Abstract Consider the symmetric equilibrium of a monopolistically competitive industry in which manufacturers select price and quality to maximize expected profit and consumers maximize utility by conducting costly search among sellers using an optimal sequential search rule. Consumers search among sellers because (i) each consumer idiosyncratically evaluates each seller's quality and (ii) a retailing sector generates variation in the prices consumers pay. Consumers are handicapped in their search because their observations of firms' price and quality levels are noisy. An improvement in price information is represented by an increase in the precision with which consumers observe sellers' prices. Similarly, an improvement in quality information is represented by an increase in precision with which consumers observe sellers' quality levels. An improvement of either type of information may increase or decrease welfare. The perverse case in which improved price information decreases welfare occurs when price competition among firms becomes so intense relative to quality competition that firms select severely suboptimal levels of quality. Show
Journal Information The purpose of the RAND Journal of Economics, formerly the Bell Journal of Economics, is to support and encourage research in the behavior of regulated industries, the economic analysis of organizations, and more generally, applied microeconomics. Both theoretical and empirical manuscripts in economics and law are encouraged. Website: www.rje.org Publisher Information Wiley is a global provider of content and content-enabled workflow solutions in areas of scientific, technical, medical, and scholarly research; professional development; and education. Our core businesses produce scientific, technical, medical, and scholarly journals, reference works, books, database services, and advertising; professional books, subscription products, certification and training services and online applications; and education content and services including integrated online teaching and learning resources for undergraduate and graduate students and lifelong learners. Founded in 1807, John Wiley & Sons, Inc. has been a valued source of information and understanding for more than 200 years, helping people around the world meet their needs and fulfill their aspirations. Wiley has published the works of more than 450 Nobel laureates in all categories: Literature, Economics, Physiology or Medicine, Physics, Chemistry, and Peace. Wiley has partnerships with many of the world’s leading societies and publishes over 1,500 peer-reviewed journals and 1,500+ new books annually in print and online, as well as databases, major reference works and laboratory protocols in STMS subjects. With a growing open access offering, Wiley is committed to the widest possible dissemination of and access to the content we publish and supports all sustainable models of access. Our online platform, Wiley Online Library (wileyonlinelibrary.com) is one of the world’s most extensive multidisciplinary collections of online resources, covering life, health, social and physical sciences, and humanities. Rights & Usage This item is part of a JSTOR Collection. Which of the following is not a type of market structure?
b. Oligopoly c. Perfect competition d. All of the above are types of market structures. If the market demand curve for a commodity has a negative slope then the market structure must be
b. monopoly. c. imperfect competition. d. The market structure cannot be determined from the information given. If a firm sells its output on a market that is characterized by many sellers and buyers, a homogeneous product, unlimited long-run resource mobility, and perfect knowledge, then the firm is a
b. an oligopolist. c. a perfect competitor. d. a monopolistic competitor. If a firm sells its output on a market that is characterized by a single seller and many buyers of a homogeneous product for which there are no close substitutes and barriers to long-run resource mobility, then the firm is
b. an oligopolist. c. a perfect competitor. d. a monopolistic competitor. If a firm sells its output on a market that is characterized by many sellers and buyers, a differentiated product, and unlimited long-run resource mobility, then the firm is
b. an oligopolist. c. a perfect competitor. d. a monopolistic competitor. If a firm sells its output on a market that is characterized by few sellers and many buyers and limited long-run resource mobility, then the firm is
b. an oligopolist. c. a perfect competitor. d. a monopolistic competitor. If one perfectly competitive firm increases its level of output, market supply
b. will increase and market price will rise. c. and market price will both remain constant. d. will decrease and market price will rise. Which of the following markets comes close to satisfying the assumptions of a perfectly competitive market structure?
b. The market for agricultural commodities such as wheat or corn. c. The market for petroleum and natural gas. d. All of the above come close to satisfying the assumptions of perfect competition. A perfectly competitive firm should reduce output or shut down in the short run if market price is equal to marginal cost and price is
b. less than average total cost. c. greater than average variable cost. d. less than average variable cost. The market demand curve for a perfectly competitive industry is QD = 12 - 2P. The market supply curve is QS = 3 + P. The market will be in equilibrium if
b. P = 5 and Q = 2. c. P = 4 and Q = 4. d. P = 3 and Q = 6. Which of the following is a barrier to entry that typically results in monopoly?
b. Production of the industry's product is subject to economies of scale over a broad range of output. c. Production of the industry's product requires a large initial capital investment. d. The firm holds an exclusive government franchise. In the short run, a monopolist will shut down if it is producing a level of output where marginal revenue is equal to short-run marginal cost and price is
b. less than average total cost. c. greater than average variable cost. d. less than average variable cost. A natural monopolyrefers to a monopoly that is defended from direct competition by
b. a government franchise. c. control over a vital input. d. a patent or copyright. When a perfectly competitive industry is in long-run equilibrium, all firms in the industry
b. produce a level of output where short-run marginal cost is equal to short-run average total cost. c. produce a level of output where long-run marginal cost is equal to long-run average cost. d. All of the above are correct. The short-run supply curve of a perfectly competitive firm
b. is equal to that portion of the short-run marginal cost curve that is above the average total cost curve. c. is equal to that portion of the short-run average total cost curve that is above the average variable cost curve. d. None of the above is correct. The long-run supply curve of a perfectly competitive firm
b. is equal to that portion of the long-run marginal cost curve that is above the relevant short-run average total cost curve. c. is equal to that portion of the long-run average total cost curve that is above the relevant short-run average variable cost curve. d. None of the above is correct. A depreciation of the U.S. dollar relative to foreign currencies will make
b. U.S. exports less expensive in foreign countries. c. the demand for U.S. exports decrease. d. All of the above are correct. The value of the U.S. dollar on the foreign exchange market will tend to
b. decrease if there is an increase in the demand for foreign imports by the United States. c. decrease if monetary authorities intervene on the foreign exchange market by selling U.S. dollars for foreign currencies. d. All of the above are correct. A monopolized market is in long-run equilibrium when
b. production takes place where price is equal to long-run marginal cost and long-run average cost. c. production takes place where long-run marginal cost is equal to marginal revenue and price is not below long-run average cost. d. All of the above are correct. A monopolist produces 14,000 units of output and charges $14 per unit. Its marginal revenue is $8, its marginal cost is $7 and rising, its average total cost is $10, and its average variable cost is $9. The monopolist should
b. increase output, which will reduce the firm's economic losses. c. shut down, which will reduce the firm's economic losses. d. decrease output, which will result in an increase in the firm's positive economic profit. Which of the following types of firms is likely to be a monopolistic competitor?
b. An automobile manufacturer. c. A restaurant. d. All of the above are likely to be monopolistic competitors. Which of the following is a differentiated product?
b. A shirt. c. An automobile. d. All of the above are differentiated products. Which of the following is a characteristic of monopolistic competition?
b. A differentiated product. c. Easy entry into and exit from the industry. d. All of the above are characteristics of monopolistic competition. The demand curve faced by a monopolistically competitive firm is
b. elastic. c. unit elastic. d. inelastic. If an imperfectly competitive firm is producing a level of output where marginal cost is equal to marginal revenue, marginal revenue is below average variable cost, and price is equal to average total cost, then the firm
b. should decrease output, but should not shut down. c. should increase output. d. None of the above is correct. If an imperfectly competitive firm is producing a level of output where marginal cost is equal to marginal revenue, marginal revenue is below average variable cost, and price is equal to average total cost, then the firm is
b. in short-run equilibrium. c. minimizing short-run average total cost. d. breaking even. Product variation refers to
b. a problem with quality control that tends to decrease demand. c. an activity undertaken by a firm to make demand more price inelastic. d. None of the above is correct. Which of the following is a criticism of the theory of monopolistic competition?
b. When product differentiation is slight, each firm's demand curve is nearly horizontal so the perfectly competitive solution provides an adequate approximation to the monopolistically competitive solution. c. When there are strong brand preferences and few producers of many differentiated products, or when there are many producers but only a few compete as rivals for any given consumer, then the oligopoly solution provides an adequate approximation to the monopolistically competitive solution. d. All of the above are correct. Which of the following industries is most likely to be monopolistically competitive?
b. The steel industry c. The car repair industry d. The electrical generating industry Marginal revenue is equal to price for which one of the following types of market structure?
b. Perfect competition c. Monopolistic competition d. Oligopoly Which of the following industry is most likely to be monopolistically competitive?Explanation: Monopolistically competitive firms are most common in industries where differentiation is possible, such as: The restaurant business. Hotels and pubs.
Which of the following is a likely example of monopolistic competition?Monopolistic competition exists between a monopoly and perfect competition, combines elements of each, and includes companies with similar, but not identical, product offerings. Restaurants, hair salons, household items, and clothing are examples of industries with monopolistic competition.
Which of the following is the characteristics of a monopolistically competitive market?Monopolistically competitive markets have the following characteristics: There are many producers and many consumers in the market, and no business has total control over the market price. Consumers perceive that there are non-price differences among the competitors' products.
Which of the statements are true for monopolistic competition market?Monopolistic competition is a competition where there are large number of sellers who sell related products which are no close substitutes of each other. Also there is no barriers of entry. Hence, the statement is true.
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Which of the following is most likely to be observed in a monopolistically competitive market?
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