?

• Positive externality from increased consumer choice
• Negative externality from competition
• Government-imposed cost
• Firm's profit loss

Which market structure involves many firms with slightly differentiated products?

• Monopolistic competition
• Monopoly
• Oligopoly
• Perfect competition

Why do monopolistic firms not produce at minimum average total cost?

• Because pricing effect exceeds output effect before that point
• Because costs are always increasing
• Because they are restricted by law
• Because they face constant demand