Question 1

Which of the following statements is not true for a monopolistically competitive industry?

Accepted Answer

A) Firms tend to operate with excess capacity. 
B) Each firm faces a downward-sloping demand curve. 
C) These firms earn zero economic profits in the long run. 
D) Firms operate at the lowest point of their ATC curves in the long run. 
A) Firms tend to operate with excess capacity. 
B) Each firm faces a downward-sloping demand curve. 
C) These firms earn zero economic profits in the long run. 
D) Firms operate at the lowest point of their ATC curves in the long run.

Question 2

Monopolistic competition entails a deadweight loss to society, even if the firms earn zero economic profits.

Accepted Answer

A) True 
 B)False

Question 3

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes,

Accepted Answer

A) the likelihood of realizing economic profits in the long run would be enhanced. 
B) individual firms would now be operating at outputs where their average total costs would be higher. 
C) the industry would more closely approximate pure competition. 
D) the likelihood of collusive pricing would increase. 
A) the likelihood of realizing economic profits in the long run would be enhanced. 
B) individual firms would now be operating at outputs where their average total costs would be higher. 
C) the industry would more closely approximate pure competition. 
D) the likelihood of collusive pricing would increase.

Question 4

If the representative firm in a monopolistically competitive industry has an optimal output where P < ATC, the industry will expand in the long run.

Accepted Answer

A) True 
 B)False

Question 5

In the short run, a profit-maximizing monopolistically competitive firm sets it price

Accepted Answer

A) equal to marginal revenue. 
B) equal to marginal cost. 
C) above marginal cost. 
D) below marginal cost. 
A) equal to marginal revenue. 
B) equal to marginal cost. 
C) above marginal cost. 
D) below marginal cost.

Question 6

(Consider This) In Wendyâ€™s 1987 commercial depicting a Soviet fashion show, one objective was to portray McDonaldâ€™s and Burger King products as

Accepted Answer

A) all the same and not very appealing. 
B) produced inefficiently. 
C) unpredictable in terms of features and quality. 
D) only appealing to old women. 
A) all the same and not very appealing. 
B) produced inefficiently. 
C) unpredictable in terms of features and quality. 
D) only appealing to old women.

Question 7

Monopolistically competitive firms exist due to high barriers to entry.

Accepted Answer

A) True 
 B)False

Question 8

If an industry evolves from oligopoly to monopolistic competition, we would expect

Accepted Answer

A) the four-firm concentration ratio to increase. 
B) the four-firm concentration ratio to decrease. 
C) the four-firm concentration ratio to remain the same. 
D) barriers to entry to strengthen. 
A) the four-firm concentration ratio to increase. 
B) the four-firm concentration ratio to decrease. 
C) the four-firm concentration ratio to remain the same. 
D) barriers to entry to strengthen.

Question 9

Under monopolistic competition, entry to the industry is

Accepted Answer

A) completely free of barriers. 
B) more difficult than under pure competition but not nearly as difficult as under pure monopoly. 
C) more difficult than under pure monopoly. 
D) blocked. 
A) completely free of barriers. 
B) more difficult than under pure competition but not nearly as difficult as under pure monopoly. 
C) more difficult than under pure monopoly. 
D) blocked.

Question 10

We would expect the four-firm concentration ratio of the restaurant industry in a large metropolitan area to be about 0.80, or 80 percent, and higher.

Accepted Answer

A) True 
 B)False

Question 11

In monopolistic competition, easy industry entry and exit drives long-run profits of firms to zero.

Accepted Answer

A) True 
 B)False

Question 12

Monopolistically competitive firms have some control over the price of their products.

Accepted Answer

A) True 
 B)False

Question 13

Which statement concerning monopolistic competition is false?

Accepted Answer

A) Long-run equilibrium under monopolistic competition and pure competition both entail zero economic profits for firms. 
B) Monopolistic competition is likely to result in a greater variety of product brands than pure competition. 
C) The monopolistically competitive demand curve is more elastic than the demand curve facing a monopoly. 
D) Long-run equilibrium in monopolistic competition does not entail any economic inefficiency because of easy entry and exit.Topic: Product Variety 
A) Long-run equilibrium under monopolistic competition and pure competition both entail zero economic profits for firms. 
B) Monopolistic competition is likely to result in a greater variety of product brands than pure competition. 
C) The monopolistically competitive demand curve is more elastic than the demand curve facing a monopoly. 
D) Long-run equilibrium in monopolistic competition does not entail any economic inefficiency because of easy entry and exit.Topic: Product Variety

Question 14

In monopolistic competition, short-run positive economic profits of firms in the market will cause the market demand to expand.

Accepted Answer

A) True 
 B)False

Question 15

Suppose some firms exit an industry characterized by monopolistic competition.We would expect the demand curve of a firm already in the industry to

Accepted Answer

A) shift to the left. 
B) shift to the right. 
C) become less elastic. 
D) remain the same since entering firms serve other customers in the market. 
A) shift to the left. 
B) shift to the right. 
C) become less elastic. 
D) remain the same since entering firms serve other customers in the market.

Question 16

The entry of more firms into a monopolistically competitive market tends to increase the excess capacity of firms in the industry in the long run.

Accepted Answer

A) True 
 B)False

Exam 13: Monopolistic Competition

Which of the following statements is not true for a monopolistically competitive industry?

Monopolistic competition entails a deadweight loss to society, even if the firms earn zero economic profits.

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes,

If the representative firm in a monopolistically competitive industry has an optimal output where P < ATC, the industry will expand in the long run.

In the short run, a profit-maximizing monopolistically competitive firm sets it price

(Consider This) In Wendyâ€™s 1987 commercial depicting a Soviet fashion show, one objective was to portray McDonaldâ€™s and Burger King products as

Monopolistically competitive firms exist due to high barriers to entry.

If an industry evolves from oligopoly to monopolistic competition, we would expect

Under monopolistic competition, entry to the industry is

We would expect the four-firm concentration ratio of the restaurant industry in a large metropolitan area to be about 0.80, or 80 percent, and higher.

In monopolistic competition, easy industry entry and exit drives long-run profits of firms to zero.

Monopolistically competitive firms have some control over the price of their products.

Which statement concerning monopolistic competition is false?

In monopolistic competition, short-run positive economic profits of firms in the market will cause the market demand to expand.

Suppose some firms exit an industry characterized by monopolistic competition.We would expect the demand curve of a firm already in the industry to

The entry of more firms into a monopolistically competitive market tends to increase the excess capacity of firms in the industry in the long run.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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