Question 1

Freedom of entry and exit in monopolistic competition

Accepted Answer

A)  means that firms' price and average total cost of producing are always equal. 
B)  never allows firms to earn economic profits. 
C)  leads to falling prices when new firms enter the market. 
D)  forces firms to abandon product differentiation but only in the long run. 
A)  means that firms' price and average total cost of producing are always equal. 
B)  never allows firms to earn economic profits. 
C)  leads to falling prices when new firms enter the market. 
D)  forces firms to abandon product differentiation but only in the long run.

Question 2

Monopolistically competitive firms constantly develop new products in an effort to

Accepted Answer

A)  make the demand for their product more elastic. 
B)  increase the demand for their product. 
C)  increase the marginal cost of their product. 
D)  None of the above are correct. 
A)  make the demand for their product more elastic. 
B)  increase the demand for their product. 
C)  increase the marginal cost of their product. 
D)  None of the above are correct.

Question 3

-In a monopolistically competitive industry, the firms are currently making an economic profit. When this market moves to its long-run equilibrium, the firms' demand curves will have ________ and their economic profit will have ________.

Accepted Answer

A)  shifted leftward; decreased to zero 
B)  shifted leftward; decreased but remain greater than zero 
C)  shifted rightward; decreased to zero 
D)  remained the same; decreased to zero 
A)  shifted leftward; decreased to zero 
B)  shifted leftward; decreased but remain greater than zero 
C)  shifted rightward; decreased to zero 
D)  remained the same; decreased to zero

Question 4

Which of the following is always true regarding a profit maximizing monopolistically competitive firm in short-run equilibrium?

Accepted Answer

A)  P = ATC. 
B)  P = MR. 
C)  MR = MC. 
D)  MC = ATC. 
A)  P = ATC. 
B)  P = MR. 
C)  MR = MC. 
D)  MC = ATC.

Question 5

If in monopolistic competition in the short run, firms make ________ profits, then in the long run, new firms will enter the market. The ________ each individual firm's product will ________. In the new long-run equilibrium firms will make ________ profit.

Accepted Answer

A)  economic; demand for; decrease; zero economic 
B)  normal; demand for; increase; zero economic 
C)  economic; supply of; decrease; an economic 
D)  economic; supply of; increase; zero economic 
A)  economic; demand for; decrease; zero economic 
B)  normal; demand for; increase; zero economic 
C)  economic; supply of; decrease; an economic 
D)  economic; supply of; increase; zero economic

Question 6

In the long run, firms in monopolistic competition have excess capacity.

Accepted Answer

A) True 
 B)False

Question 7

A textbook publisher is in monopolistic competition. If the firm spends nothing on advertising, it can sell no books at $100 a book, but for each $10 cut in price, the quantity of books it can sell increases by 20 books a day. The firm's total fixed cost is $2,400 a day. Its average variable cost and marginal cost is a constant $20 per book. If the firm spends $1,200 a day on advertising, it can increase the quantity of books sold at each price by 50 percent. If the publisher advertises, its profit maximizing price is

Accepted Answer

A)  $40. 
B)  $50. 
C)  $60. 
D)  $70. 
A)  $40. 
B)  $50. 
C)  $60. 
D)  $70.

Question 8

In long-run equilibrium, a firm in monopolistic competition makes

Accepted Answer

A)  an economic profit but the economic profit is less than it would be if the firm was a monopoly. 
B)  an economic profit that is higher than what it would be if the firm was a monopoly. 
C)  zero economic profit. 
D)  an economic profit that is the same amount as it would be if the firm was a monopoly. 
A)  an economic profit but the economic profit is less than it would be if the firm was a monopoly. 
B)  an economic profit that is higher than what it would be if the firm was a monopoly. 
C)  zero economic profit. 
D)  an economic profit that is the same amount as it would be if the firm was a monopoly.

Question 9

What is a firm's markup? What does it show?

Accepted Answer

A firm's markup is the amount

Question 10

-The above figure shows a firm in monopolistic competition. At the profit maximizing level of output, excess capacity for the firm is equal to

Accepted Answer

A)  0 units per day. 
B)  4 units per day. 
C)  8 units per day. 
D)  16 units per day. 
A)  0 units per day. 
B)  4 units per day. 
C)  8 units per day. 
D)  16 units per day.

Question 11

The figure shows the demand curve for Gap jackets (D), and Gap's marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC).
-In the figure above, what is Gap's markup?

Accepted Answer

A)  $50 
B)  $15 
C)  $35 
D)  zero 
A)  $50 
B)  $15 
C)  $35 
D)  zero

Question 12

In a monopolistically competitive market there are

Accepted Answer

A)  many firms. 
B)  one firm. 
C)  a very small number of firms. 
D)  two firms. 
A)  many firms. 
B)  one firm. 
C)  a very small number of firms. 
D)  two firms.

Question 13

Define the efficient scale of production. For the situation of a firm in monopolistic competition, discuss its excess capacity.

Accepted Answer

The efficient scale is the quantity prod

Question 14

When firms in monopolistic competition incur an economic loss, some firms will

Accepted Answer

A)  enter the industry and produce more products. 
B)  exit the industry, and demand will increase for the firms that remain. 
C)  exit the industry, and demand will decrease for the firms that remain. 
D)  enter the industry, and demand will become more elastic for the original firms. 
A)  enter the industry and produce more products. 
B)  exit the industry, and demand will increase for the firms that remain. 
C)  exit the industry, and demand will decrease for the firms that remain. 
D)  enter the industry, and demand will become more elastic for the original firms.

Question 15

In monopolistic competition, each firm's marginal revenue curve has a ________ and its demand curve has a ________.

Accepted Answer

A)  slope equal to zero; slope equal to zero 
B)  slope equal to zero; negative slope 
C)  negative slope; a slope equal to zero 
D)  negative slope; negative slope 
A)  slope equal to zero; slope equal to zero 
B)  slope equal to zero; negative slope 
C)  negative slope; a slope equal to zero 
D)  negative slope; negative slope

Question 16

Within a monopolistically competitive industry,

Accepted Answer

A)  firms can freely enter and exit and economic profits are zero in the long run. 
B)  firms can freely enter and exit and economic profits are greater than zero in the long run. 
C)  there are some barriers to entry and exit and economic profits are zero in the long run. 
D)  there are some barriers to entry and exit and economic profits are greater than zero in the long run. 
A)  firms can freely enter and exit and economic profits are zero in the long run. 
B)  firms can freely enter and exit and economic profits are greater than zero in the long run. 
C)  there are some barriers to entry and exit and economic profits are zero in the long run. 
D)  there are some barriers to entry and exit and economic profits are greater than zero in the long run.

Question 17

A textbook publisher is in monopolistic competition. The firm can sell no books at $100 a book, but for each $10 cut in price, the quantity of books it can sell increases by 20 books a day. The firm's average variable cost and marginal cost is a constant $20 per book. What is the publisher's profit-maximizing level of output?

Accepted Answer

A)  60 books per day 
B)  80 books per day 
C)  100 books per day 
D)  120 books per day 
A)  60 books per day 
B)  80 books per day 
C)  100 books per day 
D)  120 books per day

Question 18

In monopolistic competition, firms compete on product quality, price and marketing.

Accepted Answer

A) True 
 B)False

Question 19

Advertising costs affect a firm in a monopolistic competition by increasing the firm's

Accepted Answer

A)  total fixed cost. 
B)  marginal cost. 
C)  total variable cost. 
D)  average variable cost. 
A)  total fixed cost. 
B)  marginal cost. 
C)  total variable cost. 
D)  average variable cost.

Question 20

In the long run, firms in monopolistic competition become price takers.

Accepted Answer

A) True 
 B)False

Exam 14: Monopolistic Competition

Freedom of entry and exit in monopolistic competition

Monopolistically competitive firms constantly develop new products in an effort to

-In a monopolistically competitive industry, the firms are currently making an economic profit. When this market moves to its long-run equilibrium, the firms' demand curves will have ________ and their economic profit will have ________.

Which of the following is always true regarding a profit maximizing monopolistically competitive firm in short-run equilibrium?

If in monopolistic competition in the short run, firms make ________ profits, then in the long run, new firms will enter the market. The ________ each individual firm's product will ________. In the new long-run equilibrium firms will make ________ profit.

In the long run, firms in monopolistic competition have excess capacity.

In long-run equilibrium, a firm in monopolistic competition makes

What is a firm's markup? What does it show?

-The above figure shows a firm in monopolistic competition. At the profit maximizing level of output, excess capacity for the firm is equal to

The figure shows the demand curve for Gap jackets (D), and Gap's marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). -In the figure above, what is Gap's markup?

In a monopolistically competitive market there are

Define the efficient scale of production. For the situation of a firm in monopolistic competition, discuss its excess capacity.

When firms in monopolistic competition incur an economic loss, some firms will

In monopolistic competition, each firm's marginal revenue curve has a ________ and its demand curve has a ________.

Within a monopolistically competitive industry,

In monopolistic competition, firms compete on product quality, price and marketing.

Advertising costs affect a firm in a monopolistic competition by increasing the firm's

In the long run, firms in monopolistic competition become price takers.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Oligopoly

Public Choices and Public Goods

Externalities and the Environment

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

Filters

-In a monopolistically competitive industry, the firms are currently making an economic profit. When this market moves to its long-run equilibrium, the firms' demand curves will have and their economic profit will have .

If in monopolistic competition in the short run, firms make profits, then in the long run, new firms will enter the market. The each individual firm's product will . In the new long-run equilibrium firms will make profit.

In monopolistic competition, each firm's marginal revenue curve has a and its demand curve has a .