Exam 15: Monopolistic Competition and Product Differentiation

Use the following to answer questions: Figure: Profits in Monopolistic Competition -(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:

Use the following to answer questions: Figure: Profit Maximization in Monopolistic Competition -(Figure: Profit Maximization in Monopolistic Competition) In panel (A) of the figure Profit Maximization in Monopolistic Competition, if the firm raises its price above P, it will:

General Snacks is a typical firm in a market characterized by monopolistic competition. Initially, the market is in long-run equilibrium, and then there is an increase in the market demand for snacks. In the short run the price of snacks will _____ and the output of snacks will _____.

Toby operates a small deli downtown. The deli industry is monopolistically competitive. If some delis leave the industry, Toby's _____ curve will shift to the _____.

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 differentiated by:

Advertising is an economically productive activity and NOT a waste of resources because:

Use the following to answer questions: Figure: Profit Maximization in Monopolistic Competition -(Figure: Profit Maximization in Monopolistic Competition) In panel (B) of the figure Profit Maximization in Monopolistic Competition, the long-run equilibrium will result in:

The _____ demand curve for a firm operating in a monopolistically competitive market _____ facing a perfectly competitive firm.

Use the following to answer questions: Figure: Comparing Long-Run Equilibriums -(Figure: Comparing Long-Run Equilibriums) In the figure Comparing Long-Run Equilibriums, which of the following statements is TRUE?

The main characteristic that distinguishes monopolistic competition from perfect competition is:

Monopolistic competitors often hire a celebrity spokesperson to advertise their product. One reason such advertising works is that:

A monopolistically competitive firm may have positive or negative profits in the short run but will have zero profits in the long run.

General Snacks is a typical firm in a market characterized by the model of monopolistic competition. Initially, the market is initially in long-run equilibrium, and then there is an increase in the market demand for snacks. We expect that:

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

Value in diversity means that by providing a variety of differentiated choices, firms in monopolistic competition provide a gain to consumers.

Use the following to answer questions: Figure: Profit Maximization for a Firm in Monopolistic Competition -(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:

If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run:

Use the following to answer questions: Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) In panel (A) of the figure Firms in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:

Use the following to answer questions: Figure: The Restaurant Market -(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:

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. In the long run, the _____ of firms shifts the firm's demand and marginal revenue curves _____ the firm's level of output and _____ the price it can charge until price equals average total cost.