Chapter 8 Market Entry, Monopolistic Competition, and Oligopoly

96) What is "competitive" about a monopolistically competitive market?

97) If you were thinking of entering the ice cream business, would you make a product that is just like one that is already being produced? Explain.

98) The market for chicken used to be perfectly competitive. Then producers like Frank Perdue started marketing chicken under their name. What did they gain by doing this?

99) Suppose that A Cleaner World invents a new type of laundry detergent that has an ingredient that stops stains from setting into clothes. If the laundry detergent market is monopolistically competitive, explain what will happen to the price of its product in the short run. What will happen in the long run?

Figure 8.6

100) Figure 8.6 depicts a monopolistically competitive firm in the long run. Illustrate on the graph the firm's price and output level in long-run equilibrium. Explain.

101) Referring to Figure 8.6, how much economic profit does the monopolistically competitive firm earn in long-run equilibrium?

102) Can a monopolistically competitive firm producing a good with lots of very close substitutes earn large positive profits in the long run?

8.3 Trade-Offs with Entry and Monopolistic Competition

1) A benefit to consumers of monopolistically competitive markets is that

A) consumers only have to choose from one product.

B) consumers have a variety of products from which to choose.

C) goods are sold at the lowest possible average cost of production.

D) price is equal to marginal cost in equilibrium.

2) Consumers benefit from monopolistically competitive markets because

A) they only have one good from which to choose.

B) in this type of market, producers supply goods in a variety of locations or with a variety of characteristics.

C) in this type of market, goods are sold at a price equal to the marginal cost of production.

D) goods are sold at a price equal to marginal revenue.

3) The "good news" for consumers from monopolistic competition is ________ but the "bad news" for producers is that ________.

A) lower prices than monopoly; there are higher production costs

B) lower prices than monopoly; there are higher travel costs

C) lower prices than monopoly; there is less product variety

D) greater product variety; product prices are higher

4) As compared to a perfectly competitive firm, a monopolistically competitive firm will

A) have more control over price.

B) have less control over price.

C) face more barriers to entry.

D) face many more competitors.