Question 1

In monopolistic competition

Accepted Answer

A)  each firm's price cannot deviate from the average price of other firms. 
B)  each firm supplies a small part of the total market output. 
C)  one firm's actions directly affect the actions of the other firms. 
D)  collusion is possible. 
A)  each firm's price cannot deviate from the average price of other firms. 
B)  each firm supplies a small part of the total market output. 
C)  one firm's actions directly affect the actions of the other firms. 
D)  collusion is possible.

Question 2

-In the above figure, if the firm is in monopolistic competition, it will produce

Accepted Answer

A)  40 units. 
B)  60 units. 
C)  between 61 and 99 units. 
D)  100 units. 
A)  40 units. 
B)  60 units. 
C)  between 61 and 99 units. 
D)  100 units.

Question 3

A monopolistically competitive firm is making a positive economic profit. In the long run, which of the following is most likely?

Accepted Answer

A)  It will produce less output and it will charge a lower price. 
B)  It will produce the same output and charge the same price. 
C)  It will produce less output but keep price the same. 
D)  It will keep output the same but will charge a higher price. 
A)  It will produce less output and it will charge a lower price. 
B)  It will produce the same output and charge the same price. 
C)  It will produce less output but keep price the same. 
D)  It will keep output the same but will charge a higher price.

Question 4

In the long run, a firm in monopolistic competition produces where the slope of the average total cost curve is

Accepted Answer

A)  negative. 
B)  zero. 
C)  positive. 
D)  equal to the marginal cost. 
A)  negative. 
B)  zero. 
C)  positive. 
D)  equal to the marginal cost.

Question 5

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. Compared to the situation if it does not advertise, if the firm advertises, the profit-maximizing output

Accepted Answer

A)  doubles. 
B)  increases by 40 books per day. 
C)  decreases by 40 books per day. 
D)  is the same as without advertising. 
A)  doubles. 
B)  increases by 40 books per day. 
C)  decreases by 40 books per day. 
D)  is the same as without advertising.

Question 6

Which of the following statements regarding the efficiency of monopolistic competition is FALSE?

Accepted Answer

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

Question 7

A firm is said to have excess capacity when it produces the amount of output

Accepted Answer

A)  such that price is greater than marginal cost. 
B)  such that marginal revenue is greater than marginal cost. 
C)  smaller than that which minimizes average total cost. 
D)  larger than that which minimizes average total cost. 
A)  such that price is greater than marginal cost. 
B)  such that marginal revenue is greater than marginal cost. 
C)  smaller than that which minimizes average total cost. 
D)  larger than that which minimizes average total cost.

Question 8

In monopolistic competition, when firms make an economic profit

Accepted Answer

A)  the existing firms continue to make an economic profit in the long run because of product differentiation. 
B)  new firms enter the industry so that the price falls and the economic profit eventually falls to zero. 
C)  new firms enter the industry so that output decreases and the economic profit increases. 
D)  new firms enter the industry so that output increases and the economic profit increases. 
A)  the existing firms continue to make an economic profit in the long run because of product differentiation. 
B)  new firms enter the industry so that the price falls and the economic profit eventually falls to zero. 
C)  new firms enter the industry so that output decreases and the economic profit increases. 
D)  new firms enter the industry so that output increases and the economic profit increases.

Question 9

In monopolistic competition, the demand curve for a firm's product is negatively sloped because of

Accepted Answer

A)  barriers to entry. 
B)  no barriers to entry. 
C)  product differentiation. 
D)  economies of scale. 
A)  barriers to entry. 
B)  no barriers to entry. 
C)  product differentiation. 
D)  economies of scale.

Question 10

Excess capacity is the

Accepted Answer

A)  difference between a perfectly competitive firm's and a monopolistically competitive firm's output. 
B)  difference between a perfectly competitive firm's and a monopoly's output. 
C)  output at the maximum point of the ATC curve. 
D)  None of the above answers is correct. 
A)  difference between a perfectly competitive firm's and a monopolistically competitive firm's output. 
B)  difference between a perfectly competitive firm's and a monopoly's output. 
C)  output at the maximum point of the ATC curve. 
D)  None of the above answers is correct.

Question 11

Which of the following is NOT a TRUE statement about perfectly competitive and monopolistically competitive firms?

Accepted Answer

A)  Both monopolistically competitive and perfectly competitive firms have perfectly elastic demands. 
B)  In the long run, only monopolistically competitive firms have excess capacity. 
C)  Perfectly competitive firms produce at their efficient scale. 
D)  There are a large number of firms in both monopolistically competitive and perfectly competitive markets. 
A)  Both monopolistically competitive and perfectly competitive firms have perfectly elastic demands. 
B)  In the long run, only monopolistically competitive firms have excess capacity. 
C)  Perfectly competitive firms produce at their efficient scale. 
D)  There are a large number of firms in both monopolistically competitive and perfectly competitive markets.

Question 12

The figure shows the demand curve for Gap jackets (D), and Gap's marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC).
-In the figure above, if the market for jackets were perfectly competitive, in long-run equilibrium, each firm would sell ________ jackets per day at ________ per jacket.

Accepted Answer

A)  132; $122 
B)  100; $130 
C)  100; $80 
D)  128; $114 
A)  132; $122 
B)  100; $130 
C)  100; $80 
D)  128; $114

Question 13

How is a monopolistically competitive firm similar to a monopoly firm?

Accepted Answer

A)  Both produce where marginal revenue equals marginal cost. 
B)  Both will observe entry into the industry if economic profit is positive. 
C)  Both produce a unique good. 
D)  Both produce where price equals marginal cost. 
A)  Both produce where marginal revenue equals marginal cost. 
B)  Both will observe entry into the industry if economic profit is positive. 
C)  Both produce a unique good. 
D)  Both produce where price equals marginal cost.

Question 14

Which of the following is TRUE regarding the long run for a firm in monopolistic competition?

Accepted Answer

A)  P = ATC = MC = MR 
B)  P = ATC 
C)  ATC = MC 
D)  P = MC 
A)  P = ATC = MC = MR 
B)  P = ATC 
C)  ATC = MC 
D)  P = MC

Question 15

Which of the following is NOT true of monopolistic competition?

Accepted Answer

A)  Firms produce a good that is a perfect substitute for their competitors' goods. 
B)  There is free entry and exit. 
C)  There are a large number of firms. 
D)  Firms can compete on price and quality. 
A)  Firms produce a good that is a perfect substitute for their competitors' goods. 
B)  There is free entry and exit. 
C)  There are a large number of firms. 
D)  Firms can compete on price and quality.

Question 16

A textbook publisher is in monopolistic competition. The firm 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 average variable cost and marginal cost is a constant $20 per book. What is the publisher's profit-maximizing price?

Accepted Answer

A)  $40 
B)  $50 
C)  $60 
D)  $70 
A)  $40 
B)  $50 
C)  $60 
D)  $70

Question 17

Why are firms in monopolistic competition unable to make an economic profit in the long run?

Accepted Answer

While firms in monopolistic competition

Question 18

In monopolistic competition, an increase in a firm's advertising

Accepted Answer

A)  has no effect on its average cost curves. 
B)  has no effect on demand. 
C)  increases the firm's average total cost. 
D)  increases the firm's marginal cost. 
A)  has no effect on its average cost curves. 
B)  has no effect on demand. 
C)  increases the firm's average total cost. 
D)  increases the firm's marginal cost.

Question 19

Because consumers value product variety

Accepted Answer

A)  society must be more efficient with monopolistic competition than with perfect competition. 
B)  the inefficiency and deadweight loss created by monopolistic competition is offset. 
C)  in the long run, monopolistically competitive firms earn an economic profit. 
D)  monopolistically competitive industries are efficient. 
A)  society must be more efficient with monopolistic competition than with perfect competition. 
B)  the inefficiency and deadweight loss created by monopolistic competition is offset. 
C)  in the long run, monopolistically competitive firms earn an economic profit. 
D)  monopolistically competitive industries are efficient.

Question 20

In monopolistic competition, advertising costs

Accepted Answer

A)  are fixed costs. 
B)  are variable costs. 
C)  affect the firm's ATC curve. 
D)  All of the above answers are correct. 
A)  are fixed costs. 
B)  are variable costs. 
C)  affect the firm's ATC curve. 
D)  All of the above answers are correct.

In monopolistic competition

-In the above figure, if the firm is in monopolistic competition, it will produce

A monopolistically competitive firm is making a positive economic profit. In the long run, which of the following is most likely?

In the long run, a firm in monopolistic competition produces where the slope of the average total cost curve is

Which of the following statements regarding the efficiency of monopolistic competition is FALSE?

A firm is said to have excess capacity when it produces the amount of output

In monopolistic competition, when firms make an economic profit

In monopolistic competition, the demand curve for a firm's product is negatively sloped because of

Excess capacity is the

Which of the following is NOT a TRUE statement about perfectly competitive and monopolistically competitive firms?

How is a monopolistically competitive firm similar to a monopoly firm?

Which of the following is TRUE regarding the long run for a firm in monopolistic competition?

Which of the following is NOT true of monopolistic competition?

Why are firms in monopolistic competition unable to make an economic profit in the long run?

In monopolistic competition, an increase in a firm's advertising

Because consumers value product variety

In monopolistic competition, advertising costs

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

In monopolistic competition

-In the above figure, if the firm is in monopolistic competition, it will produce

A monopolistically competitive firm is making a positive economic profit. In the long run, which of the following is most likely?

In the long run, a firm in monopolistic competition produces where the slope of the average total cost curve is

Which of the following statements regarding the efficiency of monopolistic competition is FALSE?

A firm is said to have excess capacity when it produces the amount of output

In monopolistic competition, when firms make an economic profit

In monopolistic competition, the demand curve for a firm's product is negatively sloped because of

Excess capacity is the

Which of the following is NOT a TRUE statement about perfectly competitive and monopolistically competitive firms?

How is a monopolistically competitive firm similar to a monopoly firm?

Which of the following is TRUE regarding the long run for a firm in monopolistic competition?

Which of the following is NOT true of monopolistic competition?

Why are firms in monopolistic competition unable to make an economic profit in the long run?

In monopolistic competition, an increase in a firm's advertising

Because consumers value product variety

In monopolistic competition, advertising costs

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