Question 1

-Refer to the above figure. The profit maximizing quantity for a monopolistic competitor is

Accepted Answer

A)    . 
B)    . 
C)    . 
D)    . 
A)    . 
B)    . 
C)    . 
D)    . A

Question 2

In a monopolistically competitive market, a firm should advertise to the point at which

Accepted Answer

A)  it is selling the most units it can possibly sell. 
B)  the extra revenue from an additional dollar spent on advertising just equals the marginal cost of producing one more unit of the good. 
C)  the additional revenue generated by one more dollar of advertising just equals the extra dollar cost of advertising. 
D)  it can raise price to the highest level possible. 
A)  it is selling the most units it can possibly sell. 
B)  the extra revenue from an additional dollar spent on advertising just equals the marginal cost of producing one more unit of the good. 
C)  the additional revenue generated by one more dollar of advertising just equals the extra dollar cost of advertising. 
D)  it can raise price to the highest level possible. C

Question 3

Which of the following is NOT a characteristic of firms in a monopolistically competitive market?

Accepted Answer

A)  advertising 
B)  differentiated products 
C)  ease of entry and exit 
D)  existence of significant economies of scale 
A)  advertising 
B)  differentiated products 
C)  ease of entry and exit 
D)  existence of significant economies of scale D

Question 4

The demand curve for the product of a monopolistic competitor

Accepted Answer

A)  is the same as the market demand curve. 
B)  is horizontal. 
C)  is vertical. 
D)  slopes downward. 
A)  is the same as the market demand curve. 
B)  is horizontal. 
C)  is vertical. 
D)  slopes downward.

Question 5

-Since the firm in the above figure is operating in a monopolistically competitive industry, in the long run we can expect to see

Accepted Answer

A)  the typical firm's economic profits expand as production becomes more efficient. 
B)  more firms entering the industry until economic profits are zero. 
C)  the typical firm producing at the minimum point on its ATC curve. 
D)  each firm expand its share of the total market. 
A)  the typical firm's economic profits expand as production becomes more efficient. 
B)  more firms entering the industry until economic profits are zero. 
C)  the typical firm producing at the minimum point on its ATC curve. 
D)  each firm expand its share of the total market.

Question 6

It has been argued that a monopolistically competitive industry involves "waste" because

Accepted Answer

A)  there is too much product differentiation making shelves too crowded. 
B)  they end up producing to the right of the minimum of the average total cost curve and the price is below the marginal cost. 
C)  the firms do not equate marginal cost to marginal revenue to find the profit maximizing price and output. 
D)  the firms do not produce at the minimum of the average total cost curve and price is above marginal cost. 
A)  there is too much product differentiation making shelves too crowded. 
B)  they end up producing to the right of the minimum of the average total cost curve and the price is below the marginal cost. 
C)  the firms do not equate marginal cost to marginal revenue to find the profit maximizing price and output. 
D)  the firms do not produce at the minimum of the average total cost curve and price is above marginal cost.

Question 7

-Refer to the above figure. Which panels represent long run equilibrium for the perfectly competitive firm and monopolistic competitive firm, respectively?

Accepted Answer

A)  Panel C & Panel A. 
B)  Panel C & Panel B. 
C)  Panel B & Panel C. 
D)  Panel C & Panel D. 
A)  Panel C & Panel A. 
B)  Panel C & Panel B. 
C)  Panel B & Panel C. 
D)  Panel C & Panel D.

Question 8

In which market structure will a firm choose not to shut down when price is less than average variable cost?

Accepted Answer

A)  Perfect competition 
B)  Monopoly 
C)  Monopolistic competition 
D)  None of the above. All firms will shut down when P < AVC. 
A)  Perfect competition 
B)  Monopoly 
C)  Monopolistic competition 
D)  None of the above. All firms will shut down when P < AVC.

Question 9

-At its profit-maximizing output, the firm in the above figure incurs a total cost of production of

Accepted Answer

A)  $7,000. 
B)  $9,000. 
C)  $6,300. 
D)  $3,900. 
A)  $7,000. 
B)  $9,000. 
C)  $6,300. 
D)  $3,900.

Question 10

Monopolistic competition is characterized by

Accepted Answer

A)  relative ease of entry into the market. 
B)  a standard, undifferentiated product. 
C)  persistent long-run economic profits. 
D)  production at minimum average cost in the long run. 
A)  relative ease of entry into the market. 
B)  a standard, undifferentiated product. 
C)  persistent long-run economic profits. 
D)  production at minimum average cost in the long run.

Question 11

In the short run, a monopolistically competitive firm

Accepted Answer

A)  always earns positive economic profits. 
B)  never earns positive economic profits. 
C)  can earn positive, negative, or zero economic profits. 
D)  always earns positive accounting profits. 
A)  always earns positive economic profits. 
B)  never earns positive economic profits. 
C)  can earn positive, negative, or zero economic profits. 
D)  always earns positive accounting profits.

Question 12

A monopolistic competitor is in long-run equilibrium when

Accepted Answer

A)  it is making zero profits and price equals marginal cost. 
B)  its average total cost curve is tangent to the demand curve at the profit-maximizing rate of output. 
C)  price is greater than marginal cost. 
D)  it is making positive profits or zero profits and price is greater than marginal cost. 
A)  it is making zero profits and price equals marginal cost. 
B)  its average total cost curve is tangent to the demand curve at the profit-maximizing rate of output. 
C)  price is greater than marginal cost. 
D)  it is making positive profits or zero profits and price is greater than marginal cost.

Question 13

-Use the above figure. For this monopolistic competitor, which of the following is INCORRECT?

Accepted Answer

A)  The profit-maximizing rate of output is qe, and the profit-maximizing price is P. 
B)  The demand curve shows a direct relationship between price and quantity demanded. 
C)  The profit-maximizing rate of output is at E, where MR intersects MC. 
D)  A downward sloping marginal revenue curve that is below the demand curve. 
A)  The profit-maximizing rate of output is qe, and the profit-maximizing price is P. 
B)  The demand curve shows a direct relationship between price and quantity demanded. 
C)  The profit-maximizing rate of output is at E, where MR intersects MC. 
D)  A downward sloping marginal revenue curve that is below the demand curve.

Question 14

In the short run, a monopolistically competitive firm can earn

Accepted Answer

A)  positive profits only. 
B)  zero profits only. 
C)  zero or positive profits only. 
D)  zero, positive or negative profits. 
A)  positive profits only. 
B)  zero profits only. 
C)  zero or positive profits only. 
D)  zero, positive or negative profits.

Question 15

Average variable cost for an information product would

Accepted Answer

A)  first decrease and then increase as quantity increases. 
B)  increase constantly as quantity increases. 
C)  decrease constantly as quantity increases. 
D)  remain constant as quantity increases. 
A)  first decrease and then increase as quantity increases. 
B)  increase constantly as quantity increases. 
C)  decrease constantly as quantity increases. 
D)  remain constant as quantity increases.

Question 16

Advertising that is intended to alter a consumer's tastes and preferences and induce the customer to purchase a particular product is

Accepted Answer

A)  persuasive advertising. 
B)  educational advertising. 
C)  informational advertising. 
D)  effective advertising. 
A)  persuasive advertising. 
B)  educational advertising. 
C)  informational advertising. 
D)  effective advertising.

Question 17

If firms in a monopolistically competitive industry are operating with economic losses, over time we would see

Accepted Answer

A)  firms alter their advertising rates until they made at least normal profits. 
B)  some firms exiting the industry, causing the market supply curve to shift to the left, raising price. 
C)  some firms exiting the industry, causing the demand curves of the remaining firms to shift to the right. 
D)  the firms working together to increase price and everyone's profitability. 
A)  firms alter their advertising rates until they made at least normal profits. 
B)  some firms exiting the industry, causing the market supply curve to shift to the left, raising price. 
C)  some firms exiting the industry, causing the demand curves of the remaining firms to shift to the right. 
D)  the firms working together to increase price and everyone's profitability.

Question 18

One way to view the cost structure of monopolistic competition is to say that the cost of product differentiation is equal to

Accepted Answer

A)  the difference between marginal revenue and marginal cost. 
B)  the difference between the cost of production for a monopolistically competitive firm in an open market and the minimum average total cost. 
C)  the sum of price and marginal cost. 
D)  the sum of marginal cost and minimum average cost. 
A)  the difference between marginal revenue and marginal cost. 
B)  the difference between the cost of production for a monopolistically competitive firm in an open market and the minimum average total cost. 
C)  the sum of price and marginal cost. 
D)  the sum of marginal cost and minimum average cost.

Question 19

-In the above figure for a monopolistically competitive firm, the total economic profit at the profit-maximizing point is

Accepted Answer

A)  $0 
B)  $240 
C)  $360 
D)  $300 
A)  $0 
B)  $240 
C)  $360 
D)  $300

Question 20

A monopolistic competitor in long-run equilibrium is like a perfect competitor in that

Accepted Answer

A)  price equals marginal cost. 
B)  price is greater than marginal cost. 
C)  zero economic profits are made. 
D)  both produce at the minimum points of their average total cost curves. 
A)  price equals marginal cost. 
B)  price is greater than marginal cost. 
C)  zero economic profits are made. 
D)  both produce at the minimum points of their average total cost curves.

Exam 25: Monopolistic Competition

-Refer to the above figure. The profit maximizing quantity for a monopolistic competitor is

In a monopolistically competitive market, a firm should advertise to the point at which

Which of the following is NOT a characteristic of firms in a monopolistically competitive market?

The demand curve for the product of a monopolistic competitor

-Since the firm in the above figure is operating in a monopolistically competitive industry, in the long run we can expect to see

It has been argued that a monopolistically competitive industry involves "waste" because

-Refer to the above figure. Which panels represent long run equilibrium for the perfectly competitive firm and monopolistic competitive firm, respectively?

In which market structure will a firm choose not to shut down when price is less than average variable cost?

-At its profit-maximizing output, the firm in the above figure incurs a total cost of production of

Monopolistic competition is characterized by

In the short run, a monopolistically competitive firm

A monopolistic competitor is in long-run equilibrium when

-Use the above figure. For this monopolistic competitor, which of the following is INCORRECT?

In the short run, a monopolistically competitive firm can earn

Average variable cost for an information product would

Advertising that is intended to alter a consumer's tastes and preferences and induce the customer to purchase a particular product is

If firms in a monopolistically competitive industry are operating with economic losses, over time we would see

One way to view the cost structure of monopolistic competition is to say that the cost of product differentiation is equal to

-In the above figure for a monopolistically competitive firm, the total economic profit at the profit-maximizing point is

A monopolistic competitor in long-run equilibrium is like a perfect competitor in that

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