Question 1

Monopolistically competitive industries are inefficient because

Accepted Answer

A) they realize diseconomies of scale. 
B) advertising costs retard technological advance and product development. 
C) they are overpopulated with firms whose plants are underutilized. 
D) monopolistically competitive sellers engage in misleading advertising. 
A) they realize diseconomies of scale. 
B) advertising costs retard technological advance and product development. 
C) they are overpopulated with firms whose plants are underutilized. 
D) monopolistically competitive sellers engage in misleading advertising.

Question 2

Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion.   If the firm sells 2 units of output, marginal revenue will be

Accepted Answer

A) $28. 
B) $44. 
C) $-4. 
D) $92. 
A) $28. 
B) $44. 
C) $-4. 
D) $92.

Question 3

When a monopolistically competitive firm is in long-run equilibrium,

Accepted Answer

A) P = MC = ATC. 
B) MR = MC and minimum ATC > P. 
C) MR > MC and P = minimum ATC. 
D) MR = MC and P> minimum ATC. 
A) P = MC = ATC. 
B) MR = MC and minimum ATC > P. 
C) MR > MC and P = minimum ATC. 
D) MR = MC and P> minimum ATC.

Question 4

In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where

Accepted Answer

A) ATC = P, MR = MC = P. 
B) ATC < P, MR = MC = P. 
C) ATC < P, MR + MC < P. 
D) ATC = P, MR = MC < P. 
A) ATC = P, MR = MC = P. 
B) ATC < P, MR = MC = P. 
C) ATC < P, MR + MC < P. 
D) ATC = P, MR = MC < P.

Question 5

The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are

Accepted Answer

A) constant. 
B) increasing. 
C) decreasing. 
D) at their minimum point. 
A) constant. 
B) increasing. 
C) decreasing. 
D) at their minimum point.

Question 6

Refer to the diagram for a monopolistically competitive firm. If more firms were to enter the industry and product differentiation were to weaken, then

Accepted Answer

A) resource misallocation would become more severe. 
B) the demand curve would become more elastic. 
C) firms would begin earning economic profits. 
D) the firm would achieve allocative efficiency. 
A) resource misallocation would become more severe. 
B) the demand curve would become more elastic. 
C) firms would begin earning economic profits. 
D) the firm would achieve allocative efficiency.

Question 7

The monopolistic competition model assumes that

Accepted Answer

A) allocative efficiency will be achieved. 
B) productive efficiency will be achieved. 
C) firms will engage in nonprice competition. 
D) firms will realize economic profits in the long run. 
A) allocative efficiency will be achieved. 
B) productive efficiency will be achieved. 
C) firms will engage in nonprice competition. 
D) firms will realize economic profits in the long run.

Question 8

The highest possible value of the Herfindahl index is 1,000.

Accepted Answer

A) True 
 B)False

Question 9

Refer to the above graphs. The differences in the long-run equilibrium positions for a monopolistically competitive firm and for a purely competitive firm are illustrated by graphs

Accepted Answer

A) A and B. 
B) B and C. 
C) C and D. 
D) A and C. 
A) A and B. 
B) B and C. 
C) C and D. 
D) A and C.

Question 10

Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will

Accepted Answer

A) reduce the excess capacity in the industry as firms expand production. 
B) attract other firms to enter the industry, causing the existing firms' profits to shrink. 
C) cause firms to standardize their product to limit the degree of competition. 
D) make the industry allocatively efficient as each firm seeks to maintain its profits. 
A) reduce the excess capacity in the industry as firms expand production. 
B) attract other firms to enter the industry, causing the existing firms' profits to shrink. 
C) cause firms to standardize their product to limit the degree of competition. 
D) make the industry allocatively efficient as each firm seeks to maintain its profits.

Question 11

Keely says that he's glad that his morning coffee is sold in a monopolistically competitive market rather than a purely competitive market. If this is true for most things Keely buys, it suggests that he

Accepted Answer

A) is most concerned about paying the lowest price possible. 
B) cares most about allocative efficiency. 
C) is willing to pay extra for product variety. 
D) is a creature of habit who always buys the same type of a particular good. 
A) is most concerned about paying the lowest price possible. 
B) cares most about allocative efficiency. 
C) is willing to pay extra for product variety. 
D) is a creature of habit who always buys the same type of a particular good.

Question 12

Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion.   What will the maximum total profits be?

Accepted Answer

A) $65 
B) $90 
C) $85 
D) $110 
A) $65 
B) $90 
C) $85 
D) $110

Question 13

An industry having a four-firm concentration ratio of 30 percent

Accepted Answer

A) approximates pure competition. 
B) is an oligopoly. 
C) is a pure monopoly. 
D) is monopolistically competitive. 
A) approximates pure competition. 
B) is an oligopoly. 
C) is a pure monopoly. 
D) is monopolistically competitive.

Question 14

If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will

Accepted Answer

A) be unaffected. 
B) shift to the left. 
C) become more elastic. 
D) shift to the right. 
A) be unaffected. 
B) shift to the left. 
C) become more elastic. 
D) shift to the right.

Question 15

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

Accepted Answer

A) each firm has to take the market price as given. 
B) product differentiation allows each firm some degree of monopoly power. 
C) there are a few large firms in the industry and they each act as a monopolist. 
D) mutual interdependence among all firms in the industry leads to collusion. 
A) each firm has to take the market price as given. 
B) product differentiation allows each firm some degree of monopoly power. 
C) there are a few large firms in the industry and they each act as a monopolist. 
D) mutual interdependence among all firms in the industry leads to collusion.

Question 16

Refer to the above graph of a representative firm in monopolistic competition. If curve (2)represents ATC and line (3)represents demand, then curve (1)and line (4)would be

Accepted Answer

A) MC and TR, respectively. 
B) AVC and MR, respectively. 
C) MC and MR, respectively. 
D) TC and TR, respectively. 
A) MC and TR, respectively. 
B) AVC and MR, respectively. 
C) MC and MR, respectively. 
D) TC and TR, respectively.

Question 17

If the minimum wage in the restaurant industry increases over time, eventually we would expect

Accepted Answer

A) the restaurant industry to expand as higher wages drive up demand. 
B) there to be fewer of all types of restaurants, but no change in the proportion of mom and pop restaurants relative to chain restaurants. 
C) the ratio of mom and pop restaurants to highly capitalized chain restaurants to increase. 
D) the ratio of highly capitalized chain restaurants to mom and pop restaurants to increase. 
A) the restaurant industry to expand as higher wages drive up demand. 
B) there to be fewer of all types of restaurants, but no change in the proportion of mom and pop restaurants relative to chain restaurants. 
C) the ratio of mom and pop restaurants to highly capitalized chain restaurants to increase. 
D) the ratio of highly capitalized chain restaurants to mom and pop restaurants to increase.

Question 18

Answer the question on the basis of the following demand and cost data for a specific firm.   If columns (1)and (3)of the demand data shown are this firm's demand schedule, the profit-maximizing level of output will be

Accepted Answer

A) 8 units. 
B) 9 units. 
C) 10 units. 
D) 11 units. 
A) 8 units. 
B) 9 units. 
C) 10 units. 
D) 11 units.

Question 19

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.

Exam 13: Monopolistic Competition

Monopolistically competitive industries are inefficient because

Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. If the firm sells 2 units of output, marginal revenue will be

When a monopolistically competitive firm is in long-run equilibrium,

In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where

The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are

Refer to the diagram for a monopolistically competitive firm. If more firms were to enter the industry and product differentiation were to weaken, then

The monopolistic competition model assumes that

The highest possible value of the Herfindahl index is 1,000.

Refer to the above graphs. The differences in the long-run equilibrium positions for a monopolistically competitive firm and for a purely competitive firm are illustrated by graphs

Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will

Keely says that he's glad that his morning coffee is sold in a monopolistically competitive market rather than a purely competitive market. If this is true for most things Keely buys, it suggests that he

Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. What will the maximum total profits be?

An industry having a four-firm concentration ratio of 30 percent

If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

Refer to the above graph of a representative firm in monopolistic competition. If curve (2)represents ATC and line (3)represents demand, then curve (1)and line (4)would be

If the minimum wage in the restaurant industry increases over time, eventually we would expect

Answer the question on the basis of the following demand and cost data for a specific firm. If columns (1)and (3)of the demand data shown are this firm's demand schedule, the profit-maximizing level of output will be

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

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