Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

In the long run, a monopolistically competitive firm

Accepted Answer

A) earns an economic profit. 
B) produces where P = ATC. 
C) produces where MR exceeds MC. 
D) achieves allocative efficiency. 
A) earns an economic profit. 
B) produces where P = ATC. 
C) produces where MR exceeds MC. 
D) achieves allocative efficiency.

Question 4

In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits

Accepted Answer

A) must be less than ATC. 
B) must be more than ATC. 
C) may be either equal to ATC, less than ATC, or more than ATC. 
D) must be equal to ATC. 
A) must be less than ATC. 
B) must be more than ATC. 
C) may be either equal to ATC, less than ATC, or more than ATC. 
D) must be equal to ATC.

Question 5

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 6

In a monopolistically competitive market like restaurants, large capital-intensive firms like McDonald's may co-exist with more labor-intensive mom-and-pop shops. In this case, higher labor costs would tend to favor the survival of

Accepted Answer

A) large-scale capital-intensive firms more than the small firms. 
B) small firms more than the large-scale capital-intensive firms. 
C) foreign firms more than the large-scale capital-intensive firms. 
D) domestic restaurant firms more than the foreign firms. 
A) large-scale capital-intensive firms more than the small firms. 
B) small firms more than the large-scale capital-intensive firms. 
C) foreign firms more than the large-scale capital-intensive firms. 
D) domestic restaurant firms more than the foreign firms.

Question 7

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.00, price is $4.50, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating

Accepted Answer

A) with a loss. 
B) with positive profits. 
C) at the break-even point. 
D) at a nonoptimal level of output. 
A) with a loss. 
B) with positive profits. 
C) at the break-even point. 
D) at a nonoptimal level of output.

Question 8

In the long run, the representative firm in monopolistic competition tends to have

Accepted Answer

A) excess capacity. 
B) economic profits. 
C) no product differentiation. 
D) a perfectly elastic demand curve. 
A) excess capacity. 
B) economic profits. 
C) no product differentiation. 
D) a perfectly elastic demand curve.

Question 9

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below.   What output quantity will the monopolistically competitive firm produce to maximize profits?

Accepted Answer

A) 2 
B) 3 
C) 5 
D) 6 
A) 2 
B) 3 
C) 5 
D) 6

Question 10

What are the goals of advertising?

Accepted Answer

The expense and effort involved in produ

Question 11

The demand curve of a monopolistically competitive firm is more elastic than that of a pure monopolist.

Accepted Answer

A) True 
 B)False

Question 12

Refer to the data. If all the firms in the industry merged into a single firm, the Herfindahl index would become

Accepted Answer

A) 100. 
B) 1,000. 
C) 10,000. 
D) 100,000. 
A) 100. 
B) 1,000. 
C) 10,000. 
D) 100,000.

Question 13

Which of the following statements is correct?

Accepted Answer

A) Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn zero economic profits in the long run. 
B) Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn positive economic profits in the long run. 
C) In the long run, purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits. 
D) Monopolistically competitive firms earn zero economic profits in both the short run and the long run. 
A) Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn zero economic profits in the long run. 
B) Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn positive economic profits in the long run. 
C) In the long run, purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits. 
D) Monopolistically competitive firms earn zero economic profits in both the short run and the long run.

Question 14

Long-run profits of individual firms in monopolistic competition will be larger than their short-run profits.

Accepted Answer

A) True 
 B)False

Question 15

In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits

Accepted Answer

A) must be less than ATC. 
B) must be more than ATC. 
C) may be either equal to ATC, less than ATC, or more than ATC. 
D) will be equal to ATC. 
A) must be less than ATC. 
B) must be more than ATC. 
C) may be either equal to ATC, less than ATC, or more than ATC. 
D) will be equal to ATC.

Question 16

The stronger the product differentiation in monopolistic competition, the

Accepted Answer

A) less elastic the demand curve, and production will take place further to the left of minimum average costs. 
B) less elastic the demand curve, and production will take place further to the right of minimum average costs. 
C) more elastic the demand curve, and production will take place further to the left of minimum average costs. 
D) more elastic the demand curve, and production will take place further to the right of minimum average costs. 
A) less elastic the demand curve, and production will take place further to the left of minimum average costs. 
B) less elastic the demand curve, and production will take place further to the right of minimum average costs. 
C) more elastic the demand curve, and production will take place further to the left of minimum average costs. 
D) more elastic the demand curve, and production will take place further to the right of minimum average costs.

Question 17

A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from

Accepted Answer

A) a relatively large number of firms, and the monopolistic element from product differentiation. 
B) product differentiation, and the monopolistic element from high entry barriers. 
C) a perfectly elastic demand curve, and the monopolistic element from low entry barriers. 
D) a highly inelastic demand curve, and the monopolistic element from advertising and product promotion. 
A) a relatively large number of firms, and the monopolistic element from product differentiation. 
B) product differentiation, and the monopolistic element from high entry barriers. 
C) a perfectly elastic demand curve, and the monopolistic element from low entry barriers. 
D) a highly inelastic demand curve, and the monopolistic element from advertising and product promotion.

Question 18

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

Question 19

Compared to pure competition, monopolistic competition

Accepted Answer

A) provides greater product differentiation at the cost of lower productive efficiency. 
B) offers less product differentiation but attains a higher productive efficiency. 
C) provides greater product differentiation and achieves greater productive efficiency. 
D) offers less product differentiation and lower productive efficiency. 
A) provides greater product differentiation at the cost of lower productive efficiency. 
B) offers less product differentiation but attains a higher productive efficiency. 
C) provides greater product differentiation and achieves greater productive efficiency. 
D) offers less product differentiation and lower productive efficiency.

Question 20

Refer to the diagram. The monopolistically competitive firm shown

Accepted Answer

A) will realize allocative efficiency at its profit-maximizing output. 
B) cannot operate at a loss. 
C) is in long-run equilibrium. 
D) is realizing an economic profit. 
A) will realize allocative efficiency at its profit-maximizing output. 
B) cannot operate at a loss. 
C) is in long-run equilibrium. 
D) is realizing an economic profit.

Exam 13: Monopolistic Competition

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.

In the long run, a monopolistically competitive firm

In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits

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

In a monopolistically competitive market like restaurants, large capital-intensive firms like McDonald's may co-exist with more labor-intensive mom-and-pop shops. In this case, higher labor costs would tend to favor the survival of

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.00, price is $4.50, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating

In the long run, the representative firm in monopolistic competition tends to have

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. What output quantity will the monopolistically competitive firm produce to maximize profits?

What are the goals of advertising?

The demand curve of a monopolistically competitive firm is more elastic than that of a pure monopolist.

Refer to the data. If all the firms in the industry merged into a single firm, the Herfindahl index would become

Which of the following statements is correct?

Long-run profits of individual firms in monopolistic competition will be larger than their short-run profits.

In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits

The stronger the product differentiation in monopolistic competition, the

A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from

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.

Compared to pure competition, monopolistic competition

Refer to the diagram. The monopolistically competitive firm shown

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