Question 1

Under monopolistic competition, long-run economic profit is zero because of

Accepted Answer

A) product differentiation. 
B) no barriers to entry. 
C) excess capacity. 
D) economic inefficiency. 
E) the downward-sloping demand curve facing each firm. 
A) product differentiation. 
B) no barriers to entry. 
C) excess capacity. 
D) economic inefficiency. 
E) the downward-sloping demand curve facing each firm.

Question 2

In monopolistically competitive industries,

Accepted Answer

A) firms compete on quality, price and marketing. 
B) the range of choice of products is the same as in perfectly competitive industries. 
C) firms are insensitive to changes in consumer demand. 
D) all firms produce a quantity at which marginal cost is greater than marginal benefit. 
E) all firms make an economic profit. 
A) firms compete on quality, price and marketing. 
B) the range of choice of products is the same as in perfectly competitive industries. 
C) firms are insensitive to changes in consumer demand. 
D) all firms produce a quantity at which marginal cost is greater than marginal benefit. 
E) all firms make an economic profit.

Question 3

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 4

Use the figure below to answer the following questions.
   
Figure 14.2.2
-Refer to Figure 14.2.2.To maximize economic profit, this firm in monopolistic competition produces an output

Accepted Answer

A) of 40 units. 
B) of 70 units. 
C) of 60 units. 
D) of less than 40 units. 
E) that cannot be determined without information concerning rival firms. 
A) of 40 units. 
B) of 70 units. 
C) of 60 units. 
D) of less than 40 units. 
E) that cannot be determined without information concerning rival firms.

Question 5

Which one of the following characteristics is not shared by single-price monopoly and monopolistic competition?

Accepted Answer

A) Firms face a downward-sloping demand curve. 
B) Profit-maximizing quantity occurs where MC = MR. 
C) Price charged is the highest consumers are willing to pay. 
D) Firms make an economic profit in the long run. 
E) The marginal revenue curve lies below the demand curve. 
A) Firms face a downward-sloping demand curve. 
B) Profit-maximizing quantity occurs where MC = MR. 
C) Price charged is the highest consumers are willing to pay. 
D) Firms make an economic profit in the long run. 
E) The marginal revenue curve lies below the demand curve.

Question 6

Use the information below to answer the following questions.
Fact 14.1.1
For automobiles the HHI is 2,350, for sporting goods it is 161, for batteries it is 2,883, and for jewellery it is 81.
-Refer to Fact 14.1.1.The market for batteries is ________ and the market for jewellery is ________.

Accepted Answer

A) monopolistic competition; an oligopoly 
B) a monopoly; monopolistic competition 
C) a monopoly; perfectly competitive 
D) an oligopoly; monopolistic competition 
E) an oligopoly; an oligopoly 
A) monopolistic competition; an oligopoly 
B) a monopoly; monopolistic competition 
C) a monopoly; perfectly competitive 
D) an oligopoly; monopolistic competition 
E) an oligopoly; an oligopoly

Question 7

Use the figure below to answer the following questions.
   
Figure 14.2.3
-Refer to Figure 14.2.3.Assume this firm faces demand curve D₂.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) it is producing the efficient quantity. 
D) the number of firms in the industry will remain constant. 
E) economic profit will fall over time. 
A) there will be entry of rival firms into the industry. 
B) rival firms will exit the industry. 
C) it is producing the efficient quantity. 
D) the number of firms in the industry will remain constant. 
E) economic profit will fall over time.

Question 8

In the long run, a monopolistically competitive firm produces the output at which price equals

Accepted Answer

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

Question 9

Consider a monopolistically competitive industry in long-run equilibrium.Suppose there is a large increase in wages that raises the costs for all firms.What happens within each firm in the short run?

Accepted Answer

A) They will be forced to close down due to the excess costs. 
B) They will continue producing as before, cushioned by their previous excess profits. 
C) They will expand output and try to make up for lost profits. 
D) They will lower prices and try to steal customers away from their rivals. 
E) They will decrease production and produce the quantity at which marginal revenue equals the new (higher)marginal cost curve; this means a rise in price. 
A) They will be forced to close down due to the excess costs. 
B) They will continue producing as before, cushioned by their previous excess profits. 
C) They will expand output and try to make up for lost profits. 
D) They will lower prices and try to steal customers away from their rivals. 
E) They will decrease production and produce the quantity at which marginal revenue equals the new (higher)marginal cost curve; this means a rise in price.

Question 10

In monopolistic competition, firms can make an economic profit in

Accepted Answer

A) the short run but not in the long run. 
B) the short run and in the long run. 
C) the long run but not in the short run. 
D) neither the short run nor the long run. 
E) always in the short run and sometimes but not frequently in the long run. 
A) the short run but not in the long run. 
B) the short run and in the long run. 
C) the long run but not in the short run. 
D) neither the short run nor the long run. 
E) always in the short run and sometimes but not frequently in the long run.

Question 11

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 12

In long-run equilibrium, a firm in monopolistic competition

Accepted Answer

A) makes zero economic profit and operates with excess capacity. 
B) makes zero economic profit and produces above capacity output. 
C) makes a positive economic profit and operates with excess capacity. 
D) makes a positive economic profit and produces above capacity output. 
E) incurs an economic loss and exits the market. 
A) makes zero economic profit and operates with excess capacity. 
B) makes zero economic profit and produces above capacity output. 
C) makes a positive economic profit and operates with excess capacity. 
D) makes a positive economic profit and produces above capacity output. 
E) incurs an economic loss and exits the market.

Question 13

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 14

Use the information below to answer the following questions.
Fact 14.1.1
For automobiles the HHI is 2,350, for sporting goods it is 161, for batteries it is 2,883, and for jewellery it is 81.
-Refer to Fact 14.1.1.The market for automobiles is ________ and the market for sporting goods is ________.

Accepted Answer

A) monopolistic competition; an oligopoly 
B) an oligopoly; perfectly competitive 
C) an oligopoly; monopolistic competition 
D) an oligopoly; an oligopoly 
E) Perfectly competitive; perfectly competitive 
A) monopolistic competition; an oligopoly 
B) an oligopoly; perfectly competitive 
C) an oligopoly; monopolistic competition 
D) an oligopoly; an oligopoly 
E) Perfectly competitive; perfectly competitive

Question 15

Product differentiation exists within an industry when

Accepted Answer

A) there are no substitutes for the product. 
B) the firm can sell all it wants at the given price. 
C) the market is a monopoly. 
D) the market is perfectly competitive. 
E) there are close but not perfect substitutes for the product. 
A) there are no substitutes for the product. 
B) the firm can sell all it wants at the given price. 
C) the market is a monopoly. 
D) the market is perfectly competitive. 
E) there are close but not perfect substitutes for the product.

Question 16

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 17

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.After the advertising begins, the average total cost of a jacket sold in this store is

Accepted Answer

A) $200.00. 
B) $175.00. 
C) $150.00. 
D) $125.00. 
E) $100.00. 
A) $200.00. 
B) $175.00. 
C) $150.00. 
D) $125.00. 
E) $100.00.

Question 18

Consider a monopolistically competitive industry which is in long-run equilibrium. Which of the following is true?

Accepted Answer

A) All firms charge a price equal to average total cost. 
B) All firms charge a price equal to marginal cost. 
C) All firms make an economic profit. 
D) The demand, average total cost, and marginal cost curves all intersect at the same point. 
E) Firms have an incentive to enter the industry. 
A) All firms charge a price equal to average total cost. 
B) All firms charge a price equal to marginal cost. 
C) All firms make an economic profit. 
D) The demand, average total cost, and marginal cost curves all intersect at the same point. 
E) Firms have an incentive to enter the industry.

Question 19

Use the figure below to answer the following questions.
   
Figure 14.2.3
-Refer to Figure 14.2.3.Assume this firm faces demand curve D₁.If the firm produced the efficient quantity, it would produce

Accepted Answer

A) 100 units. 
B) 220 units. 
C) 200 units. 
D) 250 units. 
E) 140 units. 
A) 100 units. 
B) 220 units. 
C) 200 units. 
D) 250 units. 
E) 140 units.

Question 20

Use the information below to answer the following questions.
Fact 14.3.2
Suppose that Tommy Hilfiger's marginal cost of a jacket is $100 (a constant marginal cost)and at one of the firm's shops, total fixed cost is $2,000 a day. The profit-maximizing number of jackets sold in this shop is 20 a day. Then the shops nearby start to advertise their jackets. The Tommy Hilfiger shop now spends $2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 50 a day.
-Refer to Fact 14.3.2.Having a brand name helps Tommy Hilfiger increase its economic profit because

Accepted Answer

A) the goal of a brand name is to encourage people to buy just one good. After the initial purchases, Tommy Hilfiger can decrease quality and produce goods at a lower average total cost, which increases economic profit. 
B) in every type of market, consumers are most comfortable when buying from a firm with a well-known brand name. And the greater the number of consumers, the greater is the economic profit. 
C) a brand name provides an incentive to achieve high and consistent quality, and consumers will purchase goods from Tommy Hilfiger rather than from an unknown producer because they know what to expect from Tommy Hilfiger. 
D) having a brand name usually leads to a monopoly. 
E) none of the above 
A) the goal of a brand name is to encourage people to buy just one good. After the initial purchases, Tommy Hilfiger can decrease quality and produce goods at a lower average total cost, which increases economic profit. 
B) in every type of market, consumers are most comfortable when buying from a firm with a well-known brand name. And the greater the number of consumers, the greater is the economic profit. 
C) a brand name provides an incentive to achieve high and consistent quality, and consumers will purchase goods from Tommy Hilfiger rather than from an unknown producer because they know what to expect from Tommy Hilfiger. 
D) having a brand name usually leads to a monopoly. 
E) none of the above

Under monopolistic competition, long-run economic profit is zero because of

In monopolistically competitive industries,

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

Use the figure below to answer the following questions. Figure 14.2.2 -Refer to Figure 14.2.2.To maximize economic profit, this firm in monopolistic competition produces an output

Which one of the following characteristics is not shared by single-price monopoly and monopolistic competition?

Use the information below to answer the following questions. Fact 14.1.1 For automobiles the HHI is 2,350, for sporting goods it is 161, for batteries it is 2,883, and for jewellery it is 81. -Refer to Fact 14.1.1.The market for batteries is and the market for jewellery is .

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D₂.If this firm in monopolistic competition is maximizing economic profit,

In the long run, a monopolistically competitive firm produces the output at which price equals

Consider a monopolistically competitive industry in long-run equilibrium.Suppose there is a large increase in wages that raises the costs for all firms.What happens within each firm in the short run?

In monopolistic competition, firms can make an economic profit in

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

In long-run equilibrium, a firm in monopolistic competition

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

Use the information below to answer the following questions. Fact 14.1.1 For automobiles the HHI is 2,350, for sporting goods it is 161, for batteries it is 2,883, and for jewellery it is 81. -Refer to Fact 14.1.1.The market for automobiles is and the market for sporting goods is .

Product differentiation exists within an industry when

Within a monopolistically competitive industry,

Consider a monopolistically competitive industry which is in long-run equilibrium. Which of the following is true?

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D₁.If the firm produced the efficient quantity, it would produce

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government 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

Filters

Exam 14: Monopolistic Competition

Under monopolistic competition, long-run economic profit is zero because of

In monopolistically competitive industries,

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

Use the figure below to answer the following questions. Figure 14.2.2 -Refer to Figure 14.2.2.To maximize economic profit, this firm in monopolistic competition produces an output

Which one of the following characteristics is not shared by single-price monopoly and monopolistic competition?

Use the information below to answer the following questions. Fact 14.1.1 For automobiles the HHI is 2,350, for sporting goods it is 161, for batteries it is 2,883, and for jewellery it is 81. -Refer to Fact 14.1.1.The market for batteries is ________ and the market for jewellery is ________.

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D₂.If this firm in monopolistic competition is maximizing economic profit,

In the long run, a monopolistically competitive firm produces the output at which price equals

Consider a monopolistically competitive industry in long-run equilibrium.Suppose there is a large increase in wages that raises the costs for all firms.What happens within each firm in the short run?

In monopolistic competition, firms can make an economic profit in

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

In long-run equilibrium, a firm in monopolistic competition

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

Use the information below to answer the following questions. Fact 14.1.1 For automobiles the HHI is 2,350, for sporting goods it is 161, for batteries it is 2,883, and for jewellery it is 81. -Refer to Fact 14.1.1.The market for automobiles is ________ and the market for sporting goods is ________.

Product differentiation exists within an industry when

Within a monopolistically competitive industry,

Consider a monopolistically competitive industry which is in long-run equilibrium. Which of the following is true?

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D₁.If the firm produced the efficient quantity, it would produce

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government 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

Filters

Use the information below to answer the following questions. Fact 14.1.1 For automobiles the HHI is 2,350, for sporting goods it is 161, for batteries it is 2,883, and for jewellery it is 81. -Refer to Fact 14.1.1.The market for batteries is and the market for jewellery is .

Use the information below to answer the following questions. Fact 14.1.1 For automobiles the HHI is 2,350, for sporting goods it is 161, for batteries it is 2,883, and for jewellery it is 81. -Refer to Fact 14.1.1.The market for automobiles is and the market for sporting goods is .