Question 1

Selling costs

Accepted Answer

A) are variable costs that increase total cost. 
B) always increase demand for a firm's product. 
C) always decrease demand by increasing competition. 
D) always provide consumers with valuable services. 
E) include marketing expenditures on advertising and packaging. 
A) are variable costs that increase total cost. 
B) always increase demand for a firm's product. 
C) always decrease demand by increasing competition. 
D) always provide consumers with valuable services. 
E) include marketing expenditures on advertising and packaging. E

Question 2

A firm's efficient scale is the quantity at which ________ is a minimum. A firm has excess capacity if it produces ________ its efficient scale.

Accepted Answer

A) average total cost; below 
B) marginal cost; above 
C) average total cost; above 
D) marginal cost; below 
E) average variable cost; below 
A) average total cost; below 
B) marginal cost; above 
C) average total cost; above 
D) marginal cost; below 
E) average variable cost; below A

Question 3

Monopolistic competition differs from monopoly because in monopolistic competition

Accepted Answer

A) firms maximize profits. 
B) firms set marginal revenue equal to marginal cost to maximize profit. 
C) firms are free to enter and exit. 
D) All of the above are differences between monopoly and monopolistically competitive firms. 
E) None of the above are differences between monopoly and monopolistically competitive firms. 
A) firms maximize profits. 
B) firms set marginal revenue equal to marginal cost to maximize profit. 
C) firms are free to enter and exit. 
D) All of the above are differences between monopoly and monopolistically competitive firms. 
E) None of the above are differences between monopoly and monopolistically competitive firms. C

Question 4

Mrs. Smith's bakery shop is a firm in monopolistic competition. The firm's marginal revenue curve

Accepted Answer

A) is upward sloping. 
B) is downward sloping and above the demand curve. 
C) is a horizontal line. 
D) is the same as the demand curve. 
E) is downward sloping and lies below the demand curve. 
A) is upward sloping. 
B) is downward sloping and above the demand curve. 
C) is a horizontal line. 
D) is the same as the demand curve. 
E) is downward sloping and lies below the demand curve.

Question 5

The existence of a large number of firms in monopolistic competition

Accepted Answer

A) means that each firm has a small market share. 
B) makes it possible for each firm's price to deviate by a large amount from the average price of the other firms. 
C) means that a firm must pay attention to the behaviour of all of its competitors. 
D) makes collusion highly likely. 
E) means that each firm is a price taker. 
A) means that each firm has a small market share. 
B) makes it possible for each firm's price to deviate by a large amount from the average price of the other firms. 
C) means that a firm must pay attention to the behaviour of all of its competitors. 
D) makes collusion highly likely. 
E) means that each firm is a price taker.

Question 6

Toronto has a large number of retail stores that sell clothes. Each store has its own characteristics which differ from the other stores. The clothing business in Toronto is an example of

Accepted Answer

A) a duopoly. 
B) an oligopoly. 
C) a perfectly competitive market. 
D) a monopoly. 
E) a monopolistically competitive market. 
A) a duopoly. 
B) an oligopoly. 
C) a perfectly competitive market. 
D) a monopoly. 
E) a monopolistically competitive market.

Question 7

Use the figure below to answer the following questions.
   
Figure 14.2.4
-Refer to Figure 14.2.4. The figure represents a monopolistically competitive firm in short-run equilibrium. In the long run,

Accepted Answer

A) new firms enter, and each existing firm's demand curve shifts leftward. 
B) new firms enter, and each existing firm's demand curve shifts rightward. 
C) existing firms exit, and each remaining firm's demand curve shifts leftward. 
D) existing firms exit, and each remaining firm's demand curve shifts rightward. 
E) the equilibrium is the same as in the short run. 
A) new firms enter, and each existing firm's demand curve shifts leftward. 
B) new firms enter, and each existing firm's demand curve shifts rightward. 
C) existing firms exit, and each remaining firm's demand curve shifts leftward. 
D) existing firms exit, and each remaining firm's demand curve shifts rightward. 
E) the equilibrium is the same as in the short run.

Question 8

Firefox, Internet Explorer, and Google Chrome browsers are an example of

Accepted Answer

A) goods produced in perfectly competitive markets. 
B) goods produced by monopolies. 
C) product differentiation. 
D) goods that are identical. 
E) product similarity. 
A) goods produced in perfectly competitive markets. 
B) goods produced by monopolies. 
C) product differentiation. 
D) goods that are identical. 
E) product similarity.

Question 9

The real estate industry is monopolistically competitive, so in this industry

Accepted Answer

A) the market demand curve is a horizontal line. 
B) the market demand curve is upward sloping. 
C) there are few realtors in the market. 
D) excess capacity exists. 
E) excess capacity does not exist. 
A) the market demand curve is a horizontal line. 
B) the market demand curve is upward sloping. 
C) there are few realtors in the market. 
D) excess capacity exists. 
E) excess capacity does not exist.

Question 10

Firms in monopolistic competition constantly develop new products in an effort to

Accepted Answer

A) increase the demand for their product. 
B) make the demand for their product unit elastic. 
C) increase the marginal cost of their product. 
D) decrease average total cost. 
E) decrease average fixed cost. 
A) increase the demand for their product. 
B) make the demand for their product unit elastic. 
C) increase the marginal cost of their product. 
D) decrease average total cost. 
E) decrease average fixed cost.

Question 11

If some firms in the industry make an economic profit, then

Accepted Answer

A) the industry cannot be perfectly competitive. 
B) the industry must be monopolistically competitive. 
C) rival firms will enter if there are no barriers to entry. 
D) the firms must practice product differentiation. 
E) the industry must be an oligopoly. 
A) the industry cannot be perfectly competitive. 
B) the industry must be monopolistically competitive. 
C) rival firms will enter if there are no barriers to entry. 
D) the firms must practice product differentiation. 
E) the industry must be an oligopoly.

Question 12

Use the figure below to answer the following questions.
   
Figure 14.2.1
-Refer to Figure 14.2.1. This firm in monopolistic competition will

Accepted Answer

A) make an economic profit in the short run. 
B) make zero economic profit in the short run. 
C) incur an economic loss. 
D) make an economic profit in the long run. 
E) incur an economic loss in the long run. 
A) make an economic profit in the short run. 
B) make zero economic profit in the short run. 
C) incur an economic loss. 
D) make an economic profit in the long run. 
E) incur an economic loss in the long run.

Question 13

Use the information below to answer the following questions.
Fact 14.3.3
Suppose that Roots' marginal cost of a jacket is a constant $125.00 and the total fixed cost at one of its stores is $1,500 a day. This store sells 20 jackets a day, which is its profit-maximizing number of jackets. Then the stores nearby start to advertise their jackets. The Roots store now spends $2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 70 a day.
-Refer to Fact 14.3.3. If the nearby firms' advertising decreases the demand for Roots' jackets and makes the demand more elastic, the price of a Roots' jacket ________. If Roots' advertising increases the demand for Roots' jackets and makes the demand less elastic, the price of a Roots' jacket ________.

Accepted Answer

A) falls; rises 
B) rises; rises 
C) rises; falls 
D) falls; falls 
E) does not change; does not change 
A) falls; rises 
B) rises; rises 
C) rises; falls 
D) falls; falls 
E) does not change; does not change

Question 14

Firms in monopolistic competition have rivals that

Accepted Answer

A) will always match their price increases. 
B) will always match their price decreases but not their price increases. 
C) all agree on a common price. 
D) set their price where the demand curve is tangent to the average cost curve. 
E) set their price according to the demand they face. 
A) will always match their price increases. 
B) will always match their price decreases but not their price increases. 
C) all agree on a common price. 
D) set their price where the demand curve is tangent to the average cost curve. 
E) set their price according to the demand they face.

Question 15

Firms in monopolistic competition in the short run always

Accepted Answer

A) set price above marginal cost. 
B) make an economic profit. 
C) set price equal to marginal cost. 
D) produce at the minimum average total cost. 
E) break even. 
A) set price above marginal cost. 
B) make an economic profit. 
C) set price equal to marginal cost. 
D) produce at the minimum average total cost. 
E) break even.

Question 16

Advertising costs of a monopolistically competitive firm are

Accepted Answer

A) greater than a monopoly and the same as a perfectly competitive firm. 
B) greater than a perfectly competitive firm. 
C) less than a perfectly competitive firm. 
D) the same as a monopoly. 
E) less than a monopoly. 
A) greater than a monopoly and the same as a perfectly competitive firm. 
B) greater than a perfectly competitive firm. 
C) less than a perfectly competitive firm. 
D) the same as a monopoly. 
E) less than a monopoly.

Question 17

Which of the following statements regarding monopolist competition is FALSE?

Accepted Answer

A) Resources are used efficiently when marginal social benefit equals marginal social cost. 
B) A greater degree of product variety creates a loss because the quantity produced is less than the efficient quantity. 
C) Monopolistic competition is definitely inefficient because price exceeds marginal cost. 
D) Compared to a situation with total product uniformity, monopolist competition might be efficient. 
E) A firm in monopolistic competition produces a quantity that is less than the efficient scale. 
A) Resources are used efficiently when marginal social benefit equals marginal social cost. 
B) A greater degree of product variety creates a loss because the quantity produced is less than the efficient quantity. 
C) Monopolistic competition is definitely inefficient because price exceeds marginal cost. 
D) Compared to a situation with total product uniformity, monopolist competition might be efficient. 
E) A firm in monopolistic competition produces a quantity that is less than the efficient scale.

Question 18

Use the figure below to answer the following questions.
   
Figure 14.2.5
-Refer to Figure 14.2.5 The figure shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. What is the firm's economic profit per day?

Accepted Answer

A) zero 
B) between $1 and $700 
C) between $701 and $900 
D) more than $901 
E) less than zero 
A) zero 
B) between $1 and $700 
C) between $701 and $900 
D) more than $901 
E) less than zero

Question 19

In the long-run, a firm in monopolistic competition produces at an output level where

Accepted Answer

A) P > ATC and MR = MC. 
B) P > ATC and MR > MC. 
C) P = ATC and MR = MC. 
D) P = ATC and MR > MC. 
E) P > ATC and MC > ATC. 
A) P > ATC and MR = MC. 
B) P > ATC and MR > MC. 
C) P = ATC and MR = MC. 
D) P = ATC and MR > MC. 
E) P > ATC and MC > ATC.

Question 20

For a monopolistically competitive firm to be making an economic profit,

Accepted Answer

A) the production period must be the short run. 
B) the production period must be the long run. 
C) rival firms must not exist. 
D) its rivals must also be making an economic profit. 
E) barriers to entry must exist. 
A) the production period must be the short run. 
B) the production period must be the long run. 
C) rival firms must not exist. 
D) its rivals must also be making an economic profit. 
E) barriers to entry must exist.

Exam 14: Monopolistic Competition

Selling costs

A firm's efficient scale is the quantity at which ________ is a minimum. A firm has excess capacity if it produces ________ its efficient scale.

Monopolistic competition differs from monopoly because in monopolistic competition

Mrs. Smith's bakery shop is a firm in monopolistic competition. The firm's marginal revenue curve

The existence of a large number of firms in monopolistic competition

Toronto has a large number of retail stores that sell clothes. Each store has its own characteristics which differ from the other stores. The clothing business in Toronto is an example of

Use the figure below to answer the following questions. Figure 14.2.4 -Refer to Figure 14.2.4. The figure represents a monopolistically competitive firm in short-run equilibrium. In the long run,

Firefox, Internet Explorer, and Google Chrome browsers are an example of

The real estate industry is monopolistically competitive, so in this industry

Firms in monopolistic competition constantly develop new products in an effort to

If some firms in the industry make an economic profit, then

Use the figure below to answer the following questions. Figure 14.2.1 -Refer to Figure 14.2.1. This firm in monopolistic competition will

Firms in monopolistic competition have rivals that

Firms in monopolistic competition in the short run always

Advertising costs of a monopolistically competitive firm are

Which of the following statements regarding monopolist competition is FALSE?

Use the figure below to answer the following questions. Figure 14.2.5 -Refer to Figure 14.2.5 The figure shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. What is the firm's economic profit per day?

In the long-run, a firm in monopolistic competition produces at an output level where

For a monopolistically competitive firm to be making an economic profit,

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

Filters

A firm's efficient scale is the quantity at which is a minimum. A firm has excess capacity if it produces its efficient scale.