Question 1

Entry into a monopolistically competitive industry

Accepted Answer

A)  is relatively easy. 
B)  is very difficult. 
C)  can be easy or difficult, depending on the type of product. 
D)  is about the same as entering a monopoly industry. 
A)  is relatively easy. 
B)  is very difficult. 
C)  can be easy or difficult, depending on the type of product. 
D)  is about the same as entering a monopoly industry.

Question 2

Which of the following products would most likely be produced in a monopolistically competitive market?

Accepted Answer

A)  corn 
B)  oil 
C)  electricity 
D)  pizza 
A)  corn 
B)  oil 
C)  electricity 
D)  pizza

Question 3

In a long-run equilibrium in a monopolistically competitive industry that produces information products, revenues are equal to the ________ costs of developing, producing, and selling the product.

Accepted Answer

A)  total 
B)  fixed 
C)  variable 
D)  marginal 
A)  total 
B)  fixed 
C)  variable 
D)  marginal

Question 4

The demand curve for a monopolistically competitive firm is

Accepted Answer

A)  elastic because the products produced are homogeneous. 
B)  inelastic because of barriers to entry. 
C)  inelastic because of the profit maximizing behavior of the firm. 
D)  elastic because of product differentiation. 
A)  elastic because the products produced are homogeneous. 
B)  inelastic because of barriers to entry. 
C)  inelastic because of the profit maximizing behavior of the firm. 
D)  elastic because of product differentiation.

Question 5

-The above table depicts prices, quantities, and marginal costs faced by the campus bookstore. At the profit-maximizing level of output, what is the total cost earned by the store?

Accepted Answer

A)  $4 
B)  $9 
C)  $3 
D)  $16 
A)  $4 
B)  $9 
C)  $3 
D)  $16

Question 6

The type of advertising used for an experience good is

Accepted Answer

A)  informational advertising. 
B)  persuasive advertising. 
C)  search advertising. 
D)  experience advertising. 
A)  informational advertising. 
B)  persuasive advertising. 
C)  search advertising. 
D)  experience advertising.

Question 7

A monopolistic competitor is like a monopolist in the long run in that when economic profits are

Accepted Answer

A)  equal to zero, positive economic profits are made. 
B)  equal to zero, economic profits are made. 
C)  greater than zero, changes in output are due to changes to plants by existing firms and there is no entry. 
D)  greater than zero, price exceeds marginal cost. 
A)  equal to zero, positive economic profits are made. 
B)  equal to zero, economic profits are made. 
C)  greater than zero, changes in output are due to changes to plants by existing firms and there is no entry. 
D)  greater than zero, price exceeds marginal cost.

Question 8

The manufacturers of information products typically

Accepted Answer

A)  have low fixed costs. 
B)  have high marginal costs. 
C)  have high fixed costs. 
D)  have zero fixed costs. 
A)  have low fixed costs. 
B)  have high marginal costs. 
C)  have high fixed costs. 
D)  have zero fixed costs.

Question 9

Which of the following assumptions is true about monopolistic competition?

Accepted Answer

A)  The firm's products are differentiated. 
B)  There are few producers of the product. 
C)  Firms will not advertise. 
D)  It is difficult for firms to enter this industry. 
A)  The firm's products are differentiated. 
B)  There are few producers of the product. 
C)  Firms will not advertise. 
D)  It is difficult for firms to enter this industry.

Question 10

-Refer to the above figure. Which panel represents a monopolistic competitor that is earning zero economic profits?

Accepted Answer

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

Question 11

Which of the following statements is generally TRUE about information products?

Accepted Answer

A)  High fixed costs and low marginal costs 
B)  High fixed costs and high marginal costs 
C)  Low fixed costs and low marginal costs 
D)  Low fixed costs and high marginal costs 
A)  High fixed costs and low marginal costs 
B)  High fixed costs and high marginal costs 
C)  Low fixed costs and low marginal costs 
D)  Low fixed costs and high marginal costs

Question 12

An information product typically has

Accepted Answer

A)  high total fixed costs and high marginal costs. 
B)  low total fixed costs and low marginal costs. 
C)  low total fixed costs and high marginal costs. 
D)  high total fixed costs and low marginal costs. 
A)  high total fixed costs and high marginal costs. 
B)  low total fixed costs and low marginal costs. 
C)  low total fixed costs and high marginal costs. 
D)  high total fixed costs and low marginal costs.

Question 13

-Refer to the above figure. As more and more firms are able to and actually do enter the industry, the demand curve of each firm and its marginal revenue curve

Accepted Answer

A)  will shift inward until the demand curve is tangent to the average total cost curve. 
B)  will become vertical. 
C)  will become upward sloping. 
D)  None of the above will occur. 
A)  will shift inward until the demand curve is tangent to the average total cost curve. 
B)  will become vertical. 
C)  will become upward sloping. 
D)  None of the above will occur.

Question 14

The demand for the product of a monopolistically competitive firm is highly elastic when

Accepted Answer

A)  firms collude. 
B)  there are fewer firms in the industry. 
C)  there is a lot of product differentiation. 
D)  there are a lot of close substitutes. 
A)  firms collude. 
B)  there are fewer firms in the industry. 
C)  there is a lot of product differentiation. 
D)  there are a lot of close substitutes.

Question 15

The long-run equilibrium of a monopolistically competitive firm is characterized by

Accepted Answer

A)  a tangency of the average total cost curve with the firm's demand curve. 
B)  price equal to marginal cost. 
C)  production at the minimum point of the firm's average total cost curve. 
D)  production at the minimum point of the firm's average variable cost curve. 
A)  a tangency of the average total cost curve with the firm's demand curve. 
B)  price equal to marginal cost. 
C)  production at the minimum point of the firm's average total cost curve. 
D)  production at the minimum point of the firm's average variable cost curve.

Question 16

The number of firms in a monopolistically competitive market means that

Accepted Answer

A)  all firms will have substantial monopoly power since there are so few firms in the industry. 
B)  each firm has a relatively small share of the total market since there are many firms in the industry. 
C)  the firms will be likely to collude since there are only a few firms in the industry. 
D)  firms will have a hard time earning non-negative profits since there are many firms in the industry. 
A)  all firms will have substantial monopoly power since there are so few firms in the industry. 
B)  each firm has a relatively small share of the total market since there are many firms in the industry. 
C)  the firms will be likely to collude since there are only a few firms in the industry. 
D)  firms will have a hard time earning non-negative profits since there are many firms in the industry.

Question 17

A monopolistic competitor behaving in a profit-maximizing way will

Accepted Answer

A)  not advertise. 
B)  advertise as much as it can in order to increase its sales. 
C)  advertise to the point where the additional sales from advertising equal the additional marginal costs of the product. 
D)  advertise to the point where the additional revenue from one more dollar of advertising just equals the extra dollar cost of advertising. 
A)  not advertise. 
B)  advertise as much as it can in order to increase its sales. 
C)  advertise to the point where the additional sales from advertising equal the additional marginal costs of the product. 
D)  advertise to the point where the additional revenue from one more dollar of advertising just equals the extra dollar cost of advertising.

Question 18

All of the following are characteristics of a monopolistically competitive industry EXCEPT

Accepted Answer

A)  homogeneous products. 
B)  many firms. 
C)  low barriers to entry and exit. 
D)  sales promotion and advertising. 
A)  homogeneous products. 
B)  many firms. 
C)  low barriers to entry and exit. 
D)  sales promotion and advertising.

Question 19

Long-run equilibrium for a monopolistic competitor is characterized by

Accepted Answer

A)  a price exceeding marginal cost. 
B)  marginal cost pricing. 
C)  economic profits. 
D)  too few firms in the industry. 
A)  a price exceeding marginal cost. 
B)  marginal cost pricing. 
C)  economic profits. 
D)  too few firms in the industry.

Question 20

The long-run equilibrium for a firm in an information product industry exists at a point at which

Accepted Answer

A)  marginal cost equals marginal revenue. 
B)  the demand curve crosses the marginal cost curve. 
C)  the demand curve is tangent to the average total cost curve. 
D)  average total cost is minimized. 
A)  marginal cost equals marginal revenue. 
B)  the demand curve crosses the marginal cost curve. 
C)  the demand curve is tangent to the average total cost curve. 
D)  average total cost is minimized.

Exam 25: Monopolistic Competition

Entry into a monopolistically competitive industry

Which of the following products would most likely be produced in a monopolistically competitive market?

In a long-run equilibrium in a monopolistically competitive industry that produces information products, revenues are equal to the ________ costs of developing, producing, and selling the product.

The demand curve for a monopolistically competitive firm is

-The above table depicts prices, quantities, and marginal costs faced by the campus bookstore. At the profit-maximizing level of output, what is the total cost earned by the store?

The type of advertising used for an experience good is

A monopolistic competitor is like a monopolist in the long run in that when economic profits are

The manufacturers of information products typically

Which of the following assumptions is true about monopolistic competition?

-Refer to the above figure. Which panel represents a monopolistic competitor that is earning zero economic profits?

Which of the following statements is generally TRUE about information products?

An information product typically has

-Refer to the above figure. As more and more firms are able to and actually do enter the industry, the demand curve of each firm and its marginal revenue curve

The demand for the product of a monopolistically competitive firm is highly elastic when

The long-run equilibrium of a monopolistically competitive firm is characterized by

The number of firms in a monopolistically competitive market means that

A monopolistic competitor behaving in a profit-maximizing way will

All of the following are characteristics of a monopolistically competitive industry EXCEPT

Long-run equilibrium for a monopolistic competitor is characterized by

The long-run equilibrium for a firm in an information product industry exists at a point at which

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