Question 1

In monopolistic competition

Accepted Answer

A) firms practice product differentiation. 
B) the goods produced by each firm are identical. 
C) firms do not have any control over the price of their products. 
D) there are barriers to entry. 
E) a small number of firms compete. 
A) firms practice product differentiation. 
B) the goods produced by each firm are identical. 
C) firms do not have any control over the price of their products. 
D) there are barriers to entry. 
E) a small number of firms compete.

Question 2

In monopolistic competition,firms can make an economic profit in

Accepted Answer

A) the short run but not in the long run. 
B) the short run and in the long run. 
C) the long run but not in the short run. 
D) neither the short run nor the long run. 
E) always in the short run and sometimes but not frequently in the long run. 
A) the short run but not in the long run. 
B) the short run and in the long run. 
C) the long run but not in the short run. 
D) neither the short run nor the long run. 
E) always in the short run and sometimes but not frequently in the long run.

Question 3

Use the figure below to answer the following questions.
   
Figure 14.2.1
-Refer to Figure 14.2.1.If this firm is in monopolistic competition,then it will charge a price

Accepted Answer

A) of $20 a unit. 
B) of $50 a unit. 
C) of $40 a unit. 
D) of $30 a unit. 
E) that is impossible to determine without information concerning the behaviour of the rival firms. 
A) of $20 a unit. 
B) of $50 a unit. 
C) of $40 a unit. 
D) of $30 a unit. 
E) that is impossible to determine without information concerning the behaviour of the rival firms.

Question 4

Which of the following goods is best described as being sold in a monopolistically competitive market?

Accepted Answer

A) batteries 
B) wheat 
C) fast food 
D) postage stamps 
E) the local newspaper 
A) batteries 
B) wheat 
C) fast food 
D) postage stamps 
E) the local newspaper

Question 5

Which one of the following characteristics is not shared by single-price monopoly and monopolistic competition?

Accepted Answer

A) Firms face a downward-sloping demand curve. 
B) Profit-maximizing quantity occurs where MC = MR. 
C) Price charged is the highest consumers are willing to pay. 
D) Firms make an economic profit in the long run. 
E) The marginal revenue curve lies below the demand curve. 
A) Firms face a downward-sloping demand curve. 
B) Profit-maximizing quantity occurs where MC = MR. 
C) Price charged is the highest consumers are willing to pay. 
D) Firms make an economic profit in the long run. 
E) The marginal revenue curve lies below the demand curve.

Question 6

Which of the following are true? The similarities between perfect competition and monopolistic competition include:
(1) no barriers to entry.
(2) profit-maximizing output occurs where MC = MR.
(3) long-run economic profit equals zero.

Accepted Answer

A) (1)only 
B) (2)only 
C) (1)and (2)only 
D) (2)and (3)only 
E) (1), (2), and (3) 
A) (1)only 
B) (2)only 
C) (1)and (2)only 
D) (2)and (3)only 
E) (1), (2), and (3)

Question 7

If some firms in the industry make an economic profit,then

Accepted Answer

A) the industry cannot be perfectly competitive. 
B) the industry must be monopolistically competitive. 
C) rival firms will enter if there are no barriers to entry. 
D) the firms must practice product differentiation. 
E) the industry must be an oligopoly. 
A) the industry cannot be perfectly competitive. 
B) the industry must be monopolistically competitive. 
C) rival firms will enter if there are no barriers to entry. 
D) the firms must practice product differentiation. 
E) the industry must be an oligopoly.

Question 8

Use the figure below to answer the following questions.
   
Figure 14.2.1
-Refer to Figure 14.2.1.If this firm in monopolistic competition is in short-run equilibrium,then

Accepted Answer

A) rival firms will enter the industry. 
B) all firms will exit the industry. 
C) economic profit of all firms in the industry is zero. 
D) it produces 60 units of output to maximize economic profit. 
E) the firm's profits can be expected to rise over time. 
A) rival firms will enter the industry. 
B) all firms will exit the industry. 
C) economic profit of all firms in the industry is zero. 
D) it produces 60 units of output to maximize economic profit. 
E) the firm's profits can be expected to rise over time.

Question 9

If a firm spends $600 on advertising,its

Accepted Answer

A) ATC and MC curves shift upward. 
B) MC curve shifts upward and its ATC curve does not shift. 
C) ATC curve shifts upward and its MC curve does not shift. 
D) ATC curve shifts upward and its MC curve shifts downward. 
E) AFC and AVC curves shift upward. 
A) ATC and MC curves shift upward. 
B) MC curve shifts upward and its ATC curve does not shift. 
C) ATC curve shifts upward and its MC curve does not shift. 
D) ATC curve shifts upward and its MC curve shifts downward. 
E) AFC and AVC curves shift upward.

Question 10

Use the figure below to answer the following questions.
   
Figure 14.2.5
-Refer to Figure 14.2.5 The figure shows the situation facing Smart Digit,Inc.,a firm in monopolistic competition that produces calculators.What is the firm's economic profit per day?

Accepted Answer

A) zero 
B) between $1 and $700 
C) between $701 and $900 
D) more than $901 
E) less than zero 
A) zero 
B) between $1 and $700 
C) between $701 and $900 
D) more than $901 
E) less than zero

Question 11

Expenditures on advertising

Accepted Answer

A) can lower average total cost if the advertising increases the quantity sold by a large enough amount. 
B) cannot lower average total cost because when a firm advertises it increases its costs. 
C) always lower average total cost because whenever a firm advertises, it increases the quantity sold. 
D) are variable costs so do not affect the average total cost. 
E) lower total cost if the advertising increases the quantity sold by a large enough amount. 
A) can lower average total cost if the advertising increases the quantity sold by a large enough amount. 
B) cannot lower average total cost because when a firm advertises it increases its costs. 
C) always lower average total cost because whenever a firm advertises, it increases the quantity sold. 
D) are variable costs so do not affect the average total cost. 
E) lower total cost if the advertising increases the quantity sold by a large enough amount.

Question 12

The key feature of monopolistic competition that distinguishes it from perfect competition is

Accepted Answer

A) many sellers. 
B) barriers to entry. 
C) perfectly elastic demand. 
D) product differentiation. 
E) none of the above. 
A) many sellers. 
B) barriers to entry. 
C) perfectly elastic demand. 
D) product differentiation. 
E) none of the above.

Question 13

When firms in monopolistic competition incur an economic loss

Accepted Answer

A) firms enter the industry and produce better products. 
B) firms exit the industry, and demand increases for the products of the firms that remain. 
C) firms exit the industry, and demand decreases for the firms that remain in the industry. 
D) firms enter the industry, and demand increases for the firms that were originally in the industry. 
E) the industry will eventually disappear. 
A) firms enter the industry and produce better products. 
B) firms exit the industry, and demand increases for the products of the firms that remain. 
C) firms exit the industry, and demand decreases for the firms that remain in the industry. 
D) firms enter the industry, and demand increases for the firms that were originally in the industry. 
E) the industry will eventually disappear.

Question 14

The decision to undertake product development in monopolistic competition is made by comparing the

Accepted Answer

A) marginal benefit of product development to the marginal cost of product development. 
B) marginal revenue of product development to the average total cost of product development. 
C) total revenue of product development to the total cost of product development. 
D) firm's expenditure on product development to expenditures by competing firms. 
E) none of the above. 
A) marginal benefit of product development to the marginal cost of product development. 
B) marginal revenue of product development to the average total cost of product development. 
C) total revenue of product development to the total cost of product development. 
D) firm's expenditure on product development to expenditures by competing firms. 
E) none of the above.

Question 15

Mrs.Smith's bakery shop is a firm in monopolistic competition.The firm's marginal revenue curve

Accepted Answer

A) is upward sloping. 
B) is downward sloping and above the demand curve. 
C) is a horizontal line. 
D) is the same as the demand curve. 
E) is downward sloping and lies below the demand curve. 
A) is upward sloping. 
B) is downward sloping and above the demand curve. 
C) is a horizontal line. 
D) is the same as the demand curve. 
E) is downward sloping and lies below the demand curve.

Question 16

A firm's markup is

Accepted Answer

A) the firm's total profit. 
B) the firm's total cost. 
C) the amount by which price exceeds marginal cost. 
D) the amount by which price equals marginal cost. 
E) the amount by which price is less than marginal cost. 
A) the firm's total profit. 
B) the firm's total cost. 
C) the amount by which price exceeds marginal cost. 
D) the amount by which price equals marginal cost. 
E) the amount by which price is less than marginal cost.

Question 17

ACME,Inc.operates in a market structure in which there are many other firms that find it easy to enter or exit.ACME is operating in ________ market.

Accepted Answer

A) definitely a perfectly competitive 
B) a perfectly competitive or a monopolistically competitive 
C) definitely a monopolistically competitive 
D) neither a perfectly competitive nor a monopolistically competitive 
E) a monopolistic 
A) definitely a perfectly competitive 
B) a perfectly competitive or a monopolistically competitive 
C) definitely a monopolistically competitive 
D) neither a perfectly competitive nor a monopolistically competitive 
E) a monopolistic

Question 18

Advertising by firms in monopolistic competition

Accepted Answer

A) does not provide consumers with useful information. 
B) increases the marginal cost of production. 
C) is inefficient. 
D) is a waste of valuable resources because firms are forced by the entry of rival firms to be price takers. 
E) generates the perception among consumers that product differentiation exists. 
A) does not provide consumers with useful information. 
B) increases the marginal cost of production. 
C) is inefficient. 
D) is a waste of valuable resources because firms are forced by the entry of rival firms to be price takers. 
E) generates the perception among consumers that product differentiation exists.

Question 19

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 per book is

Accepted Answer

A) $40. 
B) $50. 
C) $60. 
D) $70. 
E) $20. 
A) $40. 
B) $50. 
C) $60. 
D) $70. 
E) $20.

Question 20

Use the figure below to answer the following questions.
   
Figure 14.2.2
-Refer to Figure 14.2.2.This firm

Accepted Answer

A) is incurring an economic loss. 
B) is in long-run equilibrium. 
C) is making an economic profit. 
D) must raise its price to maximize economic profit. 
E) will make more economic profit in the long run. 
A) is incurring an economic loss. 
B) is in long-run equilibrium. 
C) is making an economic profit. 
D) must raise its price to maximize economic profit. 
E) will make more economic profit in the long run.

Exam 14: Monopolistic Competition

In monopolistic competition

In monopolistic competition,firms can make an economic profit in

Use the figure below to answer the following questions. Figure 14.2.1 -Refer to Figure 14.2.1.If this firm is in monopolistic competition,then it will charge a price

Which of the following goods is best described as being sold in a monopolistically competitive market?

Which one of the following characteristics is not shared by single-price monopoly and monopolistic competition?

Which of the following are true? The similarities between perfect competition and monopolistic competition include: (1) no barriers to entry. (2) profit-maximizing output occurs where MC = MR. (3) long-run economic profit equals zero.

If some firms in the industry make an economic profit,then

Use the figure below to answer the following questions. Figure 14.2.1 -Refer to Figure 14.2.1.If this firm in monopolistic competition is in short-run equilibrium,then

If a firm spends $600 on advertising,its

Use the figure below to answer the following questions. Figure 14.2.5 -Refer to Figure 14.2.5 The figure shows the situation facing Smart Digit,Inc.,a firm in monopolistic competition that produces calculators.What is the firm's economic profit per day?

Expenditures on advertising

The key feature of monopolistic competition that distinguishes it from perfect competition is

When firms in monopolistic competition incur an economic loss

The decision to undertake product development in monopolistic competition is made by comparing the

Mrs.Smith's bakery shop is a firm in monopolistic competition.The firm's marginal revenue curve

A firm's markup is

ACME,Inc.operates in a market structure in which there are many other firms that find it easy to enter or exit.ACME is operating in ________ market.

Advertising by firms in monopolistic competition

Use the figure below to answer the following questions. Figure 14.2.2 -Refer to Figure 14.2.2.This firm

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