Question 1

Markup

Accepted Answer

A) does not exist in monopoly. 
B) does not exist in monopolistic competition. 
C) exists in perfect competition. 
D) is the difference between price and average total cost. 
E) exists in both monopoly and monopolistic competition. 
A) does not exist in monopoly. 
B) does not exist in monopolistic competition. 
C) exists in perfect competition. 
D) is the difference between price and average total cost. 
E) exists in both monopoly and monopolistic competition.

Question 2

Product innovation and development is efficient if the marginal social cost of a new and improved product ________ its marginal social benefit.
In monopolistic competition marginal revenue is less than price,so product innovation is probably ________ to its efficient level.

Accepted Answer

A) is greater than;not pushed 
B) equals;pushed 
C) is greater than;pushed 
D) equals;not pushed 
E) is less than;not pushed 
A) is greater than;not pushed 
B) equals;pushed 
C) is greater than;pushed 
D) equals;not pushed 
E) is less than;not pushed

Question 3

The existence of a large number of firms in monopolistic competition

Accepted Answer

A) means that each firm has a small market share. 
B) makes it possible for each firm's price to deviate by a large amount from the average price of the other firms. 
C) means that a firm must pay attention to the behaviour of all of its competitors. 
D) All of the above answers are correct. 
E) None of the above answers are correct. 
A) means that each firm has a small market share. 
B) makes it possible for each firm's price to deviate by a large amount from the average price of the other firms. 
C) means that a firm must pay attention to the behaviour of all of its competitors. 
D) All of the above answers are correct. 
E) None of the above answers are correct.

Question 4

Use the figure below to answer the following questions.
   
Figure 14.2.4
-Refer to Figure 14.2.4.The figure represents a monopolistically competitive firm in short-run equilibrium.In the long run,

Accepted Answer

A) new firms enter, and each existing firm's demand curve shifts leftward. 
B) new firms enter, and each existing firm's demand curve shifts rightward. 
C) existing firms exit, and each remaining firm's demand curve shifts leftward. 
D) existing firms exit, and each remaining firm's demand curve shifts rightward. 
E) the equilibrium is the same as in the short run. 
A) new firms enter, and each existing firm's demand curve shifts leftward. 
B) new firms enter, and each existing firm's demand curve shifts rightward. 
C) existing firms exit, and each remaining firm's demand curve shifts leftward. 
D) existing firms exit, and each remaining firm's demand curve shifts rightward. 
E) the equilibrium is the same as in the short run.

Question 5

In the long run,the firm in monopolistic competition

Accepted Answer

A) faces a perfectly elastic demand. 
B) produces more than the quantity at minimum ATC. 
C) produces less than the quantity at minimum ATC. 
D) produces the quantity at minimum ATC. 
E) makes an economic profit. 
A) faces a perfectly elastic demand. 
B) produces more than the quantity at minimum ATC. 
C) produces less than the quantity at minimum ATC. 
D) produces the quantity at minimum ATC. 
E) makes an economic profit.

Question 6

What will happen in the long run if firms in monopolistic competition incur economic loss?

Accepted Answer

A) Firms will continue producing and endure the losses. 
B) Firms will leave the industry until the remaining firms make positive economic profit. 
C) Firms will ask the government for financial aid. 
D) Firms will leave the industry until the remaining firms make zero economic profit. 
E) The level of investment in this industry will increase to boost the economy. 
A) Firms will continue producing and endure the losses. 
B) Firms will leave the industry until the remaining firms make positive economic profit. 
C) Firms will ask the government for financial aid. 
D) Firms will leave the industry until the remaining firms make zero economic profit. 
E) The level of investment in this industry will increase to boost the economy.

Question 7

Use the figure below to answer the following questions.
   
Figure 14.2.6
-Consider a monopolistically competitive industry which is in long-run equilibrium.Which of the following is true?

Accepted Answer

A) All firms charge a price equal to average total cost. 
B) All firms charge a price equal to marginal cost. 
C) All firms make an economic profit. 
D) The demand, average total cost, and marginal cost curves all intersect at the same point. 
E) Firms have an incentive to enter the industry. 
A) All firms charge a price equal to average total cost. 
B) All firms charge a price equal to marginal cost. 
C) All firms make an economic profit. 
D) The demand, average total cost, and marginal cost curves all intersect at the same point. 
E) Firms have an incentive to enter the industry.

Question 8

For a firm in monopolistic competition,the marginal cost curve intersects the average total cost curve

Accepted Answer

A) at the minimum average total cost. 
B) to the left of the minimum average total cost. 
C) to the right of the minimum average total cost. 
D) at no point. 
E) at the same quantity at which the marginal cost curve intersects the marginal revenue curve. 
A) at the minimum average total cost. 
B) to the left of the minimum average total cost. 
C) to the right of the minimum average total cost. 
D) at no point. 
E) at the same quantity at which the marginal cost curve intersects the marginal revenue curve.

Question 9

Use the figure below to answer the following questions.
   
Figure 14.2.6
-Refer to Figure 14.2.6,which shows the demand curve,marginal revenue curve and cost curves faced by Gap.Gap maximizes its profit if it charges ________ per jacket.

Accepted Answer

A) $100 
B) $95 
C) $75 
D) $120 
E) $90 
A) $100 
B) $95 
C) $75 
D) $120 
E) $90

Question 10

Advertising and brand names

Accepted Answer

A) are never efficient. 
B) can be efficient but are not always efficient. 
C) are equally efficient in monopolistically competitive markets and perfectly competitive markets. 
D) are always efficient. 
E) are more efficient in perfectly competitive markets than in monopolistically competitive markets. 
A) are never efficient. 
B) can be efficient but are not always efficient. 
C) are equally efficient in monopolistically competitive markets and perfectly competitive markets. 
D) are always efficient. 
E) are more efficient in perfectly competitive markets than in monopolistically competitive markets.

Question 11

Use the information below to answer the following questions.
Fact 14.3.2
Suppose that Tommy Hilfiger's marginal cost of a jacket is $100 (a constant marginal cost)and at one of the firm's shops, total fixed cost is $2,000 a day.
The profit-maximizing number of jackets sold in this shop is 20 a day.
Then the shops nearby start to advertise their jackets.The Tommy Hilfiger shop now spends $2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 50 a day.
-Refer to Fact 14.3.2.Having a brand name helps Tommy Hilfiger increase its economic profit because

Accepted Answer

A) the goal of a brand name is to encourage people to buy just one good.After the initial purchases, Tommy Hilfiger can decrease quality and produce goods at a lower average total cost, which increases economic profit. 
B) in every type of market, consumers are most comfortable when buying from a firm with a well-known brand name.And the greater the number of consumers, the greater is the economic profit. 
C) a brand name provides an incentive to achieve high and consistent quality, and consumers will purchase goods from Tommy Hilfiger rather than from an unknown producer because they know what to expect from Tommy Hilfiger. 
D) having a brand name usually leads to a monopoly. 
E) none of the above. 
A) the goal of a brand name is to encourage people to buy just one good.After the initial purchases, Tommy Hilfiger can decrease quality and produce goods at a lower average total cost, which increases economic profit. 
B) in every type of market, consumers are most comfortable when buying from a firm with a well-known brand name.And the greater the number of consumers, the greater is the economic profit. 
C) a brand name provides an incentive to achieve high and consistent quality, and consumers will purchase goods from Tommy Hilfiger rather than from an unknown producer because they know what to expect from Tommy Hilfiger. 
D) having a brand name usually leads to a monopoly. 
E) none of the above.

Question 12

Use the figure below to answer the following questions.
   
Figure 14.2.3
-Refer to Figure 14.2.3.Assume this firm faces demand curve D?.If this firm in monopolistic competition is maximizing economic profit,

Accepted Answer

A) there will be entry of rival firms into the industry. 
B) rival firms will exit the industry. 
C) it is producing the efficient quantity. 
D) the number of firms in the industry will remain constant. 
E) economic profit will fall over time. 
A) there will be entry of rival firms into the industry. 
B) rival firms will exit the industry. 
C) it is producing the efficient quantity. 
D) the number of firms in the industry will remain constant. 
E) economic profit will fall over time.

Question 13

Use the figure below to answer the following questions.
   
Figure 14.2.3
-Refer to Figure 14.2.3.Assume this firm faces demand curve D?.At the profit-maximizing output level,the firm

Accepted Answer

A) incurs an economic loss. 
B) makes zero economic profit. 
C) makes an economic profit. 
D) makes less economic profit than that earned by firms in perfect competition. 
E) makes an unknown economic profit that is impossible to determine without information concerning the price charged by the rival firms. 
A) incurs an economic loss. 
B) makes zero economic profit. 
C) makes an economic profit. 
D) makes less economic profit than that earned by firms in perfect competition. 
E) makes an unknown economic profit that is impossible to determine without information concerning the price charged by the rival firms.

Question 14

In monopolistically competitive industries,

Accepted Answer

A) firms compete on quality, price and marketing. 
B) the range of choice of products is the same as in perfectly competitive industries. 
C) firms are insensitive to changes in consumer demand. 
D) all firms produce a quantity at which marginal cost is greater than marginal benefit. 
E) all firms make an economic profit. 
A) firms compete on quality, price and marketing. 
B) the range of choice of products is the same as in perfectly competitive industries. 
C) firms are insensitive to changes in consumer demand. 
D) all firms produce a quantity at which marginal cost is greater than marginal benefit. 
E) all firms make an economic profit.

Question 15

The profit-maximizing condition for a firm in monopolistic competition is to produce the quantity at which

Accepted Answer

A) marginal cost equals price. 
B) price equals marginal revenue. 
C) average total cost equals price. 
D) marginal cost equals marginal revenue. 
E) average variable cost equals price. 
A) marginal cost equals price. 
B) price equals marginal revenue. 
C) average total cost equals price. 
D) marginal cost equals marginal revenue. 
E) average variable cost equals price.

Question 16

Within a monopolistically competitive industry,

Accepted Answer

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

Question 17

Advertising costs of a monopolistically competitive firm are

Accepted Answer

A) greater than a monopoly and the same as a perfectly competitive firm. 
B) greater than a perfectly competitive firm. 
C) less than a perfectly competitive firm. 
D) the same as a monopoly. 
E) less than a monopoly. 
A) greater than a monopoly and the same as a perfectly competitive firm. 
B) greater than a perfectly competitive firm. 
C) less than a perfectly competitive firm. 
D) the same as a monopoly. 
E) less than a monopoly.

Question 18

Use the information below to answer the following question.
Fact 14.3.1
Suppose that at one of the Talbot's shops, marginal cost of a coat is constant at $150, and total fixed cost is $3,000 a day.The shop maximizes its profit by selling 15 coats a day at $500 per coat.Then the shops nearby increase their advertising.The Talbot shop responds by spending $1,500 a day more on advertising its coats.As a result, its profit-maximizing number of coats sold increases to 25 a day at $400 per coat.
-Refer to Fact 14.3.1.As a result of increased advertising,Talbot's markup

Accepted Answer

A) decreases by $100. 
B) increases by $50. 
C) increases by $75. 
D) decreases by $60. 
E) decreases by an unknown amount. 
A) decreases by $100. 
B) increases by $50. 
C) increases by $75. 
D) decreases by $60. 
E) decreases by an unknown amount.

Question 19

Dole Co.operates in a monopolistically competitive market.Which of the following characterizes Dole Co.'s market?

Accepted Answer

A) Dole Co.supplies a small portion of the market's output. 
B) Dole Co.'s product is slightly different from its competitors. 
C) Dole Co.faced no barrier to entry when it decided to enter its market. 
D) Dole Co.is unable to collude with other firms in the market. 
E) All of the above describe Dole Co.'s market. 
A) Dole Co.supplies a small portion of the market's output. 
B) Dole Co.'s product is slightly different from its competitors. 
C) Dole Co.faced no barrier to entry when it decided to enter its market. 
D) Dole Co.is unable to collude with other firms in the market. 
E) All of the above describe Dole Co.'s market.

Question 20

Use the figure below to answer the following questions.
   
Figure 14.2.2
-Refer to Figure 14.2.2.If this firm in monopolistic competition is maximizing economic profit,

Accepted Answer

A) there will be entry of rival firms into the industry. 
B) rival firms will exit the industry. 
C) its profit will rise over time. 
D) this firm will exit the industry in the long run. 
E) none of the above. 
A) there will be entry of rival firms into the industry. 
B) rival firms will exit the industry. 
C) its profit will rise over time. 
D) this firm will exit the industry in the long run. 
E) none of the above.

Exam 14: Monopolistic Competition

Markup

Product innovation and development is efficient if the marginal social cost of a new and improved product ________ its marginal social benefit. In monopolistic competition marginal revenue is less than price,so product innovation is probably ________ to its efficient level.

The existence of a large number of firms in monopolistic competition

Use the figure below to answer the following questions. Figure 14.2.4 -Refer to Figure 14.2.4.The figure represents a monopolistically competitive firm in short-run equilibrium.In the long run,

In the long run,the firm in monopolistic competition

What will happen in the long run if firms in monopolistic competition incur economic loss?

Use the figure below to answer the following questions. Figure 14.2.6 -Consider a monopolistically competitive industry which is in long-run equilibrium.Which of the following is true?

For a firm in monopolistic competition,the marginal cost curve intersects the average total cost curve

Use the figure below to answer the following questions. Figure 14.2.6 -Refer to Figure 14.2.6,which shows the demand curve,marginal revenue curve and cost curves faced by Gap.Gap maximizes its profit if it charges ________ per jacket.

Advertising and brand names

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D?.If this firm in monopolistic competition is maximizing economic profit,

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D?.At the profit-maximizing output level,the firm

In monopolistically competitive industries,

The profit-maximizing condition for a firm in monopolistic competition is to produce the quantity at which

Within a monopolistically competitive industry,

Advertising costs of a monopolistically competitive firm are

Dole Co.operates in a monopolistically competitive market.Which of the following characterizes Dole Co.'s market?

Use the figure below to answer the following questions. Figure 14.2.2 -Refer to Figure 14.2.2.If this firm in monopolistic competition is maximizing economic profit,

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

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: The Keynesian Model

Canadian Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Product innovation and development is efficient if the marginal social cost of a new and improved product its marginal social benefit. In monopolistic competition marginal revenue is less than price,so product innovation is probably to its efficient level.