Chapter 15 Monopolistic Competition

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1 Chapter 15 Monopolistic Competition 15.1 What Is Monopolistic Competition? 1) An industry with a large number of firms, differentiated products, and free entry and exit is called A) perfect competition. B) monopolistic competition. C) oligopoly. D) monopoly. E) monopolistic oligopoly. Topic: Monopolistic competition, definition Skill: Level 1: Definition Author: SB 2) In monopolistic competition, each firm supplies a small part of the market. This occurs because A) there are barriers to entry. B) there are no barriers to entry. C) there are a large number of firms. D) firms produce differentiated products. E) there are a large number of buyers. Topic: Monopolistic competition, definition Author: SB

2 628 Bade/Parkin œ Foundations of Economics, Third Edition 3) In monopolistic competition, the products of different sellers are assumed to be A) identical. B) similar but slightly different. C) unique without any close or perfect substitutes. D) perfect substitutes. E) either identical or differentiated. Topic: Monopolistic competition, definition Skill: Level 1: Definition 4) Which of the following is true about monopolistic competition but false about perfect competition? A) There are a large number of independently acting sellers. B) There are no barriers to entry. C) Firms can earn an economic profit in the short run. D) Firms compete on their product's price as well as its quality and marketing. E) Firms cannot earn an economic profit in the long run. Topic: Monopolistic competition, definition Skill: Level 1: Definition 5) In an industry with a large number of firms, A) each firm will produce a large quantity, relative to market demand. B) one firm will dominate the market. C) collusion is impossible. D) competition is eliminated. E) barriers to exit must exist. Topic: Monopolistic competition, definition Author: SB

3 Chapter 15 Monopolistic Competition 629 6) Which of the following is an example of a monopolistically competitive industry? A) land-based long distance telephone service B) wheat farming C) the local electricity producer D) manufacturing of shirts E) cable television Topic: Monopolistic competition, definition 7) The United Company competes with many other firms each producing slightly different products. Firms freely enter and exit this industry. The type of industry United Company operates in is. A) a monopoly. B) monopolistic competition. C) oligopoly. D) perfect competition. E) oligopolistic monopoly. Topic: Monopolistic competition, definition Author: CD 8) A differentiated product has A) many perfect substitutes. B) no close substitutes. C) no substitutes of any kind. D) close but not perfect substitutes. E) many different complements. Topic: Product differentiation Skill: Level 1: Definition Author: SB

4 630 Bade/Parkin œ Foundations of Economics, Third Edition 9) As the degree of product differentiation increases among the products sold in a monopolistically competitive industry, A) the cost of production falls. B) the demand curve for each seller's product becomes more horizontal. C) each seller's demand becomes more inelastic. D) the amount of marketing expenditures decreases for each firm. E) sellers can no longer earn an economic profit. Topic: Product differentiation 10) For a firm in monopolistic competition, marketing A) means only selling at a lower price than rivals B) takes the forms of advertising and packaging C) means producing more output to lower average costs D) consists of changing the marginal cost and marginal revenue curves. E) None of the above answers is correct. Topic: Product differentiation 11) Firms in monopolistic competition have demand curves that are A) horizontal. B) vertical. C) downward sloping. D) upward sloping. E) U-shaped. Topic: Monopolistic competition, demand curve Author: SB

5 Chapter 15 Monopolistic Competition ) As a firm in monopolistic competition sets the price for its product, the firm faces a tradeoff between A) supply and demand. B) efficiency and equity. C) internal and external economies of scale. D) price and the quantity it can sell. E) its marginal revenue and its price. Topic: Monopolistic competition, demand curve 13) If you have found the percentage of the value of total revenue accounted for by the four largest firms in an industry, you have found the A) elasticity of demand value. B) elasticity of supply value. C) Herfindahl-Hirschman Index. D) four-firm concentration ratio. E) monopolistic concentration index. Topic: Four-firm concentration ratio 14) Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive industry? A) 0.25 percent B) 31 percent C) 78 percent D) 100 percent E) 50 percent Answer: A Topic: Four-firm concentration ratio

6 632 Bade/Parkin œ Foundations of Economics, Third Edition 15) Which of the following four-firm concentration ratios is consistent with monopolistic competition? A) 100 percent B) 75 percent C) 25 percent D) 0 percent E) 91 percent Topic: Four-firm concentration ratio Author: SB Firm QT Burgers Kwickie Chix Speedy Spuds Hasty Pudding Other 200 firms Sales (millions of dollars) ) The table above shows the revenue figures for the top four firms along with a total for the remaining firms in the fast-food industry. What is the four-firm concentration ratio for the industry? A) 200 B) 20 percent C) 25 percent D) 80 percent E) 100 percent Topic: Four-firm concentration ratio Skill: Level 3: Using models Author: CD

7 Chapter 15 Monopolistic Competition ) Which of the following four-firm concentration ratios would be the best indicator of a monopoly? A) 0.25 percent B) 31 percent C) 78 percent D) 100 percent E) 89 percent Topic: Four-firm concentration ratio 18) Which of the following four-firm concentration ratios would be the best indicator of an oligopoly? A) 0.25 percent B) 31 percent C) 78 percent D) 100 percent E) 11 percent Topic: Four-firm concentration ratio 19) What is the four-firm concentration ratio if the four largest firms in an industry account for 5 percent, 6 percent, 7 percent, and 8 percent of total revenue? A) 26 percent B) 174 percent C) 1,680 D) There is enough information given to answer the question, but none of the answers above are correct. E) There is not enough information given to answer the question. Answer: A Topic: Four-firm concentration ratio

8 634 Bade/Parkin œ Foundations of Economics, Third Edition 20) The square of the percentage market share of each firm summed over the largest 50 firms in a market is the A) elasticity of demand value. B) elasticity of supply value. C) Herfindahl-Hirschman Index. D) four-firm concentration ratio. E) fifty-firm concentration ratio. Topic: Herfindahl-Hirschman Index 21) What is the Herfindahl-Hirschman Index if the four firms in an industry account for 62 percent, 15 percent, 15 percent, and 8 percent of total revenue? A) 100 B) 4,358 C) 111,600 D) 2,822 E) 6,200 Topic: Herfindahl-Hirschman Index

9 Chapter 15 Monopolistic Competition 635 Market share Firm (percent) Gary's Gourmet 30 Allen's Extras 25 Travis' Treats 15 Orin's Eats 10 Reed's Riches 10 Seth's Sweetest 5 Uriah's Foodfest 5 22) Suppose there are 7 firms in the candy industry with the market shares shown below. What is the HHI for the industry? A) 1850 B) 2000 C) 6400 D) 100 E) 20 Topic: Herfindahl-Hirschman Index Skill: Level 3: Using models Author: CD 23) A market is considered competitive if the Herfindahl-Hirschman Index (HHI) is and its four-firm concentration ratio is. A) high; high B) high; low C) low; high D) low; low E) between 30 percent and 70 percent; greater than 5,000 Topic: Herfindahl-Hirschman Index Author: SB

10 636 Bade/Parkin œ Foundations of Economics, Third Edition 24) One problem with measures of market concentrations is that they do not A) account for barriers to entry. B) allow for all market types. C) account for the difficulty in collecting total revenue data. D) create meaningful comparisons across industries. E) accurately measure concentration in markets with fewer than 4 firms. Answer: A Topic: Limitations of concentrations ratios Author: CD 25) In monopolistic competition there A) are many firms and many buyers. B) are several large firms. C) is one large firm. D) might be many, several, or one firm. E) are many firms but only a few buyers. Answer: A Topic: Monopolistic competition, definition Skill: Level 1: Definition 26) A firm in monopolistic competition has a market share and influence the price of its good or service. A) large; can B) large; cannot C) small; can D) small; cannot E) large; might be able to Topic: Monopolistic competition, definition Skill: Level 1: Definition

11 Chapter 15 Monopolistic Competition ) Product differentiation means A) making a product that has perfect substitutes. B) making a product that is entirely unique. C) the inability to set your own price. D) making a product that is slightly different from products of competing firms. E) making your demand curve horizontal. Topic: Product differentiation Skill: Level 1: Definition 28) Firms in monopolistic competition compete on i. quality. ii. price. iii. marketing. A) i and ii. B) ii only. C) ii and iii. D) i and iii. E) i, ii, and iii. Answer: E Topic: Product differentiation Skill: Level 1: Definition 29) A firm in monopolistic competition has demand curve. A) a downward sloping B) an upward sloping C) a vertical D) a horizontal E) a U-shaped Answer: A Topic: Monopolistic competition, demand curve

12 638 Bade/Parkin œ Foundations of Economics, Third Edition 30) The absence of barriers to entry in monopolistic competition means that in the long run firms A) earn an economic profit. B) earn zero economic profit. C) incur an economic loss. D) earn either an economic profit or a normal profit. E) earn either a normal profit or suffer an economic loss. Topic: Monopolistic competition, long run profit 31) If the four-firm concentration ratio for the market for pizza is 28 percent, then this industry is best characterized as A) a monopoly. B) monopolistic competition. C) an oligopoly. D) perfect competition. E) oligopolistic competition. Topic: Four-firm concentration ratio 32) Each of the ten firms in an industry has 10 percent of the industry's total revenue. The four-firm concentration ratio is A) 80. B) 100. C) 1,000. D) 40. E) 10. Topic: Four-firm concentration ratio

13 Chapter 15 Monopolistic Competition ) Each of the four firms in an industry has a market share of 25 percent. The Herfindahl-Hirschman Index equals A) 3,600. B) 100. C) 625. D) 25. E) 2,500. Answer: E Topic: Herfindahl-Hirschman Index 34) The larger the four-firm concentration, the competition within an industry; the larger the Herfindahl-Hirschman Index, the competition within an industry. A) more; more B) more; less C) less; more D) less; less E) The premise of the question is wrong because the four-firm concentration ratio applies only to markets with four firms in it and these markets are, by definition, not competitive. Topic: Herfindahl-Hirschman Index

14 640 Bade/Parkin œ Foundations of Economics, Third Edition 15.2 Output and Price Decisions 1) Firms in monopolistic competition determine the profit-maximizing level of output by producing A) the same output level as rivals do. B) where average total cost is minimized. C) at the point of minimum average fixed cost. D) where marginal revenue equals marginal cost. E) where price equals average total cost. Topic: Monopolistic competition, output and price 2) In monopolistic competition, profit is maximized by producing so that marginal revenue A) equals price. B) is negative. C) equals marginal cost and is less than price. D) equals average total cost but not marginal cost. E) equals marginal cost and equals price. Topic: Monopolistic competition, output and price Author: SB 3) If a monopolistically competitive seller's marginal cost is $3.56, the firm will increase its output if A) its marginal revenue is less than $3.56. B) its marginal revenue is equal to $3.56. C) its marginal revenue is more than $3.56. D) average total cost is less than $3.56. E) Both answers A and D are correct. Topic: Monopolistic competition, output and price

15 Chapter 15 Monopolistic Competition 641 4) If a monopolistically competitive seller's marginal cost is $3.56, the firm will decrease its output if A) its marginal revenue is less than $3.56. B) its marginal revenue is equal to $3.56. C) its marginal revenue is more than $3.56. D) its average total cost is equal to $4.00. E) Both answers B and D are correct. Answer: A Topic: Monopolistic competition, output and price 5) If a monopolistically competitive seller's marginal cost is $3.56, the firm will not change its output if A) its marginal revenue is less than $3.56. B) its marginal revenue is equal to $3.56. C) its marginal revenue is more than $3.56. D) its average total cost is equal to $3.56. E) Both answers B and D are correct. Topic: Monopolistic competition, output and price

16 642 Bade/Parkin œ Foundations of Economics, Third Edition 6) The above figure shows a restaurant engaged in monopolistic competition with other restaurants. The equilibrium price at this restaurant is per meal. A) $20 B) $30 C) $50 D) less than $20 E) more than $50 Topic: Monopolistic competition, output and price Skill: Level 3: Using models Author: MR

17 Chapter 15 Monopolistic Competition 643 7) The above figure shows a restaurant engaged in monopolistic competition with other restaurants. The equilibrium quantity at this restaurant is meals per day. A) less than 150 B) between 151 and 250 C) between 251 and 350 D) between 451 and 450 E) more than 451 Topic: Monopolistic competition, output and price Skill: Level 3: Using models Author: MR

18 644 Bade/Parkin œ Foundations of Economics, Third Edition 8) The above figure shows a motel engaged in monopolistic competition with other motels. The equilibrium price at this motel is per room. A) $20 B) $30 C) $40 D) $50 E) $10 Topic: Monopolistic competition, output and price Skill: Level 3: Using models Author: MR

19 Chapter 15 Monopolistic Competition 645 9) The above figure shows a motel engaged in monopolistic competition with other motels. The equilibrium quantity at this motel is rooms per day. A) 200 B) 300 C) 400 D) 500 E) 100 Topic: Monopolistic competition, output and price Skill: Level 3: Using models Author: MR 10) The above figure shows a motel engaged in monopolistic competition with other motels. Figure shows the equilibrium in which the motel is. A) short-run; earning an economic profit B) short-run; earning a normal profit C) long-run; earning an economic profit D) long-run; earning a normal profit E) short-run; incurring an economic loss Answer: A Topic: Monopolistic competition, output and price Skill: Level 3: Using models Author: MR 11) In the long run in monopolistic competition, firms A) earn an economic profit but not a normal profit. B) incur an economic loss. C) earn a normal profit but not an economic profit. D) shut down. E) earn either an economic profit or a normal profit. Topic: Monopolistic competition, long run Author: SB

20 646 Bade/Parkin œ Foundations of Economics, Third Edition 12) If firms in monopolistic competition are earning economic profits, eventually A) they shut down. B) they exit the industry. C) the market turns into a monopoly. D) new firms enter the industry. E) the firms in the market increase their production so that their economic profit disappears. Topic: Monopolistic competition, long run Author: SB 13) At a long-run equilibrium in monopolistic competition, price equals A) average total cost. B) marginal cost but not marginal revenue. C) marginal revenue but not marginal cost. D) zero. E) marginal revenue and marginal cost. Answer: A Topic: Monopolistic competition, long run Author: SB 14) In the long run, a firm in monopolistic competition will produce A) where average total cost is minimized. B) where price equals average total cost but average total cost is not at its minimum. C) zero output. D) any possible amount of output. E) where price equals marginal cost. Topic: Monopolistic competition, long run

21 Chapter 15 Monopolistic Competition ) Which of the following is NOT a characteristic of long-run equilibrium in monopolistic competition? A) the firm earns a normal profit B) price equal to average total cost C) production at minimum average total cost D) marginal revenue equal to marginal cost E) price exceeds marginal revenue Topic: Monopolistic competition, long run 16) If firms in monopolistic competition are earning economic profits, then A) they can expect to earn the profits indefinitely. B) new rivals enter the industry and the demand for any seller's good decreases. C) the market demand becomes more inelastic. D) the industry is in long-run equilibrium. E) new rivals enter the industry and the demand for any seller's good increases. Topic: Monopolistic competition, long run 17) In monopolistic competition, the entry of new firms A) shifts existing firms' demand curves rightward. B) shifts existing firms' demand curves leftward. C) only results in a movement along the existing firms' demand curves. D) has no effect on the existing firms' demand curves. E) shifts existing firms' supply curves rightward. Topic: Monopolistic competition, long run Skill: Level 3: Using models Author: SB

22 648 Bade/Parkin œ Foundations of Economics, Third Edition 18) When a monopolistically competitive firm's demand curve shifts leftward, what happens to its marginal revenue curve? A) Nothing, the marginal revenue curve is unchanged. B) It disappears. C) It shifts rightward. D) It shifts leftward. E) None of the above is correct because the effect on the marginal revenue curve depends on whether the demand was initially elastic or inelastic. Topic: Monopolistic competition, long run Skill: Level 3: Using models Author: SB 19) In the long run, firms in monopolistic competition earn a normal profit because A) firms are free to enter and exit. B) their products are similar but slightly different. C) of over-reliance on product marketing. D) of collusion among the various sellers. E) their demand curves are horizontal. Answer: A Topic: Monopolistic competition, efficiency 20) Monopolistic competition is judged to be economically inefficient because A) the selling price is greater than marginal cost. B) firms earn a normal profit in the long run. C) marginal revenue equals marginal cost. D) firms have deficient capacity in the long run. E) firms earn an economic profit in the long run. Answer: A Topic: Monopolistic competition, efficiency

23 Chapter 15 Monopolistic Competition ) Even though monopolistic competition results in inefficiency, it does have which of the following benefits for society? A) Firms earn normal profit in the long run. B) Firms can earn an economic profit in the short run. C) Product differentiation benefits consumers. D) Marginal cost equals price in the long run. E) The premise of the question is incorrect because nothing in monopolistic competition justifies any economic inefficiency. Topic: Monopolistic competition, efficiency 22) Which of the following is an advantage of monopolistic competition? A) production at the lowest possible average cost B) product variety C) only essential costs are incurred D) long-run profitability E) the firms have excess capacity so they are are always willing to increase their production. Topic: Monopolistic competition, efficiency 23) If a firm is maximizing its profit and producing less than the output at which its average total cost is minimized, then that firm A) must be suffering an economic loss. B) must be earning an economic profit. C) has excess capacity. D) is producing at its capacity output. E) must be earning a normal profit. Topic: Monopolistic competition, excess capacity Author: SB

24 650 Bade/Parkin œ Foundations of Economics, Third Edition 24) A monopolistically competitive firm maximizes profit by equating A) price and marginal revenue. B) price and marginal cost. C) demand and marginal cost. D) marginal revenue and marginal cost. E) price and average total cost. Topic: Monopolistic competition, output and price 25) Once a firm in monopolistic competition has determined how much to produce, the firm determines its price by referring to its A) demand curve. B) marginal cost curve. C) marginal revenue curve. D) average total cost curve. E) average variable cost curve. Answer: A Topic: Monopolistic competition, output and price 26) A firm in monopolistic competition definitely incurs an economic loss if A) price equals marginal revenue. B) price is less than average total cost. C) marginal revenue equals marginal cost. D) marginal revenue is less than average total cost. E) price is greater than marginal cost. Topic: Monopolistic competition, economic loss

25 Chapter 15 Monopolistic Competition ) In the long run, a firm in monopolistic competition A) can only earn a normal profit. B) produces at a minimum average total cost. C) has deficient capacity. D) can earn either a normal profit or an economic profit. E) produces a quantity where its demand curve is upward sloping. Answer: A Topic: Monopolistic competition, long run 28) A firm's efficient scale of production is the output at which its A) marginal cost is at a minimum. B) average total cost is at a minimum. C) profit is maximized. D) marginal revenue is at a maximum. E) marginal revenue equals marginal cost. Topic: Monopolistic competition, excess capacity Skill: Level 1: Definition 29) In the long run, a firm in monopolistic competition excess capacity and a firm in perfect competition excess capacity. A) has; has B) has; does not have C) does not have; has D) does not have; does not have E) might have; might have Topic: Monopolistic competition versus perfect competition Skill: Level 3: Using models

26 652 Bade/Parkin œ Foundations of Economics, Third Edition 30) In the long run, a firm in monopolistic competition a markup of price over marginal cost and a firm in perfect competition a markup of price over marginal cost. A) has; has B) has; does not have C) does not have; has D) does not have; does not have E) might have; might have Topic: Monopolistic competition versus perfect competition Skill: Level 3: Using models 31) Monopolistic competition is efficient when compared to A) to perfect competition. B) complete product uniformity. C) the short run. D) the long run. E) None of the above answers is correct. Topic: Monopolistic competition, efficiency Skill: Level 3: Using models 15.3 Product Development and Marketing 1) Firms decide how much to spend on product development and marketing by A) spending the same amount as they did in previous years. B) spending the historical average of 1/4 of total production cost. C) determining what it will take to eliminate excess capacity. D) balancing the cost and the benefit of product development and marketing. E) ensuring that the marginal cost of product development and marketing is less than or equal to the marginal cost of producing the good or service. Topic: Innovation and product development

27 Chapter 15 Monopolistic Competition 653 2) For a firm in monopolistic competition to undertake product development, the marginal cost of the development must be the marginal benefit of the development to consumers. A) greater than B) less than C) not comparable to D) equal to or less than E) None of the above because a monopolistically competitive firm undertakes product development if the marginal cost of the development is less than or equal to the marginal revenue from the development. Answer: E Topic: Innovation and product development Author: CD 3) Which of the following statements about product development in monopolistic competition is (are) correct? i. Firms in monopolistic competition undertake too much product development for efficiency. ii. Firms in monopolistic competition undertake too little product development for efficiency. iii. Product development might allow the firm to temporarily earn an economic profit. A) i only. B) ii only C) ii and iii. D) i and iii. E) iii only. Topic: Innovation and product development

28 654 Bade/Parkin œ Foundations of Economics, Third Edition 4) Firms attempt to create a consumer perception of product differentiation through i. packaging. ii. marketing. iii. advertising. A) i only. B) ii only. C) ii and iii. D) i and iii. E) i, ii, and iii. Answer: E Topic: Selling costs Author: SB 5) Advertising is a cost that is incurred by. A) variable; monopolies B) variable; perfectly competitive firms C) fixed; perfectly competitive firms D) fixed; monopolistically competitive firms E) marginal; monopolistically competitive firms Topic: Selling costs Author: CD 6) How do advertising and other selling costs affect a firm? A) They shift the marginal cost curve upward. B) The only effect is that the excess capacity is reduced. C) The only effect is that the demand for the product increases. D) They shift the average total cost curve upward. E) The do not change demand and shift the average total cost curve downward. Topic: Selling costs

29 Chapter 15 Monopolistic Competition 655 7) In which of the following ways do advertising and other selling costs affect a firm's cost curves? i. Advertising expenditures increase total fixed costs. ii. Selling costs increase total fixed costs. iii. Advertising and other selling costs per unit of output decrease as output increases. A) i only. B) i and ii. C) iii only. D) i and iii. E) i, ii, and iii. Answer: E Topic: Selling costs 8) In the long run, advertising by all firms in a monopolistically competitive industry A) increases all firms' demand. B) decreases all firms' demand. C) lowers all firms' costs. D) might increase or decrease all firms' demand. E) lowers all firms' prices. Topic: Selling costs Skill: Level 4: Applying models Author: SB 9) A sunglass manufacturer spends a lot of money to promote its brand name. This promotion consumers because. A) helps; it lowers marginal cost B) harms; definitely increases average total cost C) helps; it provides a signal and information about the sunglasses D) harms; increases the elasticity of demand E) helps; it is a fixed cost and not a variable cost Topic: Efficiency of advertising Skill: Level 4: Applying models Author: CD

30 656 Bade/Parkin œ Foundations of Economics, Third Edition 10) When weighing the efficiency of monopolistic competition, which of the following should be considered? i) The information provided by advertising. ii) Extra product variety. iii) The extra cost of excess capacity. A) ii only. B) i and iii. C) ii and iii. D) i, ii, and iii. E) iii only. Topic: Efficiency of advertising Skill: Level 4: Applying models Author: CD 11) Because economic profits are eliminated in the long run in monopolistic competition, to earn an economic profit firms continuously A) shut down. B) exit the industry. C) innovate and develop new products. D) declare bankruptcy. E) decrease their costs by decreasing their selling costs. Topic: Innovation and product development Skill: Level 3: Using models 12) A firm in monopolistic competition that introduces a new and differentiated product will temporarily have a demand for its product and is able to charge a A) less elastic; a lower price than before. B) less elastic; a higher price than before. C) more elastic; a lower price than before. D) more elastic; a higher price than before. E) less elastic; the same price as before. Topic: Innovation and product development Skill: Level 3: Using models

31 Chapter 15 Monopolistic Competition ) The decision to innovate A) depends on the marketing department's needs. B) depends on whether the firm wants to benefit its customers. C) is based on the marginal cost and the marginal revenue of innovation. D) is unnecessary in a monopolistically competitive market. E) None of the above answers is correct. Topic: Innovation and product development 14) Advertising costs and other selling costs are A) efficient. B) fixed costs. C) variable costs. D) marginal costs. E) considered as part of demand because they affect the demand for the good. Topic: Selling costs 15) For a firm in monopolistic competition, selling costs A) increase costs and reduce profits. B) always increase demand. C) can change the quantity produced and lower the average total cost. D) can lower total cost. E) has no effect on the quantity sold. Topic: Selling costs

32 658 Bade/Parkin œ Foundations of Economics, Third Edition 16) If advertising increases the numbers of firms in an industry, each firm's demand A) increases. B) does not change. C) decreases. D) might increase or decrease depending on whether the new firms produce exactly the same product or a product that is slightly differentiated. E) None of the above answers is correct. Topic: Advertising 17) One reason a company advertises is to A) signal consumers that its product is high quality. B) lower its total cost. C) produce more efficiently. D) lower its variable costs. E) lower its fixed costs. Answer: A Topic: Advertising 18) The efficiency of monopolistic competition A) is as clear-cut as the efficiency of perfect competition. B) depends on whether the gain from extra product variety offsets the selling costs and the extra cost that arises from excess capacity. C) comes from its excess capacity. D) is eliminated in the long run. E) is equal to that of monopoly. Topic: Efficiency: the bottom line Skill: Level 5: Critical thinking

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