Monopolistic Competition

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

The market structure cannot be determined

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

fresh bagel shops

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

reflects product differentiation

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

number of firms in the industry

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:

Quality

Suppose a monopolistically competitive firm is making a profit, but it can increase its profits by increasing output. At the current level of output:

Marginal revenue is greater than marginal cost.

Monopolistically competitive firms have zero economic profits in the long run because of:

easy entry and exit

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 snacks. In the long run, the economic profits of typical firms in the industry will be:

zero

The model of monopolistic competition characterizes a city’s market for plumbing services. Suppose that the market is initially in long-run equilibrium, and then demand for plumbing services increases. In the short run, plumbing services’ price will _____ and output will _____.

rise; rise

The price in long-run equilibrium for a monopolistically competitive firm is _____ and output is _____, compared to that of a perfectly competitive firm with an identical production function and cost curves.

higher; smaller

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

produces less than the output at which average total costs are minimized.

Which of the following is TRUE?

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

Both monopolists and monopolistic competitors:

charge a price that is greater than the marginal cost of production.