Question 1

The monopolistically competitive firm's economic profits tend toward zero in the long run. Why is this so?

Accepted Answer

A)  Monopolistically competitive firm's are rarely able to maintain the corporate discipline necessary to sustain profits in the long run. 
B)  If a monopolistically competitive firm is profitable for more than 2 years, the Justice Department orders a corporate restructuring to pull the company back to a normal rate of return. 
C)  In the long run, other firms will successfully offer substitutes for the profitable firm's product, and competition will eliminate economic profits. 
D)  Even though the monopolistically competitive firm can successfully maintain barriers to entry, keeping competition at bay becomes very expensive. 
A)  Monopolistically competitive firm's are rarely able to maintain the corporate discipline necessary to sustain profits in the long run. 
B)  If a monopolistically competitive firm is profitable for more than 2 years, the Justice Department orders a corporate restructuring to pull the company back to a normal rate of return. 
C)  In the long run, other firms will successfully offer substitutes for the profitable firm's product, and competition will eliminate economic profits. 
D)  Even though the monopolistically competitive firm can successfully maintain barriers to entry, keeping competition at bay becomes very expensive.

Question 2

The major similarity between monopolistic competition and perfect competition is

Accepted Answer

A)  the shape of the demand curve. 
B)  that both assume many buyers and sellers. 
C)  price equals marginal revenue in each. 
D)  both assume products are differentiated. 
A)  the shape of the demand curve. 
B)  that both assume many buyers and sellers. 
C)  price equals marginal revenue in each. 
D)  both assume products are differentiated.

Question 3

Explain how advertising can act as a signal.

Accepted Answer

Advertising can act as a signal that the

Question 4

Monopolistically competitive firms advertise to attempt to

Accepted Answer

A)  lower their average variable costs. 
B)  build brand loyalty. 
C)  lower barriers to entry. 
D)  increase barriers to entry. 
A)  lower their average variable costs. 
B)  build brand loyalty. 
C)  lower barriers to entry. 
D)  increase barriers to entry.

Question 5

All of the following are advertisement methods EXCEPT

Accepted Answer

A)  direct marketing. 
B)  mass marketing. 
C)  indirect marketing. 
D)  interactive marketing. 
A)  direct marketing. 
B)  mass marketing. 
C)  indirect marketing. 
D)  interactive marketing.

Question 6

Firms in a monopolistically competitive market will advertise because

Accepted Answer

A)  they want to differentiate their products. 
B)  they want to increase the elasticity of the demand curve. 
C)  of the significant differences in their product over their competitors. 
D)  the elasticity for their product is inelastic. 
A)  they want to differentiate their products. 
B)  they want to increase the elasticity of the demand curve. 
C)  of the significant differences in their product over their competitors. 
D)  the elasticity for their product is inelastic.

Question 7

-In the above figure, the profit-maximizing output and price for this monopolistically competitive firm are

Accepted Answer

A)  10,000 units at a price of $10 per unit. 
B)  10,000 units at a price of $5 per unit. 
C)  13,000 units at a price of $7 per unit. 
D)  12,000 units at a price of $8 per unit. 
A)  10,000 units at a price of $10 per unit. 
B)  10,000 units at a price of $5 per unit. 
C)  13,000 units at a price of $7 per unit. 
D)  12,000 units at a price of $8 per unit.

Question 8

For a monopolistically competitive firm,

Accepted Answer

A)  price equals marginal revenue at all levels of output. 
B)  price is less than marginal revenue at all levels of output. 
C)  price is greater than marginal revenue at all levels of output except for the first unit. 
D)  the demand curve is perfectly inelastic and marginal revenue is zero. 
A)  price equals marginal revenue at all levels of output. 
B)  price is less than marginal revenue at all levels of output. 
C)  price is greater than marginal revenue at all levels of output except for the first unit. 
D)  the demand curve is perfectly inelastic and marginal revenue is zero.

Question 9

What is the most important characteristic of monopolistic competition? How do firms behave differently from perfect competitors?

Accepted Answer

Product differentiation is the most impo

Question 10

-Use the above figure. The total profit earned by the monopolistically competitive firm is

Accepted Answer

A)  +$300. 
B)  +$15. 
C)  -$15. 
D)  $0. 
A)  +$300. 
B)  +$15. 
C)  -$15. 
D)  $0.

Question 11

According to Edward Chamberlin, is the "differentness" of products a waste of resources? Explain.

Accepted Answer

According to Chamberlin, the "differentn

Question 12

The number of firms in a monopolistically competitive industry means that

Accepted Answer

A)  firms will collude. 
B)  existing firms in the industry will make sure new firms do not enter. 
C)  firms will not cooperate to set a pure monopoly price. 
D)  firms will try to set a common price. 
A)  firms will collude. 
B)  existing firms in the industry will make sure new firms do not enter. 
C)  firms will not cooperate to set a pure monopoly price. 
D)  firms will try to set a common price.

Question 13

In the long run in a monopolistically competitive market, a firm will, in theory,

Accepted Answer

A)  earn economic profits. 
B)  suffer losses. 
C)  break even. 
D)  earn zero accounting profits. 
A)  earn economic profits. 
B)  suffer losses. 
C)  break even. 
D)  earn zero accounting profits.

Question 14

Which of the following is NOT a feature of monopolistic competition?

Accepted Answer

A)  significant numbers of sellers in a highly competitive market 
B)  differentiated products 
C)  sales promotion and advertising 
D)  inability of firms to enter or exit the market 
A)  significant numbers of sellers in a highly competitive market 
B)  differentiated products 
C)  sales promotion and advertising 
D)  inability of firms to enter or exit the market

Question 15

A good that people must actually consume before they can determine qualities is called

Accepted Answer

A)  a credence good. 
B)  a search good. 
C)  an experience good. 
D)  a persuasive good. 
A)  a credence good. 
B)  a search good. 
C)  an experience good. 
D)  a persuasive good.

Question 16

Which of the following conditions best explain the short-run economies of operation associated with production of an information product?

Accepted Answer

A)  AVC slopes downward, and AFC is constant, so that ATC slopes downward. 
B)  AVC is constant, and AFC slopes downward, so that ATC slopes downward. 
C)  AFC is constant, and MC slopes downward, so that AVC slopes downward. 
D)  MC is constant, and MC slopes upward, so that AVC slopes upward. 
A)  AVC slopes downward, and AFC is constant, so that ATC slopes downward. 
B)  AVC is constant, and AFC slopes downward, so that ATC slopes downward. 
C)  AFC is constant, and MC slopes downward, so that AVC slopes downward. 
D)  MC is constant, and MC slopes upward, so that AVC slopes upward.

Question 17

In the short run, the monopolistic competitor is just like the perfect competitor in that

Accepted Answer

A)  equilibrium is determined by setting price equal to marginal cost. 
B)  either type of firm can earn economic profits, experience economic losses, or break even in the short run. 
C)  each equates marginal revenue and marginal cost in order to maximize profits, with the result that price exceeds marginal revenue. 
D)  new firms enter in the short run when firms are making profits. 
A)  equilibrium is determined by setting price equal to marginal cost. 
B)  either type of firm can earn economic profits, experience economic losses, or break even in the short run. 
C)  each equates marginal revenue and marginal cost in order to maximize profits, with the result that price exceeds marginal revenue. 
D)  new firms enter in the short run when firms are making profits.

Question 18

Carol has just purchased a cereal she saw advertised on TV because of the health benefits contained in the ad. The TV ad is an example of

Accepted Answer

A)  mass marketing. 
B)  direct marketing. 
C)  indirect marketing. 
D)  interactive marketing. 
A)  mass marketing. 
B)  direct marketing. 
C)  indirect marketing. 
D)  interactive marketing.

Question 19

Bonnie has just purchased a crystal vase she saw advertised when she went on line to find her local weather forecast. The internet ad is an example of

Accepted Answer

A)  mass marketing. 
B)  direct marketing. 
C)  indirect marketing. 
D)  interactive marketing. 
A)  mass marketing. 
B)  direct marketing. 
C)  indirect marketing. 
D)  interactive marketing.

Question 20

Marginal cost pricing for an information product

Accepted Answer

A)  would cause the firm to experience economic losses. 
B)  would allow the firm to break even. 
C)  would cause the firm to earn economic profits. 
D)  would cause the firm to expand output to increase economic profits. 
A)  would cause the firm to experience economic losses. 
B)  would allow the firm to break even. 
C)  would cause the firm to earn economic profits. 
D)  would cause the firm to expand output to increase economic profits.

Exam 25: Monopolistic Competition

The monopolistically competitive firm's economic profits tend toward zero in the long run. Why is this so?

The major similarity between monopolistic competition and perfect competition is

Explain how advertising can act as a signal.

Monopolistically competitive firms advertise to attempt to

All of the following are advertisement methods EXCEPT

Firms in a monopolistically competitive market will advertise because

-In the above figure, the profit-maximizing output and price for this monopolistically competitive firm are

For a monopolistically competitive firm,

What is the most important characteristic of monopolistic competition? How do firms behave differently from perfect competitors?

-Use the above figure. The total profit earned by the monopolistically competitive firm is

According to Edward Chamberlin, is the "differentness" of products a waste of resources? Explain.

The number of firms in a monopolistically competitive industry means that

In the long run in a monopolistically competitive market, a firm will, in theory,

Which of the following is NOT a feature of monopolistic competition?

A good that people must actually consume before they can determine qualities is called

Which of the following conditions best explain the short-run economies of operation associated with production of an information product?

In the short run, the monopolistic competitor is just like the perfect competitor in that

Carol has just purchased a cereal she saw advertised on TV because of the health benefits contained in the ad. The TV ad is an example of

Bonnie has just purchased a crystal vase she saw advertised when she went on line to find her local weather forecast. The internet ad is an example of

Marginal cost pricing for an information product

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

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Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

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Environmental Economics

Comparative Advantage and the Open Economy

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