Question 1

ACME, Inc. operates in a market structure in which there are many other firms that find it easy to enter or exit. ACME is operating in ________ market.

Accepted Answer

A) definitely a perfectly competitive 
B) a perfectly competitive or a monopolistically competitive 
C) definitely a monopolistically competitive 
D) neither a perfectly competitive nor a monopolistically competitive 
E) a monopolistic 
A) definitely a perfectly competitive 
B) a perfectly competitive or a monopolistically competitive 
C) definitely a monopolistically competitive 
D) neither a perfectly competitive nor a monopolistically competitive 
E) a monopolistic

Question 2

Advertising costs are ________ costs and the per unit cost of advertising ________ as production increases.

Accepted Answer

A) fixed; increases 
B) variable; increases 
C) fixed; decreases 
D) variable; does not change 
E) variable; decreases 
A) fixed; increases 
B) variable; increases 
C) fixed; decreases 
D) variable; does not change 
E) variable; decreases

Question 3

Use the figure below to answer the following questions.
   
Figure 14.2.1
-Refer to Figure 14.2.1. If this firm in monopolistic competition is in short-run equilibrium, then

Accepted Answer

A) rival firms will enter the industry. 
B) all firms will exit the industry. 
C) economic profit of all firms in the industry is zero. 
D) it produces 60 units of output to maximize economic profit. 
E) the firm's profits can be expected to rise over time. 
A) rival firms will enter the industry. 
B) all firms will exit the industry. 
C) economic profit of all firms in the industry is zero. 
D) it produces 60 units of output to maximize economic profit. 
E) the firm's profits can be expected to rise over time.

Question 4

Excess capacity and high advertising expenditures are encountered in

Accepted Answer

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

Question 5

Which one of the following characteristics is shared by perfect competition and monopolistic competition?

Accepted Answer

A) Firms face a downward-sloping demand curve. 
B) Profit-maximizing quantity occurs where MC = MR. 
C) Long-run equilibrium price equals minimum ATC. 
D) Firms make an economic profit in the long run. 
E) Demand is perfectly elastic. 
A) Firms face a downward-sloping demand curve. 
B) Profit-maximizing quantity occurs where MC = MR. 
C) Long-run equilibrium price equals minimum ATC. 
D) Firms make an economic profit in the long run. 
E) Demand is perfectly elastic.

Question 6

Advertising costs in monopolistic competition increase a firm's

Accepted Answer

A) total fixed cost. 
B) marginal cost. 
C) total variable cost. 
D) average variable cost. 
E) marginal revenue. 
A) total fixed cost. 
B) marginal cost. 
C) total variable cost. 
D) average variable cost. 
E) marginal revenue.

Question 7

A textbook publisher is in monopolistic competition. If the firm spends nothing on advertising, it can sell no books at $100 a book, but for each $10 cut in price, the quantity of books it can sell increases by 20 books a day. The firm's total fixed cost is $2,400 a day. Its average variable cost and marginal cost is a constant $20 per book. If the firm spends $1,200 a day on advertising, it can increase the quantity of books sold at each price by 50 percent. If the publisher advertises, its profit maximizing price per book is

Accepted Answer

A) $40. 
B) $50. 
C) $60. 
D) $70. 
E) $20. 
A) $40. 
B) $50. 
C) $60. 
D) $70. 
E) $20.

Question 8

In the long run, the firm in monopolistic competition

Accepted Answer

A) faces a perfectly elastic demand. 
B) produces more than the quantity at minimum ATC. 
C) produces less than the quantity at minimum ATC. 
D) produces the quantity at minimum ATC. 
E) makes an economic profit. 
A) faces a perfectly elastic demand. 
B) produces more than the quantity at minimum ATC. 
C) produces less than the quantity at minimum ATC. 
D) produces the quantity at minimum ATC. 
E) makes an economic profit.

Question 9

Within a monopolistically competitive industry,

Accepted Answer

A) firms can freely enter and exit, and economic profit is zero in the long run. 
B) firms can freely enter and exit, and economic profit is greater than zero in the long run. 
C) there are some barriers to entry and exit, and economic profit is zero in the long run. 
D) there are some barriers to entry and exit, and economic profit is greater than zero in the long run. 
E) firms can freely enter and exit, and economic profit is zero in the short run. 
A) firms can freely enter and exit, and economic profit is zero in the long run. 
B) firms can freely enter and exit, and economic profit is greater than zero in the long run. 
C) there are some barriers to entry and exit, and economic profit is zero in the long run. 
D) there are some barriers to entry and exit, and economic profit is greater than zero in the long run. 
E) firms can freely enter and exit, and economic profit is zero in the short run.

Question 10

Choose the correct statement about firms in monopolistic competition.

Accepted Answer

A) All firms make positive economic profit. 
B) The price is set equal to marginal cost to achieve maximum economic profit. 
C) Price is lower than in perfect competition. 
D) Production always takes place at minimum average total cost. 
E) The price is always greater than the marginal cost. 
A) All firms make positive economic profit. 
B) The price is set equal to marginal cost to achieve maximum economic profit. 
C) Price is lower than in perfect competition. 
D) Production always takes place at minimum average total cost. 
E) The price is always greater than the marginal cost.

Question 11

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. In the long run, Roots' economic profit is

Accepted Answer

A) positive. 
B) negative. 
C) zero. 
D) greater than the economic profit of its competitors. 
E) less than the economic profit of its competitors. 
A) positive. 
B) negative. 
C) zero. 
D) greater than the economic profit of its competitors. 
E) less than the economic profit of its competitors.

Question 12

Use the figure below to answer the following questions.
   
Figure 14.2.1
-Refer to Figure 14.2.1. If this firm is in monopolistic competition, it will produce an output level

Accepted Answer

A) of 40 units. 
B) of 60 units. 
C) of 80 units. 
D) that is less than 40 units. 
E) that is impossible to determine without information concerning the rival firms. 
A) of 40 units. 
B) of 60 units. 
C) of 80 units. 
D) that is less than 40 units. 
E) that is impossible to determine without information concerning the rival firms.

Question 13

The four-firm concentration ratio for men's clothing makers is 27 and for electric lamp makers it is 89. The HHI for men's clothing makers is 362 and for electric lamp makers it is 2,850. The men's clothing market ________ an example of monopolistic competition. The electric lamp market ________ an example of monopolistic competition.

Accepted Answer

A) is; is 
B) is not; is 
C) is; is not 
D) is not; is not 
E) sometimes is and sometimes is not; sometimes is and sometimes is not 
A) is; is 
B) is not; is 
C) is; is not 
D) is not; is not 
E) sometimes is and sometimes is not; sometimes is and sometimes is not

Question 14

In the long run, a monopolistically competitive firm will make the same economic profit as

Accepted Answer

A) a monopolistically competitive firm in the short run. 
B) a single-price monopoly. 
C) a price-discriminating monopoly. 
D) a perfectly competitive firm in long-run equilibrium. 
E) a perfectly competitive firm in short-run equilibrium. 
A) a monopolistically competitive firm in the short run. 
B) a single-price monopoly. 
C) a price-discriminating monopoly. 
D) a perfectly competitive firm in long-run equilibrium. 
E) a perfectly competitive firm in short-run equilibrium.

Question 15

Monopolistic competition might be efficient if

Accepted Answer

A) firms invested in technology that decreased the marginal cost of production. 
B) more firms entered the industry. 
C) firms left the industry. 
D) the loss that arises because the quantity produced is less than the efficient quantity is offset by the gain that arises from having a greater degree of product variety. 
E) firms made more use of brand names. 
A) firms invested in technology that decreased the marginal cost of production. 
B) more firms entered the industry. 
C) firms left the industry. 
D) the loss that arises because the quantity produced is less than the efficient quantity is offset by the gain that arises from having a greater degree of product variety. 
E) firms made more use of brand names.

Question 16

Use the figure below to answer the following questions.
   
Figure 14.2.2
-Refer to Figure 14.2.2. If this firm in monopolistic competition is maximizing economic profit,

Accepted Answer

A) there will be entry of rival firms into the industry. 
B) rival firms will exit the industry. 
C) its profit will rise over time. 
D) this firm will exit the industry in the long run. 
E) it is in long-run equilibrium. 
A) there will be entry of rival firms into the industry. 
B) rival firms will exit the industry. 
C) its profit will rise over time. 
D) this firm will exit the industry in the long run. 
E) it is in long-run equilibrium.

Question 17

In monopolistic competition

Accepted Answer

A) firms practice product differentiation. 
B) the goods produced by each firm are identical. 
C) firms do not have any control over the price of their products. 
D) there are barriers to entry. 
E) a small number of firms compete. 
A) firms practice product differentiation. 
B) the goods produced by each firm are identical. 
C) firms do not have any control over the price of their products. 
D) there are barriers to entry. 
E) a small number of firms compete.

Question 18

When firms in monopolistic competition incur an economic loss,

Accepted Answer

A) firms enter the industry and produce better products. 
B) firms exit the industry, and demand increases for the products of the firms that remain. 
C) firms exit the industry, and demand decreases for the firms that remain in the industry. 
D) firms enter the industry, and demand increases for the firms that were originally in the industry. 
E) the industry will eventually disappear. 
A) firms enter the industry and produce better products. 
B) firms exit the industry, and demand increases for the products of the firms that remain. 
C) firms exit the industry, and demand decreases for the firms that remain in the industry. 
D) firms enter the industry, and demand increases for the firms that were originally in the industry. 
E) the industry will eventually disappear.

Question 19

The profit-maximizing condition for a firm in monopolistic competition is to produce the quantity at which

Accepted Answer

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

Question 20

Which one of the following is true for perfect competition, monopolistic competition, and single-price monopoly?

Accepted Answer

A) Each firm produces an identical good. 
B) Each firm makes zero long-run economic profit. 
C) The profit maximizing quantity occurs at the quantity at which MC = MR. 
D) There is easy entry and exit. 
E) Demand is perfectly elastic. 
A) Each firm produces an identical good. 
B) Each firm makes zero long-run economic profit. 
C) The profit maximizing quantity occurs at the quantity at which MC = MR. 
D) There is easy entry and exit. 
E) Demand is perfectly elastic.

Exam 14: Monopolistic Competition

ACME, Inc. operates in a market structure in which there are many other firms that find it easy to enter or exit. ACME is operating in ________ market.

Advertising costs are ________ costs and the per unit cost of advertising ________ as production increases.

Use the figure below to answer the following questions. Figure 14.2.1 -Refer to Figure 14.2.1. If this firm in monopolistic competition is in short-run equilibrium, then

Excess capacity and high advertising expenditures are encountered in

Which one of the following characteristics is shared by perfect competition and monopolistic competition?

Advertising costs in monopolistic competition increase a firm's

In the long run, the firm in monopolistic competition

Within a monopolistically competitive industry,

Choose the correct statement about firms in monopolistic competition.

Use the figure below to answer the following questions. Figure 14.2.1 -Refer to Figure 14.2.1. If this firm is in monopolistic competition, it will produce an output level

In the long run, a monopolistically competitive firm will make the same economic profit as

Monopolistic competition might be efficient if

Use the figure below to answer the following questions. Figure 14.2.2 -Refer to Figure 14.2.2. If this firm in monopolistic competition is maximizing economic profit,

In monopolistic competition

When firms in monopolistic competition incur an economic loss,

The profit-maximizing condition for a firm in monopolistic competition is to produce the quantity at which

Which one of the following is true for perfect competition, monopolistic competition, and single-price monopoly?

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

Advertising costs are costs and the per unit cost of advertising as production increases.