In monopolistically competitive markets, free entry and exit suggests that
A. the market structure will eventually be characterized by perfect competition in the long run.
B. all firms earn zero economic profits in the long run.
C. some firms will be able to earn economic profits in the long run.
D. some firms will be forced to incur economic losses in the long run.
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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.
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.
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