Question 1

Advertising is a ________ cost that is incurred by ________.

Accepted Answer

A)  variable; monopolies 
B)  variable; perfectly competitive firms 
C)  fixed; perfectly competitive firms 
D)  fixed; monopolistically competitive firms 
E)  marginal; monopolistically competitive firms 
A)  variable; monopolies 
B)  variable; perfectly competitive firms 
C)  fixed; perfectly competitive firms 
D)  fixed; monopolistically competitive firms 
E)  marginal; monopolistically competitive firms

Question 2

Because economic profits are eliminated in the long run in monopolistic competition,to make an economic profit,firms continuously

Accepted Answer

A)  shut down. 
B)  exit the industry. 
C)  develop and market new products. 
D)  declare bankruptcy. 
E)  decrease their costs by decreasing their selling costs. 
A)  shut down. 
B)  exit the industry. 
C)  develop and market new products. 
D)  declare bankruptcy. 
E)  decrease their costs by decreasing their selling costs.

Question 3

If a firm in monopolistic competition is making an economic profit,

Accepted Answer

A)  it is in the long run. 
B)  other firms can enter the market. 
C)  it can do so because it is "monopolistic" and other firms will have a hard time competing with it. 
D)  its average cost must exceed its marginal cost. 
E)  The question errs because firms in monopolistic competition cannot make an economic profit. 
A)  it is in the long run. 
B)  other firms can enter the market. 
C)  it can do so because it is "monopolistic" and other firms will have a hard time competing with it. 
D)  its average cost must exceed its marginal cost. 
E)  The question errs because firms in monopolistic competition cannot make an economic profit.

Question 4

If a firm has excess capacity,it

Accepted Answer

A)  produces less than its efficient scale. 
B)  should advertise to maximize profits. 
C)  should decrease its markup to increase its profit. 
D)  is a perfectly competitive firm. 
E)  must face a horizontal demand curve. 
A)  produces less than its efficient scale. 
B)  should advertise to maximize profits. 
C)  should decrease its markup to increase its profit. 
D)  is a perfectly competitive firm. 
E)  must face a horizontal demand curve.

Question 5

Which of the following statements about a firm in long-run equilibrium is true?

Accepted Answer

A) P > MC for a firm in monopolistic competition, and P = ATC for a firm in perfect competition B) MR > P for a firm in monopolistic competition, and P = ATC for a firm in perfect competition C) P = MC for firms in both monopolistic competition and perfect competition D) P = MC for a firm in perfect competition, and P < ATC for a firm in monopolistic competition E) Both answers A and B are correct. A) P > MC for a firm in monopolistic competition, and P = ATC for a firm in perfect competition B) MR > P for a firm in monopolistic competition, and P = ATC for a firm in perfect competition C) P = MC for firms in both monopolistic competition and perfect competition D) P = MC for a firm in perfect competition, and P < ATC for a firm in monopolistic competition E) Both answers A and B are correct.

Question 6

How does a firm in monopolistic competition determine its price and quantity? What type of profit can it make in the short run and the long run?

Accepted Answer

The firm produces where its marginal cos

Question 7

Which of the following four-firm concentration ratios would be the best indicator of a monopoly?

Accepted Answer

A)  0.25 percent 
B)  31 percent 
C)  78 percent 
D)  100 percent 
E)  89 percent 
A)  0.25 percent 
B)  31 percent 
C)  78 percent 
D)  100 percent 
E)  89 percent

Question 8

A firm in monopolistic competition has ________ demand curve.

Accepted Answer

A)  a downward sloping 
B)  an upward sloping 
C)  a vertical 
D)  a horizontal 
E)  a U-shaped 
A)  a downward sloping 
B)  an upward sloping 
C)  a vertical 
D)  a horizontal 
E)  a U-shaped

Question 9

Product differentiation allows a firm to compete with another firm on the basis of

Accepted Answer

A)  efficiency. 
B)  elasticity. 
C)  quality, price, and marketing. 
D)  the level of output and the price. 
E)  demand. 
A)  efficiency. 
B)  elasticity. 
C)  quality, price, and marketing. 
D)  the level of output and the price. 
E)  demand.

Question 10

In the long run,firms in monopolistic competition make zero economic profit.When firms make zero economic profit,in the long run they exit the industry.

Accepted Answer

A)  The first sentence is correct and the second sentence is incorrect. 
B)  The first sentence is incorrect and the second sentence is correct. 
C)  Both sentences are correct. 
D)  Both sentences are incorrect. 
E)  More information about the presence or absence of barriers to entry and exit is needed to determine if the statements are true or false. 
A)  The first sentence is correct and the second sentence is incorrect. 
B)  The first sentence is incorrect and the second sentence is correct. 
C)  Both sentences are correct. 
D)  Both sentences are incorrect. 
E)  More information about the presence or absence of barriers to entry and exit is needed to determine if the statements are true or false.

Question 11

The primary reason why monopolistically competitive firms cannot make an economic profit in the long run is because

Accepted Answer

A)  there are barriers to entry. 
B)  there is freedom of entry. 
C)  the antitrust laws prevent profit from increasing. 
D)  recessions occur. 
E)  they collude to make a normal profit. 
A)  there are barriers to entry. 
B)  there is freedom of entry. 
C)  the antitrust laws prevent profit from increasing. 
D)  recessions occur. 
E)  they collude to make a normal profit.

Question 12

Explain how selling costs in monopolistic competition affect the efficiency of monopolistic competition.

Accepted Answer

The additional selling costs from produc

Question 13

-The firm in the above figure has a markup of ________ per meal.

Accepted Answer

A)  $0 
B)  $4 
C)  $8 
D)  $10 
E)  more than $10 
A)  $0 
B)  $4 
C)  $8 
D)  $10 
E)  more than $10

Question 14

The Herfindahl-Hirschman Index measures market concentration in an industry by summing the square of the percentage market shares for

Accepted Answer

A)  the 4 largest firms. 
B)  the 50 smallest firms. 
C)  the 4 smallest firms. 
D)  the 50 largest firms. 
E)  all firms in the market. 
A)  the 4 largest firms. 
B)  the 50 smallest firms. 
C)  the 4 smallest firms. 
D)  the 50 largest firms. 
E)  all firms in the market.

Question 15

If advertising increases the numbers of firms in an industry,each firm's demand

Accepted Answer

A)  increases. 
B)  does not change. 
C)  decreases. 
D)  might increase or decrease depending on whether the new firms produce exactly the same product or a product that is slightly differentiated. 
E)  None of the above answers is correct. 
A)  increases. 
B)  does not change. 
C)  decreases. 
D)  might increase or decrease depending on whether the new firms produce exactly the same product or a product that is slightly differentiated. 
E)  None of the above answers is correct.

Question 16

Excess capacity exists when a firm produces

Accepted Answer

A)  more than the profit-maximizing level of output. 
B)  less than the quantity that minimizes average total cost. 
C)  less than the quantity that minimizes marginal cost. 
D)  more than the quantity that minimizes marginal cost. 
E)  None of the above answers is correct. 
A)  more than the profit-maximizing level of output. 
B)  less than the quantity that minimizes average total cost. 
C)  less than the quantity that minimizes marginal cost. 
D)  more than the quantity that minimizes marginal cost. 
E)  None of the above answers is correct.

Question 17

The Herfindahl-Hirschman Index is used as a guideline to determine if a market is competitive or concentrated.Calculate the index value for each market described below.
a.100 firms,each of which produces 1 per cent of market output
b.50 firms,each of which produces 2 per cent of market output
c.25 firms,each of which produces 4 per cent of market output
d.20 firms,each of which produces 5 per cent of market output
e.10 firms,each of which produces 10 per cent of market output
f.5 firms,each of which produces 20 per cent of market output
g.2 firms,each of which produces 50 per cent of market output

Accepted Answer

a.100 × 1 = 100
b.50 × 4 = 200

Question 18

Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive industry?

Accepted Answer

A)  2 percent 
B)  31 percent 
C)  78 percent 
D)  100 percent 
E)  50 percent 
A)  2 percent 
B)  31 percent 
C)  78 percent 
D)  100 percent 
E)  50 percent

Question 19

The three largest firms in an industry have market shares of 40 percent,30 percent,and 2 percent.The remaining 47 firms in the industry each have a market share of 1 percent.The Herfindahl-Hirschman Index (HHI)for this industry is ________.

Accepted Answer

A)  2,551 
B)  5,184 
C)  24,061 
D)  10,000 
E)  3,013 
A)  2,551 
B)  5,184 
C)  24,061 
D)  10,000 
E)  3,013

Question 20

The figure above shows a firm's demand and marginal revenue curves and its cost curves.
-As long as the firm illustrated above remains open,it will set a price of ________ per month and it will ________.

Accepted Answer

A)  $50; make an economic profit 
B)  $50; incur an economic loss 
C)  $40; make an economic profit 
D)  $40; incur an economic loss 
E)  less than $20; incur an economic loss 
A)  $50; make an economic profit 
B)  $50; incur an economic loss 
C)  $40; make an economic profit 
D)  $40; incur an economic loss 
E)  less than $20; incur an economic loss

Advertising is a cost that is incurred by .

Because economic profits are eliminated in the long run in monopolistic competition,to make an economic profit,firms continuously

If a firm in monopolistic competition is making an economic profit,

If a firm has excess capacity,it

Which of the following statements about a firm in long-run equilibrium is true?

How does a firm in monopolistic competition determine its price and quantity? What type of profit can it make in the short run and the long run?

Which of the following four-firm concentration ratios would be the best indicator of a monopoly?

A firm in monopolistic competition has ________ demand curve.

Product differentiation allows a firm to compete with another firm on the basis of

In the long run,firms in monopolistic competition make zero economic profit.When firms make zero economic profit,in the long run they exit the industry.

The primary reason why monopolistically competitive firms cannot make an economic profit in the long run is because

Explain how selling costs in monopolistic competition affect the efficiency of monopolistic competition.

-The firm in the above figure has a markup of ________ per meal.

The Herfindahl-Hirschman Index measures market concentration in an industry by summing the square of the percentage market shares for

If advertising increases the numbers of firms in an industry,each firm's demand

Excess capacity exists when a firm produces

Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive industry?

The three largest firms in an industry have market shares of 40 percent,30 percent,and 2 percent.The remaining 47 firms in the industry each have a market share of 1 percent.The Herfindahl-Hirschman Index (HHI)for this industry is ________.

The figure above shows a firm's demand and marginal revenue curves and its cost curves. -As long as the firm illustrated above remains open,it will set a price of per month and it will .

Getting Started

The U.S.and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Taxes

Global Markets in Action

Externalities

Public Goods and Common Resources

Markets with Private Information

Consumer Choice and Demand

Production and Cost

Perfect Competition

Monopoly

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

Exam 17: Monopolistic Competition

Advertising is a ________ cost that is incurred by ________.

Because economic profits are eliminated in the long run in monopolistic competition,to make an economic profit,firms continuously

If a firm in monopolistic competition is making an economic profit,

If a firm has excess capacity,it

Which of the following statements about a firm in long-run equilibrium is true?

How does a firm in monopolistic competition determine its price and quantity? What type of profit can it make in the short run and the long run?

Which of the following four-firm concentration ratios would be the best indicator of a monopoly?

A firm in monopolistic competition has ________ demand curve.

Product differentiation allows a firm to compete with another firm on the basis of

In the long run,firms in monopolistic competition make zero economic profit.When firms make zero economic profit,in the long run they exit the industry.

The primary reason why monopolistically competitive firms cannot make an economic profit in the long run is because

Explain how selling costs in monopolistic competition affect the efficiency of monopolistic competition.

-The firm in the above figure has a markup of ________ per meal.

The Herfindahl-Hirschman Index measures market concentration in an industry by summing the square of the percentage market shares for

If advertising increases the numbers of firms in an industry,each firm's demand

Excess capacity exists when a firm produces

Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive industry?

The three largest firms in an industry have market shares of 40 percent,30 percent,and 2 percent.The remaining 47 firms in the industry each have a market share of 1 percent.The Herfindahl-Hirschman Index (HHI)for this industry is ________.

The figure above shows a firm's demand and marginal revenue curves and its cost curves. -As long as the firm illustrated above remains open,it will set a price of ________ per month and it will ________.

Getting Started

The U.S.and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Taxes

Global Markets in Action

Externalities

Public Goods and Common Resources

Markets with Private Information

Consumer Choice and Demand

Production and Cost

Perfect Competition

Monopoly

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

Advertising is a cost that is incurred by .

The figure above shows a firm's demand and marginal revenue curves and its cost curves. -As long as the firm illustrated above remains open,it will set a price of per month and it will .