Question 1

In monopolistic competition, excess capacity results from

Accepted Answer

A)  the presence of a large number of buyers. 
B)  the mobility of firms into and out of the industry. 
C)  imperfect information about price. 
D)  product differentiation. 
A)  the presence of a large number of buyers. 
B)  the mobility of firms into and out of the industry. 
C)  imperfect information about price. 
D)  product differentiation.

Question 2

-The above figure shows the demand and cost curves for a monopolistically competitive firm in the long run. The firm has excess capacity of

Accepted Answer

A)  4 units. 
B)  8 units. 
C)  16 units. 
D)  $10. 
A)  4 units. 
B)  8 units. 
C)  16 units. 
D)  $10.

Question 3

Which of the following statements is FALSE concerning monopolistic competition?

Accepted Answer

A)  There are many firms. 
B)  Firms sell a differentiated product. 
C)  There are no barriers to entry. 
D)  Monopolistically competitive firms are price takers because of product differentiation. 
A)  There are many firms. 
B)  Firms sell a differentiated product. 
C)  There are no barriers to entry. 
D)  Monopolistically competitive firms are price takers because of product differentiation.

Question 4

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

Accepted Answer

A)  The firm can make an economic profit because of product differentiation. 
B)  Marginal cost equals average total cost. 
C)  Output is produced at minimum average total cost. 
D)  Price equals average total cost. 
A)  The firm can make an economic profit because of product differentiation. 
B)  Marginal cost equals average total cost. 
C)  Output is produced at minimum average total cost. 
D)  Price equals average total cost.

Question 5

Which of the following statements regarding the long run for a profit-maximizing monopolistically competitive firm is FALSE?

Accepted Answer

A)  The firm is making zero economic profit. 
B)  The firm produces the quantity of output for which marginal revenue equals marginal cost. 
C)  The average total cost equals the price. 
D)  The firm produces the quantity at which the marginal revenue curve intersects the demand curve. 
A)  The firm is making zero economic profit. 
B)  The firm produces the quantity of output for which marginal revenue equals marginal cost. 
C)  The average total cost equals the price. 
D)  The firm produces the quantity at which the marginal revenue curve intersects the demand curve.

Question 6

Monopolistic competition is a market structure in which

Accepted Answer

A)  a small number of firms compete. 
B)  firms produce identical products. 
C)  firms compete only on product price. 
D)  firms are free to enter and exit the market. 
A)  a small number of firms compete. 
B)  firms produce identical products. 
C)  firms compete only on product price. 
D)  firms are free to enter and exit the market.

Question 7

Selling costs, such as advertising, are likely to be a large share of total cost in an industry that is

Accepted Answer

A)  perfectly competitive. 
B)  monopolistically competitive. 
C)  a monopoly. 
D)  non-profit. 
A)  perfectly competitive. 
B)  monopolistically competitive. 
C)  a monopoly. 
D)  non-profit.

Question 8

A positive markup is earned by a firm if its

Accepted Answer

A)  price exceeds its marginal cost. 
B)  marginal revenue equals marginal cost. 
C)  price equals marginal cost. 
D)  price equals average total cost. 
A)  price exceeds its marginal cost. 
B)  marginal revenue equals marginal cost. 
C)  price equals marginal cost. 
D)  price equals average total cost.

Question 9

Which of the following is part of the market structure for monopolistic competition?

Accepted Answer

A)  barriers to entry 
B)  a large number of firms compete 
C)  each firm produces a differentiated product 
D)  Both answers B and C are correct. 
A)  barriers to entry 
B)  a large number of firms compete 
C)  each firm produces a differentiated product 
D)  Both answers B and C are correct.

Question 10

If a firm spends $600 more on advertising, its

Accepted Answer

A)  ATC and MC curves shift upward. 
B)  MC curve shifts upward and its ATC curve does not shift. 
C)  ATC curve shifts upward and its MC curve does not shift. 
D)  ATC curve shifts upward and its MC curve shifts downward. 
A)  ATC and MC curves shift upward. 
B)  MC curve shifts upward and its ATC curve does not shift. 
C)  ATC curve shifts upward and its MC curve does not shift. 
D)  ATC curve shifts upward and its MC curve shifts downward.

Question 11

Which characteristic is associated with monopolistic competition?

Accepted Answer

A)  collusion 
B)  product differentiation 
C)  small number of firms 
D)  awareness of rival firms in the market 
A)  collusion 
B)  product differentiation 
C)  small number of firms 
D)  awareness of rival firms in the market

Question 12

Which of the following statements regarding a profit-maximizing monopolistically competitive firm is NOT true?

Accepted Answer

A)  The MR curve lies below the demand curve. 
B)  The firm produces the quantity at which the MR curve intersects the MC curve. 
C)  The MC curve intersects the ATC curve at the ATC curve's lowest point. 
D)  The firm's price equals the price at which the MR curve intersects the MC curve. 
A)  The MR curve lies below the demand curve. 
B)  The firm produces the quantity at which the MR curve intersects the MC curve. 
C)  The MC curve intersects the ATC curve at the ATC curve's lowest point. 
D)  The firm's price equals the price at which the MR curve intersects the MC curve.

Question 13

In monopolistic competition, profit is maximized when the amount produced is such that

Accepted Answer

A)  marginal revenue equals marginal cost. 
B)  marginal revenue is greater than marginal cost. 
C)  total revenue equals total cost. 
D)  total revenue is maximized. 
A)  marginal revenue equals marginal cost. 
B)  marginal revenue is greater than marginal cost. 
C)  total revenue equals total cost. 
D)  total revenue is maximized.

Question 14

-When the monopolistically competitive firm shown in the above figure is at its long-run equilibrium, it will be

Accepted Answer

A)  producing the efficient scale of output and is at point A on the ATC curve. 
B)  producing more than the efficient scale of output and is at point C on the ATC curve. 
C)  producing at less than the efficient scale of output and is at a point such as F on the ATC curve. 
D)  producing the efficient scale of output and is at point B on the MC curve. 
A)  producing the efficient scale of output and is at point A on the ATC curve. 
B)  producing more than the efficient scale of output and is at point C on the ATC curve. 
C)  producing at less than the efficient scale of output and is at a point such as F on the ATC curve. 
D)  producing the efficient scale of output and is at point B on the MC curve.

Question 15

The Karaoke Channel Online streams professional-grade karaoke for $9.95 a month. Suppose Karaoke Channel Online has a constant marginal cost of $1 per customer and total fixed cost is $20,000. The profit maximizing number of customers is 10,000. Several competitors start to advertise online. Karaoke Channel Online now spends $5,000 a month on advertising and the profit maximizing number of customers increases to 12,000 and the streaming price remains constant. What is Karaoke Channel Online's total profit after the advertising begins?

Accepted Answer

A)  $84,400 
B)  $66,500 
C)  $119,400 
D)  $89,400 
A)  $84,400 
B)  $66,500 
C)  $119,400 
D)  $89,400

Question 16

Firms in which type of market make zero economic profit in the long run?

Accepted Answer

A)  perfect competition and monopolistic competition 
B)  monopoly 
C)  perfect competition 
D)  monopolistic competition 
A)  perfect competition and monopolistic competition 
B)  monopoly 
C)  perfect competition 
D)  monopolistic competition

Question 17

In the long run, monopolistically competitive firms make zero economic profits because of government regulations.

Accepted Answer

A) True 
 B)False

Question 18

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. 
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.

Question 19

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 price

Accepted Answer

A)  rises by $10. 
B)  falls by $10. 
C)  rises by $5. 
D)  does not change. 
A)  rises by $10. 
B)  falls by $10. 
C)  rises by $5. 
D)  does not change.

Question 20

Define the efficient scale of production. For the situation of a firm in monopolistic competition, discuss its excess capacity.

Accepted Answer

The efficient scale is the quantity prod

In monopolistic competition, excess capacity results from

-The above figure shows the demand and cost curves for a monopolistically competitive firm in the long run. The firm has excess capacity of

Which of the following statements is FALSE concerning monopolistic competition?

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

Which of the following statements regarding the long run for a profit-maximizing monopolistically competitive firm is FALSE?

Monopolistic competition is a market structure in which

Selling costs, such as advertising, are likely to be a large share of total cost in an industry that is

A positive markup is earned by a firm if its

Which of the following is part of the market structure for monopolistic competition?

If a firm spends $600 more on advertising, its

Which characteristic is associated with monopolistic competition?

Which of the following statements regarding a profit-maximizing monopolistically competitive firm is NOT true?

In monopolistic competition, profit is maximized when the amount produced is such that

-When the monopolistically competitive firm shown in the above figure is at its long-run equilibrium, it will be

Firms in which type of market make zero economic profit in the long run?

In the long run, monopolistically competitive firms make zero economic profits because of government regulations.

Monopolistic competition differs from monopoly because in monopolistic competition

Define the efficient scale of production. For the situation of a firm in monopolistic competition, discuss its excess capacity.

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, excess capacity results from

-The above figure shows the demand and cost curves for a monopolistically competitive firm in the long run. The firm has excess capacity of

Which of the following statements is FALSE concerning monopolistic competition?

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

Which of the following statements regarding the long run for a profit-maximizing monopolistically competitive firm is FALSE?

Monopolistic competition is a market structure in which

Selling costs, such as advertising, are likely to be a large share of total cost in an industry that is

A positive markup is earned by a firm if its

Which of the following is part of the market structure for monopolistic competition?

If a firm spends $600 more on advertising, its

Which characteristic is associated with monopolistic competition?

Which of the following statements regarding a profit-maximizing monopolistically competitive firm is NOT true?

In monopolistic competition, profit is maximized when the amount produced is such that

-When the monopolistically competitive firm shown in the above figure is at its long-run equilibrium, it will be

Firms in which type of market make zero economic profit in the long run?

In the long run, monopolistically competitive firms make zero economic profits because of government regulations.

Monopolistic competition differs from monopoly because in monopolistic competition

Define the efficient scale of production. For the situation of a firm in monopolistic competition, discuss its excess capacity.

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