In a long-run equilibrium,
A. only a perfectly competitive firm operates at its efficient scale.
B. only a monopolistically competitive firm operates at its efficient scale.
C. neither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost.
D. both a perfectly competitive firm and a monopolistically competitive firm operate at their efficient scale of production.
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Monopolistic competition is considered inefficient because
A. price exceeds marginal cost.
B. output is excessive.
C. long-run profits are positive.
D. barriers to entry limit the number of firms in the market.
The product-variety externality is associated with the
A. producer surplus that accrues to incumbent firms in a monopolistically competitive industry.
B. loss of consumer surplus from exposure to additional advertising.
C. consumer surplus that is generated from the introduction of a new product.
D. opportunity cost of firms exiting a monopolistically competitive industry.
Defenders of advertising argue that in some markets advertising may
A. decrease elasticity of demand allowing firms to charge a larger markup over marginal cost.
B. impede competition.
C. signal quality to consumers, because advertising is expensive.
D. reduce the deadweight loss associated with monopolistic competition.
If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will
A.be able to increase its markup over marginal cost.
B. eventually have to reduce price to remain competitive.
C. increase the welfare of society.
D. reduce its average total cost.
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