Exam 15: Market Structures Ii: Monopolistic Competition

When firms enter a monopolistically competitive market and the business-stealing externality is larger than the product-variety externality, then

Use a graph to demonstrate why a profit-maximizing monopolistically competitive firm must operate at excess capacity. Explain why a perfectly competitive firm is not subject to the same constraint.

To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which

In markets where the government imposes an excise tax on unit sales, it also has a tendency to dabble with restrictions on advertising (for example, cigarettes and hard liquor). Do potential (or actual) restrictions on advertising in these markets serve the interest of a government that is interested in maximizing its tax revenue from the sale of these products? Explain your answer.

The monopolistically competitive firm shown in Exhibit 3 will, in the long run, ​ ​

Assume the role of a defender of advertising. Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

Both monopolists and monopolistically competitive firms produce the quantity at which marginal revenue equals marginal cost and then use the demand curve facing the firm to determine the price consistent with that quantity.

If the monopolistic competitor firm described by Exhibit 3 is producing at the profit-maximizing (loss-minimizing) level of output, it ​ ​

In a small university town, four take-away restaurants have opened in the last two years. Demonstrate the effect of the new market entrants on the demand for the existing take-away restaurants that already serve this market. Assume that the local town council has now placed a ban on any new take-away restaurants in the town. How will this affect the long-run profitability of incumbent firms?

Many airlines promise "frequent flyer" miles to passengers who travel on their flights regularly. This is an example of a firm attempting to create

The use of the word "competition" in the name of the market structure called "monopolistic competition" refers to the fact that

Which of the following firms has the least incentive to advertise?

One source of inefficiency in monopolistic competition is that

There are several reasons why demand curves may become more prices elastic. Among them are

A market structure in which there are many firms selling products that are similar but not identical is known as

Advertising must be socially wasteful because advertising simply adds to the cost of producing a product.

One of the reasons that supermarkets advertise so much is that

If existing fast food firms realize sizable economic profits in the short run, the demand curves of existing firms will

Firms that sell highly differentiated consumer products are more likely to spend a large percentage of their revenue on advertising.

When firms enter a monopolistically competitive market and the business-stealing externality is larger than the product-variety externality, then