Question 1

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 earn positive economic profit. 
D)  Demand, average total cost, and marginal cost all intersect. 
A)  All firms charge a price equal to average total cost. 
B)  All firms charge a price equal to marginal cost. 
C)  All firms earn positive economic profit. 
D)  Demand, average total cost, and marginal cost all intersect.

Question 2

In the long run, a firm in monopolistic competition produces where the slope of the average total cost curve is

Accepted Answer

A)  negative. 
B)  zero. 
C)  positive. 
D)  equal to the marginal cost. 
A)  negative. 
B)  zero. 
C)  positive. 
D)  equal to the marginal cost.

Question 3

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. 
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.

Question 4

-The above figure shows the demand and cost curves for a firm in monopolistic competition. The firm earns total revenue of

Accepted Answer

A)  $120. 
B)  $40. 
C)  $160. 
D)  $0. 
A)  $120. 
B)  $40. 
C)  $160. 
D)  $0.

Question 5

A characteristic of monopolistic competition is

Accepted Answer

A)  product differentiation. 
B)  a high capital-output ratio. 
C)  a low ratio of fixed costs to variable costs. 
D)  the absence of advertising. 
A)  product differentiation. 
B)  a high capital-output ratio. 
C)  a low ratio of fixed costs to variable costs. 
D)  the absence of advertising.

Question 6

In monopolistically competitive industries

Accepted Answer

A)  non-price competition through product differentiation is actively pursued by firms. 
B)  product variety is the same as in perfectly competitive industries. 
C)  firms do not respond to changes in consumer demand. 
D)  firms' economic profits are protected by barriers to entry. 
A)  non-price competition through product differentiation is actively pursued by firms. 
B)  product variety is the same as in perfectly competitive industries. 
C)  firms do not respond to changes in consumer demand. 
D)  firms' economic profits are protected by barriers to entry.

Question 7

Shower Power, Inc., a firm in monopolistic competition, produces shower radios. The company's economists know that it can sell no radios at $80, and for each $10 cut in price, the quantity of radios it can sell increases by 50 a day. This relationship continues to hold until the price falls to $20. The firm's total fixed cost is $3,000 a day. Its marginal cost is constant at $20 per radio. Shower Power's managers are considering some quality improvements in their shower radios, which would raise the firm's total fixed cost by $200 per day and double its marginal cost. Shower Power's economists report that if the firm undertakes these quality improvements, from the demand relationship given above Shower Power will be able to increase the quantity of radios sold by 20 percent at each price.
a) Draw the new demand curve faced by the firm and its new marginal revenue curve. Draw Shower Power's new marginal cost and new average total cost curves.
b) With no quality improvements, what quantity of radios maximizes Shower Power's profit? What is the profit-maximizing price? What is the firm's economic profit?
c) If Shower Power undertakes the quality improvements, what quantity of radios should it sell to maximize its profit? What is the profit-maximizing price? What is its economic profit?
d) Should Shower Power implement the quality improvements? Why or why not?

Accepted Answer

@#IMG-DLM& a) The figure above shows Shower Power'

Question 8

In the short run, a firm in a monopolistic competition will produce the amount of output where its

Accepted Answer

A)  marginal revenue equals marginal cost and will set its price according to the demand for that amount of output. 
B)  marginal revenue equals marginal cost and takes the market price as given. 
C)  average revenue equals average cost and will set its price according to the demand for that amount of output. 
D)  average revenue equals its average cost and takes the market price as given. 
A)  marginal revenue equals marginal cost and will set its price according to the demand for that amount of output. 
B)  marginal revenue equals marginal cost and takes the market price as given. 
C)  average revenue equals average cost and will set its price according to the demand for that amount of output. 
D)  average revenue equals its average cost and takes the market price as given.

Question 9

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)  make their competitor's demand curve more inelastic. 
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)  make their competitor's demand curve more inelastic.

Question 10

The loss of efficiency that occurs in monopolistic competition has to be weighed against the gain of

Accepted Answer

A)  higher wages for employees. 
B)  an increase in employment. 
C)  greater product variety. 
D)  reduced environmental damage. 
A)  higher wages for employees. 
B)  an increase in employment. 
C)  greater product variety. 
D)  reduced environmental damage.

Question 11

The figure shows the demand curve for Nike shoes (D), and Nike's marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC).
-In the figure above, Nike maximizes its profit if it charges ________ per pair of shoes.

Accepted Answer

A)  $75 
B)  $60 
C)  $72 
D)  $42 
A)  $75 
B)  $60 
C)  $72 
D)  $42

Question 12

Monopolistic competition differs from monopoly because in monopolistic competition

Accepted Answer

A)  there are many firms. 
B)  there are no close substitutes for each firm's product. 
C)  the firms compete only on price. 
D)  None of the above are differences between monopoly and monopolistically competitive firms. 
A)  there are many firms. 
B)  there are no close substitutes for each firm's product. 
C)  the firms compete only on price. 
D)  None of the above are differences between monopoly and monopolistically competitive firms.

Question 13

-In the above figure of a monopolistically competitive firm, the marginal cost of the last unit produced is equal to ________ and is ________ marginal revenue.

Accepted Answer

A)  P2; greater than 
B)  P3; greater than 
C)  P1; greater than 
D)  P1; equal to 
A)  P2; greater than 
B)  P3; greater than 
C)  P1; greater than 
D)  P1; equal to

Question 14

In monopolistic competition, each firm's marginal revenue curve lies ________ its demand curve because of ________.

Accepted Answer

A)  below; barriers to entry 
B)  below; product differentiation 
C)  above; barriers to entry 
D)  above; product differentiation 
A)  below; barriers to entry 
B)  below; product differentiation 
C)  above; barriers to entry 
D)  above; product differentiation

Question 15

Selling costs, such as advertising, are likely to be a large share of total cost in an industry that is

Accepted Answer

A)  perfectly competitive. 
B)  monopolistically competitive. 
C)  a monopoly. 
D)  non-profit. 
A)  perfectly competitive. 
B)  monopolistically competitive. 
C)  a monopoly. 
D)  non-profit.

Question 16

An increase in 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 17

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.
-In the scenario above, as a result of increased advertising, Talbot's economic profit

Accepted Answer

A)  decreases by $500. 
B)  increases by $170. 
C)  increases by $750. 
D)  decreases by $100. 
A)  decreases by $500. 
B)  increases by $170. 
C)  increases by $750. 
D)  decreases by $100.

Question 18

-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 19

A monopolistically competitive firm is similar to

Accepted Answer

A)  a monopoly in the short run because it can make an economic profit in the short run and is similar to a perfectly competitive firm in the long run because it cannot make a positive economic profit. 
B)  a perfectly competitive firm in the short run because it cannot make an economic profit in the short run and is similar to a monopoly in the long run because it can make an economic profit. 
C)  a monopoly because it can make an economic profit in both the short run and long run. 
D)  a perfectly competitive firm because its economic profit is equal to zero in both the short run and long run. 
A)  a monopoly in the short run because it can make an economic profit in the short run and is similar to a perfectly competitive firm in the long run because it cannot make a positive economic profit. 
B)  a perfectly competitive firm in the short run because it cannot make an economic profit in the short run and is similar to a monopoly in the long run because it can make an economic profit. 
C)  a monopoly because it can make an economic profit in both the short run and long run. 
D)  a perfectly competitive firm because its economic profit is equal to zero in both the short run and long run.

Question 20

-The above figure represents a restaurant operating in monopolistic competition.
a) What is the profit-maximizing level of output?
b) What price will the firm charge?
c) What is the firm's economic profit (or loss)?
d) Is this a long-run equilibrium? Why or why not?
e) Is this firm producing its capacity output?

Accepted Answer

a) The quantity is 20 meals a day.
b) Th

Consider a monopolistically competitive industry which is in long-run equilibrium. Which of the following is TRUE?

In the long run, a firm in monopolistic competition produces where the slope of the average total cost curve is

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

-The above figure shows the demand and cost curves for a firm in monopolistic competition. The firm earns total revenue of

A characteristic of monopolistic competition is

In monopolistically competitive industries

In the short run, a firm in a monopolistic competition will produce the amount of output where its

Monopolistically competitive firms constantly develop new products in an effort to

The loss of efficiency that occurs in monopolistic competition has to be weighed against the gain of

The figure shows the demand curve for Nike shoes (D), and Nike's marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). -In the figure above, Nike maximizes its profit if it charges ________ per pair of shoes.

Monopolistic competition differs from monopoly because in monopolistic competition

-In the above figure of a monopolistically competitive firm, the marginal cost of the last unit produced is equal to and is marginal revenue.

In monopolistic competition, each firm's marginal revenue curve lies its demand curve because of .

Selling costs, such as advertising, are likely to be a large share of total cost in an industry that is

An increase in advertising costs affect a firm in a monopolistic competition by increasing the firm's

-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 .

A monopolistically competitive firm is similar to

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Oligopoly

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

Exam 14: Monopolistic Competition

Consider a monopolistically competitive industry which is in long-run equilibrium. Which of the following is TRUE?

In the long run, a firm in monopolistic competition produces where the slope of the average total cost curve is

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

-The above figure shows the demand and cost curves for a firm in monopolistic competition. The firm earns total revenue of

A characteristic of monopolistic competition is

In monopolistically competitive industries

In the short run, a firm in a monopolistic competition will produce the amount of output where its

Monopolistically competitive firms constantly develop new products in an effort to

The loss of efficiency that occurs in monopolistic competition has to be weighed against the gain of

The figure shows the demand curve for Nike shoes (D), and Nike's marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). -In the figure above, Nike maximizes its profit if it charges ________ per pair of shoes.

Monopolistic competition differs from monopoly because in monopolistic competition

-In the above figure of a monopolistically competitive firm, the marginal cost of the last unit produced is equal to ________ and is ________ marginal revenue.

In monopolistic competition, each firm's marginal revenue curve lies ________ its demand curve because of ________.

Selling costs, such as advertising, are likely to be a large share of total cost in an industry that is

An increase in advertising costs affect a firm in a monopolistic competition by increasing the firm's

-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 ________.

A monopolistically competitive firm is similar to

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Oligopoly

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

-In the above figure of a monopolistically competitive firm, the marginal cost of the last unit produced is equal to and is marginal revenue.

In monopolistic competition, each firm's marginal revenue curve lies its demand curve because of .

-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 .