Question 1

Which of the following statements is true about marginal revenue?

Accepted Answer

A) If marginal revenue is zero, it means that quantity demanded falls to zero when a firm changes its price. 
B) If marginal revenue is negative, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. 
C) If marginal revenue is positive, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. 
D) Marginal revenue increases as price falls and quantity sold increases. 
A) If marginal revenue is zero, it means that quantity demanded falls to zero when a firm changes its price. 
B) If marginal revenue is negative, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. 
C) If marginal revenue is positive, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. 
D) Marginal revenue increases as price falls and quantity sold increases.

Question 2

Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

Accepted Answer

A) new entrants into the market are more likely to have cutting edge products. 
B) as the firm raises its price in the long run, it will lose some customers to new entrants in the market. 
C) some of its customers have switched to purchasing the products of new entrants in the market. 
D) its costs of production rises. 
A) new entrants into the market are more likely to have cutting edge products. 
B) as the firm raises its price in the long run, it will lose some customers to new entrants in the market. 
C) some of its customers have switched to purchasing the products of new entrants in the market. 
D) its costs of production rises.

Question 3

Assume price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should

Accepted Answer

A) continue to produce the same quantity. 
B) increase output. 
C) decrease output. 
D) shutdown. 
A) continue to produce the same quantity. 
B) increase output. 
C) decrease output. 
D) shutdown.

Question 4

Brand management refers to

Accepted Answer

A) picking a brand name for a new product that will attract attention. 
B) the efforts to maintain the differentiation of a product over time. 
C) efforts to reduce the cost of production. 
D) selling the right to use a brand name in a particular market. 
A) picking a brand name for a new product that will attract attention. 
B) the efforts to maintain the differentiation of a product over time. 
C) efforts to reduce the cost of production. 
D) selling the right to use a brand name in a particular market.

Question 5

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

Accepted Answer

A) The demand curve will shift to the left and became more elastic. 
B) The demand curve will shift to the left and became less elastic. 
C) The demand curve will shift to the right and became more elastic. 
D) The demand curve will shift to the right and became less elastic. 
A) The demand curve will shift to the left and became more elastic. 
B) The demand curve will shift to the left and became less elastic. 
C) The demand curve will shift to the right and became more elastic. 
D) The demand curve will shift to the right and became less elastic.

Question 6

How would a marketing campaign directed at single women improve the chances of success at a place like a cigar bar?

Accepted Answer

By marketing to single women, a cigar ba

Question 7

For a monopolistically competitive firm, price equals average revenue.

Accepted Answer

A) True 
 B)False

Question 8

Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that

Accepted Answer

A) firms produce at the minimum point of their average cost curves. 
B) price equals marginal cost. 
C) firms earn normal profits. 
D) price equals marginal revenue. 
A) firms produce at the minimum point of their average cost curves. 
B) price equals marginal cost. 
C) firms earn normal profits. 
D) price equals marginal revenue.

Question 9

Table 11.3
 $\begin{array}{|c|c|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Variable } \
\text { Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 21 & \$ 0 & \$ 0 & \$ 50 \
\hline 1 & 20 & 20 & 16 & 66 \
\hline 2 & 19 & 38 & 31 & 81 \
\hline 3 & 18 & 54 & 45 & 95 \
\hline 4 & 17 & 68 & 59 & 109 \
\hline 5 & 16 & 80 & 75 & 125 \
\hline 6 & 15 & 90 & 93 & 143 \
\hline 7 & 14 & 98 & 112 & 162 \
\hline 8 & 13 & 104 & 140 & 190 \
\hline 9 & 12 & 108 & 180 & 230 \
\hline 10 & 11 & 110 & 230 & 280 \
\hline
\end{array}$ 
Table 11.3 shows the demand and cost schedules for a monopolistically competitive firm.
-Refer to Table 11.3.What is its average variable cost of production at its optimal output level?

Accepted Answer

A) $0 (because its optimal output =0) 
B) $15 
C) $14.75 
D) $29 
A) $0 (because its optimal output =0) 
B) $15 
C) $14.75 
D) $29

Question 10

A monopolistically competitive industry that earns economic profits in the short run will face a more elastic demand curve in the long run.

Accepted Answer

A) True 
 B)False

Question 11

Table 11.2
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 75 & \$ 75 & \$ 60 \
\hline 2 & 70 & 140 & 85 \
\hline 3 & 65 & 195 & 105 \
\hline 4 & 60 & 240 & 115 \
\hline 5 & 55 & 275 & 130 \
\hline 6 & 50 & 300 & 155 \
\hline 7 & 45 & 315 & 190 \
\hline 8 & 40 & 320 & 230 \
\hline 9 & 35 & 315 & 280 \
\hline
\end{array}$ 
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11.2 shows the firm's demand and cost schedules.
-Refer to Table 11.2.What is the output (Q)that maximizes profit and what is the price (P)charged?

Accepted Answer

A) P=$55; Q=5 cases 
B) P=$50; Q=6 cases 
C) P=$45; Q=7 cases 
D) P=$40; Q=8 cases 
A) P=$55; Q=5 cases 
B) P=$50; Q=6 cases 
C) P=$45; Q=7 cases 
D) P=$40; Q=8 cases

Question 12

The key characteristics of a monopolistically competitive market structure include

Accepted Answer

A) many small (relative to the total market)sellers acting independently. 
B) all sellers sell a homogeneous product. 
C) barriers to entry are strong. 
D) sellers have no incentive to advertise their products. 
A) many small (relative to the total market)sellers acting independently. 
B) all sellers sell a homogeneous product. 
C) barriers to entry are strong. 
D) sellers have no incentive to advertise their products.

Question 13

Figure 11.3
   
Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 11.3.What is the area that represents the total variable cost of production?

Accepted Answer

A) 0P₀aQₐ 
B) 0P₁bQₐ 
C) P₀abP₁ 
D) P₁bdP₃ 
A) 0P₀aQₐ 
B) 0P₁bQₐ 
C) P₀abP₁ 
D) P₁bdP₃

Question 14

If a firm has excess capacity, it means

Accepted Answer

A) that the firm expends too much of its resources on advertising its product without seeing an appreciable increase in sales. 
B) that the firm is not producing its minimum efficient scale of output. 
C) that the firm's long-run average cost of producing a given quantity exceeds its short-run cost of producing that same quantity. 
D) that the firm's quantity supplied exceeds its quantity demanded. 
A) that the firm expends too much of its resources on advertising its product without seeing an appreciable increase in sales. 
B) that the firm is not producing its minimum efficient scale of output. 
C) that the firm's long-run average cost of producing a given quantity exceeds its short-run cost of producing that same quantity. 
D) that the firm's quantity supplied exceeds its quantity demanded.

Question 15

Juicy Couture has been successful in selling women's clothing using an unusual strategy.
According to an article in the Wall Street Journal, the key to the firm's strategy is to "limit distribution to maintain the brand's exclusive cachet, even if that means sacrificing sales, a brand-management technique once used only for high-end luxury brands." In 2006, Juicy clothes were sold in only four department stores: Neiman Marcus, Saks, Bloomingdale's, and Nordstrom.In 2006, its sales have more than quadrupled since 2002.
Source: Rachel Dodes, "From Track Suits to Fast Track," Wall Street Journal, September 13, 2006.
How does limiting the number of stores in which Juicy's products are sold contribute to its success?

Accepted Answer

A) By sacrificing sales, the company was able to focus on producing high quality products. 
B) It enables Juicy to price its products at a premium and differentiate them from lower priced products. 
C) It helps establish Juicy's products as luxury items favored by the very wealthy. 
D) Maintaining the exclusivity of a product increases the demand for the product. 
A) By sacrificing sales, the company was able to focus on producing high quality products. 
B) It enables Juicy to price its products at a premium and differentiate them from lower priced products. 
C) It helps establish Juicy's products as luxury items favored by the very wealthy. 
D) Maintaining the exclusivity of a product increases the demand for the product.

Question 16

Figure 11.6
  
-Refer to Figure 11.6.What is the allocatively efficient output for the firm represented in the diagram?

Accepted Answer

A) Q₁ units 
B) Q₂ units 
C) Q₃ units 
D) Q₄ units 
A) Q₁ units 
B) Q₂ units 
C) Q₃ units 
D) Q₄ units

Question 17

Why do most firms in monopolistic competition typically make zero profit in the long run?

Accepted Answer

A) because firms produce differentiated products 
B) because the lack of entry barriers would compete away profits 
C) because firms do not produce at their minimum efficient scale 
D) because the total market is not large enough to accommodate so many firms 
A) because firms produce differentiated products 
B) because the lack of entry barriers would compete away profits 
C) because firms do not produce at their minimum efficient scale 
D) because the total market is not large enough to accommodate so many firms

Question 18

If a monopolistically competitive firm breaks even, the firm is earning as much in this industry as it could in any other comparable industry.

Accepted Answer

A) True 
 B)False

Question 19

JoJo's Cigar Bar is attempting to set itself apart from its competition by marketing to single women.This is an example of

Accepted Answer

A) defending a brand name. 
B) blocking entry into the market. 
C) legally enforcing a trademark. 
D) product differentiation. 
A) defending a brand name. 
B) blocking entry into the market. 
C) legally enforcing a trademark. 
D) product differentiation.

Question 20

A monopolistically competitive firm faces a downward-sloping demand curve because

Accepted Answer

A) it is able to control price and quantity demanded. 
B) there are few substitutes for its product. 
C) of product differentiation. 
D) its market decisions are affected by the decisions of its rivals. 
A) it is able to control price and quantity demanded. 
B) there are few substitutes for its product. 
C) of product differentiation. 
D) its market decisions are affected by the decisions of its rivals.

Which of the following statements is true about marginal revenue?

Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

Assume price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should

Brand management refers to

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

How would a marketing campaign directed at single women improve the chances of success at a place like a cigar bar?

For a monopolistically competitive firm, price equals average revenue.

Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that

A monopolistically competitive industry that earns economic profits in the short run will face a more elastic demand curve in the long run.

The key characteristics of a monopolistically competitive market structure include

Figure 11.3 Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11.3.What is the area that represents the total variable cost of production?

If a firm has excess capacity, it means

Figure 11.6 -Refer to Figure 11.6.What is the allocatively efficient output for the firm represented in the diagram?

Why do most firms in monopolistic competition typically make zero profit in the long run?

If a monopolistically competitive firm breaks even, the firm is earning as much in this industry as it could in any other comparable industry.

JoJo's Cigar Bar is attempting to set itself apart from its competition by marketing to single women.This is an example of

A monopolistically competitive firm faces a downward-sloping demand curve because

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labour and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Pricing Strategy

Firms, the Stock Market, and Corporate Governance

Filters

Exam 11: Monopolistic Competition

Which of the following statements is true about marginal revenue?

Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

Assume price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should

Brand management refers to

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

How would a marketing campaign directed at single women improve the chances of success at a place like a cigar bar?

For a monopolistically competitive firm, price equals average revenue.

Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that

A monopolistically competitive industry that earns economic profits in the short run will face a more elastic demand curve in the long run.

The key characteristics of a monopolistically competitive market structure include

Figure 11.3 Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11.3.What is the area that represents the total variable cost of production?

If a firm has excess capacity, it means

Figure 11.6 -Refer to Figure 11.6.What is the allocatively efficient output for the firm represented in the diagram?

Why do most firms in monopolistic competition typically make zero profit in the long run?

If a monopolistically competitive firm breaks even, the firm is earning as much in this industry as it could in any other comparable industry.

JoJo's Cigar Bar is attempting to set itself apart from its competition by marketing to single women.This is an example of

A monopolistically competitive firm faces a downward-sloping demand curve because

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labour and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Pricing Strategy

Firms, the Stock Market, and Corporate Governance

Filters