Question 1

Why would a firm in a monopolistically competitive industry advertise?

Accepted Answer

Similar to virtually every other business decision,advertising carries with it benefits and costs.While advertising causes the fixed costs to increase,and thereby shifts the average total cost curve upward,advertising also might increase the demand for the company's product by temporarily making people believe that the product is better than some other firm's product.Firms in monopolistic competition frequently advertise extensively in order to differentiate their product from those of their competitors and thereby increase the demand for their particular version of the product.

Question 2

How do advertising and other selling costs affect a firm?

Accepted Answer

A)  They shift the marginal cost curve upward. 
B)  The only effect is that the excess capacity is reduced. 
C)  The only effect is that the demand for the product increases. 
D)  They shift the average total cost curve upward. 
E)  They do not change demand and shift the average total cost curve downward. 
A)  They shift the marginal cost curve upward. 
B)  The only effect is that the excess capacity is reduced. 
C)  The only effect is that the demand for the product increases. 
D)  They shift the average total cost curve upward. 
E)  They do not change demand and shift the average total cost curve downward. D

Question 3

-Kevin owns a personal training gymnasium in Orlando.The above figure shows the demand and cost curves for his firm,which competes in a monopolistically competitive market.What price will Kevin charge per session?

Accepted Answer

A)  $100 
B)  $60 
C)  $40 
D)  $20 
E)  $80 
A)  $100 
B)  $60 
C)  $40 
D)  $20 
E)  $80 B

Question 4

The major difference between monopolistic competition and monopoly is

Accepted Answer

A)  monopoly is a price setter and a firm in monopolistic competition is a price taker. 
B)  only a monopoly can make an economic profit in the long run. 
C)  only a firm in monopolistic competition can make an economic profit in the short run. 
D)  how the quantity of output is determined. 
E)  only firms in monopolistic competition are protected by barriers to entry. 
A)  monopoly is a price setter and a firm in monopolistic competition is a price taker. 
B)  only a monopoly can make an economic profit in the long run. 
C)  only a firm in monopolistic competition can make an economic profit in the short run. 
D)  how the quantity of output is determined. 
E)  only firms in monopolistic competition are protected by barriers to entry.

Question 5

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 6

Which of the following characterize a firm in monopolistic competition in the long run?
i.operating at the minimum efficient scale
ii.markups of price over marginal cost
iii.zero economic profit

Accepted Answer

A)  i and ii 
B)  i and iii 
C)  ii and iii 
D)  i, ii, and iii 
E)  only ii 
A)  i and ii 
B)  i and iii 
C)  ii and iii 
D)  i, ii, and iii 
E)  only ii

Question 7

-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 8

If a large number of firms are competing,the market could be

Accepted Answer

A)  perfect competition or monopolistic competition. 
B)  perfect competition or monopoly. 
C)  monopolistic competition or oligopoly. 
D)  monopolistic competition or monopoly. 
E)  oligopoly or monopoly. 
A)  perfect competition or monopolistic competition. 
B)  perfect competition or monopoly. 
C)  monopolistic competition or oligopoly. 
D)  monopolistic competition or monopoly. 
E)  oligopoly or monopoly.

Question 9

If firms in monopolistic competition are making economic profits,eventually

Accepted Answer

A)  they shut down. 
B)  they exit the industry. 
C)  the market turns into a monopoly. 
D)  new firms enter the industry. 
E)  the firms in the market increase their production so that their economic profit disappears. 
A)  they shut down. 
B)  they exit the industry. 
C)  the market turns into a monopoly. 
D)  new firms enter the industry. 
E)  the firms in the market increase their production so that their economic profit disappears.

Question 10

-There are 9 firms in an industry with market shares in the table above.Calculate the HHI for the industry.What kind of market does this operate in and why?

Accepted Answer

The HHI equals 20² + 20² + 15²

Question 11

The absence of barriers to entry in monopolistic competition means that in the long run firms

Accepted Answer

A)  make an economic profit. 
B)  make zero economic profit. 
C)  incur an economic loss. 
D)  make either an economic profit or zero economic profit. 
E)  make either zero economic profit or incur an economic loss. 
A)  make an economic profit. 
B)  make zero economic profit. 
C)  incur an economic loss. 
D)  make either an economic profit or zero economic profit. 
E)  make either zero economic profit or incur an economic loss.

Question 12

An industry has only four firms,who have market shares of 45 percent,25 percent,20 percent,and 10 percent.What is the Herfindahl-Hirschman Index?

Accepted Answer

The Herfin

Question 13

If the HHI for the widget industry is 1,200,then the market structure is

Accepted Answer

A)  a monopoly. 
B)  monopolistic competition. 
C)  an oligopoly. 
D)  perfect competition. 
E)  impossible to determine 
A)  a monopoly. 
B)  monopolistic competition. 
C)  an oligopoly. 
D)  perfect competition. 
E)  impossible to determine

Question 14

Firms in which of the following industries can make an economic profit in the long run?

Accepted Answer

A)  both monopolistic competition and monopoly 
B)  perfect competition 
C)  monopoly 
D)  monopolistic competition 
E)  monopolistic competition and perfect competition 
A)  both monopolistic competition and monopoly 
B)  perfect competition 
C)  monopoly 
D)  monopolistic competition 
E)  monopolistic competition and perfect competition

Question 15

For a firm in monopolistic competition,innovation and product development are

Accepted Answer

A)  senseless because economic profit is always zero in the long run. 
B)  necessary in order to have a chance of making at least a short-run economic profit. 
C)  inconsequential because each firm produces a different product. 
D)  necessary to allow new firms to enter. 
E)  uncommon because other firms already produce similar products. 
A)  senseless because economic profit is always zero in the long run. 
B)  necessary in order to have a chance of making at least a short-run economic profit. 
C)  inconsequential because each firm produces a different product. 
D)  necessary to allow new firms to enter. 
E)  uncommon because other firms already produce similar products.

Question 16

Firms decide how much to spend on product development and marketing by

Accepted Answer

A)  spending the same amount as they did in previous years. 
B)  spending the historical average of 1/4 of total production cost. 
C)  determining what it will take to eliminate excess capacity. 
D)  balancing the cost and the benefit of product development and marketing. 
E)  ensuring that the marginal cost of product development and marketing is less than or equal to the marginal cost of producing the good or service. 
A)  spending the same amount as they did in previous years. 
B)  spending the historical average of 1/4 of total production cost. 
C)  determining what it will take to eliminate excess capacity. 
D)  balancing the cost and the benefit of product development and marketing. 
E)  ensuring that the marginal cost of product development and marketing is less than or equal to the marginal cost of producing the good or service.

Question 17

In the long run,firms in monopolistic competition produce at a level that is ________ the efficient scale of output.

Accepted Answer

A)  less than 
B)  equal to 
C)  more than 
D)  not comparable to 
E)  All of the above are possible depending on market conditions. 
A)  less than 
B)  equal to 
C)  more than 
D)  not comparable to 
E)  All of the above are possible depending on market conditions.

Question 18

-The above figure shows a motel engaged in monopolistic competition with other motels.the figure above shows the ________ equilibrium in which the motel is ________ .

Accepted Answer

A)  short-run; making an economic profit 
B)  short-run; making zero economic profit 
C)  long-run; making an economic profit 
D)  long-run; making zero economic profit 
E)  short-run; incurring an economic loss 
A)  short-run; making an economic profit 
B)  short-run; making zero economic profit 
C)  long-run; making an economic profit 
D)  long-run; making zero economic profit 
E)  short-run; incurring an economic loss

Question 19

Which of the following is correct?

Accepted Answer

A)  Monopoly has a four-firm concentration ratio of 100. 
B)  Perfect competition has a four-firm concentration ratio near zero. 
C)  Monopolistic competition has a four-firm concentration ratio of more than 40. 
D)  Both answers A and B are correct. 
E)  Both answers A and C are correct. 
A)  Monopoly has a four-firm concentration ratio of 100. 
B)  Perfect competition has a four-firm concentration ratio near zero. 
C)  Monopolistic competition has a four-firm concentration ratio of more than 40. 
D)  Both answers A and B are correct. 
E)  Both answers A and C are correct.

Question 20

In an industry with a large number of firms,

Accepted Answer

A)  each firm will produce a large quantity, relative to market demand. 
B)  one firm will dominate the market. 
C)  collusion is impossible. 
D)  competition is eliminated. 
E)  barriers to exit must exist. 
A)  each firm will produce a large quantity, relative to market demand. 
B)  one firm will dominate the market. 
C)  collusion is impossible. 
D)  competition is eliminated. 
E)  barriers to exit must exist.

Why would a firm in a monopolistically competitive industry advertise?

How do advertising and other selling costs affect a firm?

-Kevin owns a personal training gymnasium in Orlando.The above figure shows the demand and cost curves for his firm,which competes in a monopolistically competitive market.What price will Kevin charge per session?

The major difference between monopolistic competition and monopoly is

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

Which of the following characterize a firm in monopolistic competition in the long run? i.operating at the minimum efficient scale ii.markups of price over marginal cost iii.zero economic profit

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

If a large number of firms are competing,the market could be

If firms in monopolistic competition are making economic profits,eventually

-There are 9 firms in an industry with market shares in the table above.Calculate the HHI for the industry.What kind of market does this operate in and why?

The absence of barriers to entry in monopolistic competition means that in the long run firms

An industry has only four firms,who have market shares of 45 percent,25 percent,20 percent,and 10 percent.What is the Herfindahl-Hirschman Index?

If the HHI for the widget industry is 1,200,then the market structure is

Firms in which of the following industries can make an economic profit in the long run?

For a firm in monopolistic competition,innovation and product development are

Firms decide how much to spend on product development and marketing by

In the long run,firms in monopolistic competition produce at a level that is ________ the efficient scale of output.

-The above figure shows a motel engaged in monopolistic competition with other motels.the figure above shows the equilibrium in which the motel is .

Which of the following is correct?

In an industry with a large number of firms,

Getting Started

The Usand 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

Why would a firm in a monopolistically competitive industry advertise?

How do advertising and other selling costs affect a firm?

-Kevin owns a personal training gymnasium in Orlando.The above figure shows the demand and cost curves for his firm,which competes in a monopolistically competitive market.What price will Kevin charge per session?

The major difference between monopolistic competition and monopoly is

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

Which of the following characterize a firm in monopolistic competition in the long run? i.operating at the minimum efficient scale ii.markups of price over marginal cost iii.zero economic profit

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

If a large number of firms are competing,the market could be

If firms in monopolistic competition are making economic profits,eventually

-There are 9 firms in an industry with market shares in the table above.Calculate the HHI for the industry.What kind of market does this operate in and why?

The absence of barriers to entry in monopolistic competition means that in the long run firms

An industry has only four firms,who have market shares of 45 percent,25 percent,20 percent,and 10 percent.What is the Herfindahl-Hirschman Index?

If the HHI for the widget industry is 1,200,then the market structure is

Firms in which of the following industries can make an economic profit in the long run?

For a firm in monopolistic competition,innovation and product development are

Firms decide how much to spend on product development and marketing by

In the long run,firms in monopolistic competition produce at a level that is ________ the efficient scale of output.

-The above figure shows a motel engaged in monopolistic competition with other motels.the figure above shows the ________ equilibrium in which the motel is ________ .

Which of the following is correct?

In an industry with a large number of firms,

Getting Started

The Usand 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

-The above figure shows a motel engaged in monopolistic competition with other motels.the figure above shows the equilibrium in which the motel is .