Question 1

A monopolistically competitive firm has excess capacity because in the

Accepted Answer

A)  short run its MR exceeds its MC. 
B)  short run its ATC is less than its AVC. 
C)  long run its ATC exceeds its minimum ATC. 
D)  long run it makes an economic profit. 
A)  short run its MR exceeds its MC. 
B)  short run its ATC is less than its AVC. 
C)  long run its ATC exceeds its minimum ATC. 
D)  long run it makes an economic profit.

Question 2

When firms in monopolistic competition incur an economic loss, some firms will

Accepted Answer

A)  enter the industry and produce more products. 
B)  exit the industry, and demand will increase for the firms that remain. 
C)  exit the industry, and demand will decrease for the firms that remain. 
D)  enter the industry, and demand will become more elastic for the original firms. 
A)  enter the industry and produce more products. 
B)  exit the industry, and demand will increase for the firms that remain. 
C)  exit the industry, and demand will decrease for the firms that remain. 
D)  enter the industry, and demand will become more elastic for the original firms.

Question 3

A characteristic of monopolistic competition is

Accepted Answer

A)  product differentiation. 
B)  a high capital-output ratio. 
C)  a low ratio of fixed costs to variable costs. 
D)  the absence of advertising. 
A)  product differentiation. 
B)  a high capital-output ratio. 
C)  a low ratio of fixed costs to variable costs. 
D)  the absence of advertising.

Question 4

Product development is efficient if the

Accepted Answer

A)  new product actually brings great benefits to the consumer. 
B)  producer's marginal cost of product development equals the consumer's marginal benefit. 
C)  producer surplus from selling the product equals the consumer surplus. 
D)  average cost of the product development equals the average revenue generated. 
A)  new product actually brings great benefits to the consumer. 
B)  producer's marginal cost of product development equals the consumer's marginal benefit. 
C)  producer surplus from selling the product equals the consumer surplus. 
D)  average cost of the product development equals the average revenue generated.

Question 5

"It is clear from the theory of monopolistic competition that product development is not pushed to its efficient level." This statement is

Accepted Answer

A)  false because there is so much product differentiation in monopolistic competition. 
B)  true because there is little incentive to innovate in monopolistic competition. 
C)  false because there are so many wasteful innovations in monopolistic competition that are merely cosmetic. 
D)  true because price exceeds marginal revenue in monopolistic competition. 
A)  false because there is so much product differentiation in monopolistic competition. 
B)  true because there is little incentive to innovate in monopolistic competition. 
C)  false because there are so many wasteful innovations in monopolistic competition that are merely cosmetic. 
D)  true because price exceeds marginal revenue in monopolistic competition.

Question 6

A monopolistically competitive firm is like a perfectly competitive firm insofar as

Accepted Answer

A)  both face perfectly elastic demand. 
B)  both make an economic profit in the long run. 
C)  both have MR curves that lie below their demand curves. 
D)  both make zero economic profit in the long run. 
A)  both face perfectly elastic demand. 
B)  both make an economic profit in the long run. 
C)  both have MR curves that lie below their demand curves. 
D)  both make zero economic profit in the long run.

Question 7

Within a monopolistically competitive industry

Accepted Answer

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

Question 8

A monopolistically competitive firm has excess capacity because in the

Accepted Answer

A)  short run its MR exceeds its MC. 
B)  short run its ATC is less than its AVC. 
C)  long run its ATC exceeds its minimum ATC. 
D)  long run it makes an economic profit. 
A)  short run its MR exceeds its MC. 
B)  short run its ATC is less than its AVC. 
C)  long run its ATC exceeds its minimum ATC. 
D)  long run it makes an economic profit.

Question 9

A monopolistically competitive firm is similar to

Accepted Answer

A)  a monopoly in the short run because it can make an economic profit in the short run and is similar to a perfectly competitive firm in the long run because it cannot make a positive economic profit. 
B)  a perfectly competitive firm in the short run because it cannot make an economic profit in the short run and is similar to a monopoly in the long run because it can make an economic profit. 
C)  a monopoly because it can make an economic profit in both the short run and long run. 
D)  a perfectly competitive firm because its economic profit is equal to zero in both the short run and long run. 
A)  a monopoly in the short run because it can make an economic profit in the short run and is similar to a perfectly competitive firm in the long run because it cannot make a positive economic profit. 
B)  a perfectly competitive firm in the short run because it cannot make an economic profit in the short run and is similar to a monopoly in the long run because it can make an economic profit. 
C)  a monopoly because it can make an economic profit in both the short run and long run. 
D)  a perfectly competitive firm because its economic profit is equal to zero in both the short run and long run.

Question 10

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. The firm will

Accepted Answer

A)  advertise because advertising will increase its economic profit. 
B)  not advertise because advertising will lower its economic profit. 
C)  advertise because advertising will decrease its economic loss. 
D)  not advertise because advertising will increase its economic loss. 
A)  advertise because advertising will increase its economic profit. 
B)  not advertise because advertising will lower its economic profit. 
C)  advertise because advertising will decrease its economic loss. 
D)  not advertise because advertising will increase its economic loss.

Question 11

Which of the following goods is best described as being sold in a monopolistically competitive market?

Accepted Answer

A)  automobiles 
B)  wheat 
C)  fast food 
D)  postage stamps 
A)  automobiles 
B)  wheat 
C)  fast food 
D)  postage stamps

Question 12

In monopolistic competition, product differentiation gives the firms the power to set their prices.

Accepted Answer

A) True 
 B)False

Question 13

-The above figure shows the demand and cost curves for a firm in ________ in the ________.

Accepted Answer

A)  perfect competition; short run 
B)  monopolistic competition; long run 
C)  perfect competition; long run 
D)  monopolistic competition; short run 
A)  perfect competition; short run 
B)  monopolistic competition; long run 
C)  perfect competition; long run 
D)  monopolistic competition; short run

Question 14

In the long run, monopolistically competitive firms can make an economic profit because of product differentiation.

Accepted Answer

A) True 
 B)False

Question 15

In the long-run equilibrium in monopolistic competition, price equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 16

In a monopolistically competitive market there are

Accepted Answer

A)  many firms. 
B)  one firm. 
C)  a very small number of firms. 
D)  two firms. 
A)  many firms. 
B)  one firm. 
C)  a very small number of firms. 
D)  two firms.

Question 17

A monopolistically competitive firm is like a perfectly competitive firm insofar as both

Accepted Answer

A)  have negatively sloping demand curves. 
B)  can make zero economic profit in the long run. 
C)  have horizontal MR curves. 
D)  are protected by high barriers to entry. 
A)  have negatively sloping demand curves. 
B)  can make zero economic profit in the long run. 
C)  have horizontal MR curves. 
D)  are protected by high barriers to entry.

Question 18

Shower Power, Inc., a firm in monopolistic competition, produces shower radios. The company's economists know that it if it does not advertise, it can sell no radios at $80, and for each $10 cut in price, the quantity of radios it can sell increases by 50 a day. This relationship continues to hold until the price falls to $20. The firm's total fixed cost is $3,000 a day. Its marginal cost is constant at $20 per radio. Shower Power's economists have determined that if the firm spends $3,500 a day on advertising, it can double the quantity of radios sold at each price.
a) Draw the new demand curve faced by the firm and its new marginal revenue curve. Also draw Shower Power's marginal cost and average total cost curves.
b) If Shower Power does not advertise, what quantity of radios sold maximizes its profit? What is the profit-maximizing price? What is the firm's economic profit?
c) If Shower Power does advertise, what quantity of radios sold maximizes its profit? What is the profit-maximizing price? What is the maximum economic profit that the firm can make on its shower radios? Draw a diagram to show the effects of advertising.
d) Will Shower Power advertise? Why or why not?

Accepted Answer

@#IMG-DLM& a) The figure above shows Shower Power'

Question 19

A firm in ________ will engage in ________ to try to earn an economic profit.

Accepted Answer

A)  perfect competition; advertising 
B)  monopolistic competition; product differentiation 
C)  perfect competition; price wars 
D)  monopolistic competition; price wars 
A)  perfect competition; advertising 
B)  monopolistic competition; product differentiation 
C)  perfect competition; price wars 
D)  monopolistic competition; price wars

Question 20

In the scenario above, as a result of increased advertising, Talbot's economic profit

Accepted Answer

A)  decreases by $500. 
B)  increases by $170. 
C)  increases by $750. 
D)  decreases by $100. 
A)  decreases by $500. 
B)  increases by $170. 
C)  increases by $750. 
D)  decreases by $100.

A monopolistically competitive firm has excess capacity because in the

When firms in monopolistic competition incur an economic loss, some firms will

A characteristic of monopolistic competition is

Product development is efficient if the

"It is clear from the theory of monopolistic competition that product development is not pushed to its efficient level." This statement is

A monopolistically competitive firm is like a perfectly competitive firm insofar as

Within a monopolistically competitive industry

A monopolistically competitive firm has excess capacity because in the

A monopolistically competitive firm is similar to

Which of the following goods is best described as being sold in a monopolistically competitive market?

In monopolistic competition, product differentiation gives the firms the power to set their prices.

-The above figure shows the demand and cost curves for a firm in in the .

In the long run, monopolistically competitive firms can make an economic profit because of product differentiation.

In the long-run equilibrium in monopolistic competition, price equals marginal cost.

In a monopolistically competitive market there are

A monopolistically competitive firm is like a perfectly competitive firm insofar as both

A firm in will engage in to try to earn an economic profit.

In the scenario above, as a result of increased advertising, Talbot's economic profit

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

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

Exam 14: Monopolistic Competition

A monopolistically competitive firm has excess capacity because in the

When firms in monopolistic competition incur an economic loss, some firms will

A characteristic of monopolistic competition is

Product development is efficient if the

"It is clear from the theory of monopolistic competition that product development is not pushed to its efficient level." This statement is

A monopolistically competitive firm is like a perfectly competitive firm insofar as

Within a monopolistically competitive industry

A monopolistically competitive firm has excess capacity because in the

A monopolistically competitive firm is similar to

Which of the following goods is best described as being sold in a monopolistically competitive market?

In monopolistic competition, product differentiation gives the firms the power to set their prices.

-The above figure shows the demand and cost curves for a firm in ________ in the ________.

In the long run, monopolistically competitive firms can make an economic profit because of product differentiation.

In the long-run equilibrium in monopolistic competition, price equals marginal cost.

In a monopolistically competitive market there are

A monopolistically competitive firm is like a perfectly competitive firm insofar as both

A firm in ________ will engage in ________ to try to earn an economic profit.

In the scenario above, as a result of increased advertising, Talbot's economic profit

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

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

-The above figure shows the demand and cost curves for a firm in in the .

A firm in will engage in to try to earn an economic profit.