Question 1

A monopolistic competitive firm is inefficient because the firm:

Accepted Answer

A)  earns positive economic profit in the long run. 
B)  is producing at an output corresponding to the condition that marginal cost equals price. 
C)  is not maximizing its profit. 
D)  produces an output where average total cost is not minimum. 
A)  earns positive economic profit in the long run. 
B)  is producing at an output corresponding to the condition that marginal cost equals price. 
C)  is not maximizing its profit. 
D)  produces an output where average total cost is not minimum.

Question 2

Which of the following is not true of a monopolistically competitive firm?

Accepted Answer

A)  The firm will maximize profits by producing where MR = MC. 
B)  The firm will not likely earn an economic profit in the long run. 
C)  The firm will shut down if price is less than average variable cost. 
D)  The firm will produce an efficient quantity where average total cost is minimized. 
A)  The firm will maximize profits by producing where MR = MC. 
B)  The firm will not likely earn an economic profit in the long run. 
C)  The firm will shut down if price is less than average variable cost. 
D)  The firm will produce an efficient quantity where average total cost is minimized.

Question 3

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

Accepted Answer

A)  this firm is making a normal profit. 
B)  other picture frame companies will want to exit the market. 
C)  there are no other picture frame companies in the area. 
D)  economic profits are $1,500. 
A)  this firm is making a normal profit. 
B)  other picture frame companies will want to exit the market. 
C)  there are no other picture frame companies in the area. 
D)  economic profits are $1,500.

Question 4

Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $30 per barrel. A single cartel member may want to cheat and exceed its quota so that it can:

Accepted Answer

A)  reduce its costs. 
B)  charge higher prices. 
C)  make demand more inelastic. 
D)  earn a bigger profit. 
A)  reduce its costs. 
B)  charge higher prices. 
C)  make demand more inelastic. 
D)  earn a bigger profit.

Question 5

Exhibit 10-1 A monopolistic competitive firm
 
In the long run, the demand curve for the monopolistic competitive firm shown in Exhibit 10-1:

Accepted Answer

A)  shifts leftward. 
B)  remains the same. 
C)  shifts rightward. 
D)  becomes more inelastic. 
A)  shifts leftward. 
B)  remains the same. 
C)  shifts rightward. 
D)  becomes more inelastic.

Question 6

Suppose the firm or firms in the market for Good A face a downward-sloping demand curve, maximize profit by producing the quantity at which marginal revenue equals marginal cost, set the price higher than the marginal cost, and break even in long run equilibrium. Which one of the following market structures  most likely exists for Good A?

Accepted Answer

A)  Perfectly competition. 
B)  Monopoly. 
C)  Monopolistic competition. 
D)  Oligopoly. 
A)  Perfectly competition. 
B)  Monopoly. 
C)  Monopolistic competition. 
D)  Oligopoly.

Question 7

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

Accepted Answer

A)  new tombstone firms will want to enter. 
B)  this producer is losing $2,000 a week. 
C)  this producer is making an economic profit of $400. 
D)  this producer should increase production. 
A)  new tombstone firms will want to enter. 
B)  this producer is losing $2,000 a week. 
C)  this producer is making an economic profit of $400. 
D)  this producer should increase production.

Question 8

A profit-maximizing monopolistically competitive firm will expand output to the point where:

Accepted Answer

A)  total revenue equals total cost. 
B)  marginal revenue equals marginal cost. 
C)  price equals average total cost. 
D)  price equals marginal cost. 
A)  total revenue equals total cost. 
B)  marginal revenue equals marginal cost. 
C)  price equals average total cost. 
D)  price equals marginal cost.

Question 9

Cartel members have an incentive to cheat on the cartel because:

Accepted Answer

A)  the industry profit would be higher under competitive conditions. 
B)  the cartel price is the competitive price. 
C)  each member's output quota is too high. 
D)  each member's MR is not equal to the cartel's MC. 
A)  the industry profit would be higher under competitive conditions. 
B)  the cartel price is the competitive price. 
C)  each member's output quota is too high. 
D)  each member's MR is not equal to the cartel's MC.

Question 10

Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries. The primary reason for the complication is the:

Accepted Answer

A)  fewness of firms. 
B)  brand loyalty of consumers. 
C)  powerful effect of advertising. 
D)  mutual interdependence of firms. 
A)  fewness of firms. 
B)  brand loyalty of consumers. 
C)  powerful effect of advertising. 
D)  mutual interdependence of firms.

Question 11

Exhibit 10-3 A monopolistic competitive firm in the long run
 
To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 10-3 will charge a price per unit of:

Accepted Answer

A)  zero. 
B)  $10 
C)  $20. 
D)  $30. 
A)  zero. 
B)  $10 
C)  $20. 
D)  $30.

Question 12

Suppose Kellogg's, General Mills, and Post make the majority of breakfast cereal sold in the United States. If Kellogg's decides to decrease its prices by 10%,

Accepted Answer

A)  General Mills and Post will immediately respond because of mutual interdependence. 
B)  Kellogg's will also decrease the variety of cereals it offers because of nonprice competition. 
C)  the other firms in the industry will not change their pricing strategy because of the kinked demand curve. 
D)  more firms will enter the market due to low barriers to entry. 
A)  General Mills and Post will immediately respond because of mutual interdependence. 
B)  Kellogg's will also decrease the variety of cereals it offers because of nonprice competition. 
C)  the other firms in the industry will not change their pricing strategy because of the kinked demand curve. 
D)  more firms will enter the market due to low barriers to entry.

Question 13

Which of the following is true about advertising by a firm?

Accepted Answer

A)  It is always successful in increasing demand for a firm's product. 
B)  It attempts to increase demand and to make demand more inelastic. 
C)  It reduces barriers to entry in a market. 
D)  It is only used in the monopolistic competition market structure. 
A)  It is always successful in increasing demand for a firm's product. 
B)  It attempts to increase demand and to make demand more inelastic. 
C)  It reduces barriers to entry in a market. 
D)  It is only used in the monopolistic competition market structure.

Question 14

In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are:

Accepted Answer

A)  not eliminated, because competition is not perfect. 
B)  not eliminated, because the demand curve slopes downward. 
C)  eliminated due to firms entering the industry. 
D)  eliminated due to firms leaving the industry. 
A)  not eliminated, because competition is not perfect. 
B)  not eliminated, because the demand curve slopes downward. 
C)  eliminated due to firms entering the industry. 
D)  eliminated due to firms leaving the industry.

Question 15

Product differentiation makes the demand for a monopolistically competitive firm's product:

Accepted Answer

A)  perfectly elastic. 
B)  more elastic than for a monopoly. 
C)  more inelastic than for a monopoly. 
D)  perfectly inelastic. 
A)  perfectly elastic. 
B)  more elastic than for a monopoly. 
C)  more inelastic than for a monopoly. 
D)  perfectly inelastic.

Question 16

Exit of existing firms will occur in a monopolistic competitive industry until:

Accepted Answer

A)  marginal cost equals zero. 
B)  marginal revenue equals zero. 
C)  marginal revenue equals marginal cost. 
D)  economic profit equals zero. 
A)  marginal cost equals zero. 
B)  marginal revenue equals zero. 
C)  marginal revenue equals marginal cost. 
D)  economic profit equals zero.

Question 17

When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:

Accepted Answer

A)  mutual interdependence. 
B)  price leadership. 
C)  collusion. 
D)  monopolistic competition. 
A)  mutual interdependence. 
B)  price leadership. 
C)  collusion. 
D)  monopolistic competition.

Exam 10: Monopolistic Competition and Oligopoly

A monopolistic competitive firm is inefficient because the firm:

Which of the following is not true of a monopolistically competitive firm?

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $30 per barrel. A single cartel member may want to cheat and exceed its quota so that it can:

Exhibit 10-1 A monopolistic competitive firm In the long run, the demand curve for the monopolistic competitive firm shown in Exhibit 10-1:

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

A profit-maximizing monopolistically competitive firm will expand output to the point where:

Cartel members have an incentive to cheat on the cartel because:

Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries. The primary reason for the complication is the:

Exhibit 10-3 A monopolistic competitive firm in the long run To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 10-3 will charge a price per unit of:

Suppose Kellogg's, General Mills, and Post make the majority of breakfast cereal sold in the United States. If Kellogg's decides to decrease its prices by 10%,

Which of the following is true about advertising by a firm?

In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are:

Product differentiation makes the demand for a monopolistically competitive firm's product:

Exit of existing firms will occur in a monopolistic competitive industry until:

When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

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