Question 1

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 2

Refer to the above graph of the representative firm in monopolistic competition. Point b indicates

Accepted Answer

A) a situation where the firm is earning economic profits. 
B) the price-output combination that yields maximum profits. 
C) a point that cannot be the long-run equilibrium point. 
D) the lowest possible average cost of producing the firm's product. 
A) a situation where the firm is earning economic profits. 
B) the price-output combination that yields maximum profits. 
C) a point that cannot be the long-run equilibrium point. 
D) the lowest possible average cost of producing the firm's product.

Question 3

A monopolistically competitive firm's marginal revenue curve

Accepted Answer

A) is downsloping and coincides with the demand curve. 
B) coincides with the demand curve and is parallel to the horizontal axis. 
C) is downsloping and lies below the demand curve. 
D) does not exist because the firm is a "price maker." 
A) is downsloping and coincides with the demand curve. 
B) coincides with the demand curve and is parallel to the horizontal axis. 
C) is downsloping and lies below the demand curve. 
D) does not exist because the firm is a "price maker."

Question 4

The goal of product differentiation and advertising in monopolistic competition is to make

Accepted Answer

A) the firm allocatively efficient even if it is not productively efficient. 
B) the firm productively efficient even if it is not allocatively efficient. 
C) price less of a factor and product differences more of a factor in consumer purchases. 
D) price more of a factor and product differences less of a factor in consumer purchases. 
A) the firm allocatively efficient even if it is not productively efficient. 
B) the firm productively efficient even if it is not allocatively efficient. 
C) price less of a factor and product differences more of a factor in consumer purchases. 
D) price more of a factor and product differences less of a factor in consumer purchases.

Question 5

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below.   Suppose that entry into this industry changes this firm's demand schedule from columns (1)and (3)to columns (2)and (3). We can conclude that this industry is

Accepted Answer

A) a pure monopoly. 
B) purely competitive. 
C) a constant cost industry. 
D) monopolistically competitive. 
A) a pure monopoly. 
B) purely competitive. 
C) a constant cost industry. 
D) monopolistically competitive.

Question 6

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

Accepted Answer

A) 3 units. 
B) 5 units. 
C) 4 units. 
D) 6 units. 
A) 3 units. 
B) 5 units. 
C) 4 units. 
D) 6 units.

Question 7

Which of the following statements concerning a monopolistically competitive industry is correct?

Accepted Answer

A) If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms will shift to the right. 
B) If there are short-run economic profits, firms will enter the industry and the demand curves of existing firms will shift to the right. 
C) If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms will shift to the left. 
D) If there are short-run economic profits, firms will leave the industry and the demand curves of the remaining firms will shift to the right. 
A) If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms will shift to the right. 
B) If there are short-run economic profits, firms will enter the industry and the demand curves of existing firms will shift to the right. 
C) If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms will shift to the left. 
D) If there are short-run economic profits, firms will leave the industry and the demand curves of the remaining firms will shift to the right.

Question 8

A significant benefit of monopolistic competition compared with pure competition is

Accepted Answer

A) less likelihood of X-inefficiency. 
B) improved resource allocation. 
C) greater product variety. 
D) stronger incentives to achieve economies of scale. 
A) less likelihood of X-inefficiency. 
B) improved resource allocation. 
C) greater product variety. 
D) stronger incentives to achieve economies of scale.

Question 9

The graph depicts a monopolistically competitive firm.   At the profit-maximizing level of short-run output, this monopolistically competitive firm will be making a profit of

Accepted Answer

A) $275. 
B) $350. 
C) $500. 
D) $525. 
A) $275. 
B) $350. 
C) $500. 
D) $525.

Question 10

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

Accepted Answer

A) production takes place where ATC is minimized. 
B) marginal revenue equals marginal cost and price equals average total cost. 
C) normal profit is zero and price equals marginal cost. 
D) economic profit is zero and price equals marginal cost. 
A) production takes place where ATC is minimized. 
B) marginal revenue equals marginal cost and price equals average total cost. 
C) normal profit is zero and price equals marginal cost. 
D) economic profit is zero and price equals marginal cost.

Question 11

Monopolistic competition means

Accepted Answer

A) a market situation where competition is based entirely on product differentiation and advertising. 
B) a large number of firms producing a standardized or homogeneous product. 
C) many firms producing differentiated products. 
D) a few firms producing a standardized or homogeneous product. 
A) a market situation where competition is based entirely on product differentiation and advertising. 
B) a large number of firms producing a standardized or homogeneous product. 
C) many firms producing differentiated products. 
D) a few firms producing a standardized or homogeneous product.

Question 12

In monopolistic competition, if a firm advertises and effectively raises consumer awareness of its product, it tends to

Accepted Answer

A) raise costs and increase demand for its product. 
B) raise costs and decrease demand for its product. 
C) lower costs and increase demand for its product. 
D) lower costs and decrease demand for its product. 
A) raise costs and increase demand for its product. 
B) raise costs and decrease demand for its product. 
C) lower costs and increase demand for its product. 
D) lower costs and decrease demand for its product.

Question 13

Discuss the phrase "variety is the spice of life" in reference to monopolistic competition.

Accepted Answer

The Wendy's TV commercial hammered home

Question 14

Monopolistically competitive firms are inefficient because they produce at a point on the rising segment of their average cost curves.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the above graphs. A short-run equilibrium that would result in losses for a monopolistically competitive firm would be represented by graph

Accepted Answer

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

Question 16

Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium price will be

Accepted Answer

A) above A. 
B) EF. 
C) A. 
D) B. 
A) above A. 
B) EF. 
C) A. 
D) B.

Question 17

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

Accepted Answer

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

Question 18

The main point of the 1987 Wendy's commercial depicting a Soviet fashion show was to

Accepted Answer

A) show Wendy's product differentiation from its competitors. 
B) grow its international customer base. 
C) emphasize the efficiency of its production model. 
D) highlight the dependability of its reliable and consistent standardized product. 
A) show Wendy's product differentiation from its competitors. 
B) grow its international customer base. 
C) emphasize the efficiency of its production model. 
D) highlight the dependability of its reliable and consistent standardized product.

Question 19

Refer to the diagram for a monopolistically competitive producer. If this firm were to realize productive efficiency, it would

Accepted Answer

A) also realize an economic profit. 
B) incur a loss. 
C) also achieve allocative efficiency. 
D) have to produce a smaller output. 
A) also realize an economic profit. 
B) incur a loss. 
C) also achieve allocative efficiency. 
D) have to produce a smaller output.

Question 20

The price elasticity of a monopolistically competitive firm's demand curve varies

Accepted Answer

A) inversely with the number of competitors and the degree of product differentiation. 
B) directly with the number of competitors and the degree of product differentiation. 
C) directly with the number of competitors but inversely with the degree of product differentiation. 
D) inversely with the number of competitors but directly with the degree of product differentiation. 
A) inversely with the number of competitors and the degree of product differentiation. 
B) directly with the number of competitors and the degree of product differentiation. 
C) directly with the number of competitors but inversely with the degree of product differentiation. 
D) inversely with the number of competitors but directly with the degree of product differentiation.

Exam 13: Monopolistic Competition

Under monopolistic competition, entry to the industry is

Refer to the above graph of the representative firm in monopolistic competition. Point b indicates

A monopolistically competitive firm's marginal revenue curve

The goal of product differentiation and advertising in monopolistic competition is to make

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. Suppose that entry into this industry changes this firm's demand schedule from columns (1)and (3)to columns (2)and (3). We can conclude that this industry is

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

Which of the following statements concerning a monopolistically competitive industry is correct?

A significant benefit of monopolistic competition compared with pure competition is

The graph depicts a monopolistically competitive firm. At the profit-maximizing level of short-run output, this monopolistically competitive firm will be making a profit of

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

Monopolistic competition means

In monopolistic competition, if a firm advertises and effectively raises consumer awareness of its product, it tends to

Discuss the phrase "variety is the spice of life" in reference to monopolistic competition.

Monopolistically competitive firms are inefficient because they produce at a point on the rising segment of their average cost curves.

Refer to the above graphs. A short-run equilibrium that would result in losses for a monopolistically competitive firm would be represented by graph

Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium price will be

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

The main point of the 1987 Wendy's commercial depicting a Soviet fashion show was to

Refer to the diagram for a monopolistically competitive producer. If this firm were to realize productive efficiency, it would

The price elasticity of a monopolistically competitive firm's demand curve varies

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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Pure Competition in the Short Run

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