Question 1

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

Accepted Answer

A)  firms alter their advertising rates until they made at least normal profits. 
B)  some firms entering the industry, causing the market supply curve to shift to the right, lowering price. 
C)  some firms entering the industry, causing the demand curves of the existing firms to shift to the left. 
D)  some firms entering the industry, causing the demand curves of the existing firms to shift to the right. 
A)  firms alter their advertising rates until they made at least normal profits. 
B)  some firms entering the industry, causing the market supply curve to shift to the right, lowering price. 
C)  some firms entering the industry, causing the demand curves of the existing firms to shift to the left. 
D)  some firms entering the industry, causing the demand curves of the existing firms to shift to the right.

Question 2

The ATC curve for a firm that produces an information product

Accepted Answer

A)  slopes downward, because AVC is constant, AFC slopes downward, and ATC = AVC + AFC. 
B)  slopes upward, because AFC is constant, AVC slopes upward, and ATC = AFC + AVC. 
C)  is U-shaped, because AVC is U-shaped, AFC slopes downward, and ATC = AVC + AFC. 
D)  slopes downward, because MC slopes downward, AVC is constant, and ATC = AVC +MC. 
A)  slopes downward, because AVC is constant, AFC slopes downward, and ATC = AVC + AFC. 
B)  slopes upward, because AFC is constant, AVC slopes upward, and ATC = AFC + AVC. 
C)  is U-shaped, because AVC is U-shaped, AFC slopes downward, and ATC = AVC + AFC. 
D)  slopes downward, because MC slopes downward, AVC is constant, and ATC = AVC +MC.

Question 3

The marginal revenue curve of a monopolistically competitive firm is

Accepted Answer

A)  downward sloping and above the demand curve. 
B)  downward sloping and below the demand curve. 
C)  identical to the demand curve as there are many small firms in the market. 
D)  perfectly elastic. 
A)  downward sloping and above the demand curve. 
B)  downward sloping and below the demand curve. 
C)  identical to the demand curve as there are many small firms in the market. 
D)  perfectly elastic.

Question 4

A monopolistically competitive firm maximizes profits when it

Accepted Answer

A)  produces the quantity at which marginal cost equals the market price. 
B)  produces the quantity at which marginal cost equals marginal revenue and uses the demand curve to determine the market price. 
C)  produces the quantity at which marginal cost equals marginal revenue and sets the price equal to the marginal cost. 
D)  produces the quantity at which marginal cost equals marginal revenue and sets the price equal to the marginal revenue. 
A)  produces the quantity at which marginal cost equals the market price. 
B)  produces the quantity at which marginal cost equals marginal revenue and uses the demand curve to determine the market price. 
C)  produces the quantity at which marginal cost equals marginal revenue and sets the price equal to the marginal cost. 
D)  produces the quantity at which marginal cost equals marginal revenue and sets the price equal to the marginal revenue.

Question 5

Monopolistic competition means

Accepted Answer

A)  monopolies from several countries compete in the global market. 
B)  a large number of firms producing homogeneous products. 
C)  a large number of firms producing differentiated products. 
D)  few firms producing differentiated products. 
A)  monopolies from several countries compete in the global market. 
B)  a large number of firms producing homogeneous products. 
C)  a large number of firms producing differentiated products. 
D)  few firms producing differentiated products.

Question 6

What did Harvard economist Edward Chamberlain say about the observation that a monopolistically competitive firm's average cost of production exceeds its minimum average total cost?

Accepted Answer

A)  Chamberlain argued that these higher costs represent the wastefulness of this market structure. 
B)  Chamberlain argued that this belief is incorrect. In his view, monopolistically competitive firms do not produce at a cost above their minimum average total costs. 
C)  According to Chamberlain, this cost difference represents the value consumers place on variety and having more choice. 
D)  In Chamberlain's view, this is evidence that monopolistic competition uses society's resources inefficiently and in a fashion that merits government intervention. 
A)  Chamberlain argued that these higher costs represent the wastefulness of this market structure. 
B)  Chamberlain argued that this belief is incorrect. In his view, monopolistically competitive firms do not produce at a cost above their minimum average total costs. 
C)  According to Chamberlain, this cost difference represents the value consumers place on variety and having more choice. 
D)  In Chamberlain's view, this is evidence that monopolistic competition uses society's resources inefficiently and in a fashion that merits government intervention.

Question 7

There is no incentive for additional producers of an information product to enter the industry when the price charged for these products by each firm already in the industry is equal to

Accepted Answer

A)  marginal cost. 
B)  average total cost. 
C)  average fixed cost. 
D)  average variable cost. 
A)  marginal cost. 
B)  average total cost. 
C)  average fixed cost. 
D)  average variable cost.

Question 8

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

Accepted Answer

A)  Large number of sellers 
B)  Differentiated products 
C)  Advertising 
D)  Barriers to entry 
A)  Large number of sellers 
B)  Differentiated products 
C)  Advertising 
D)  Barriers to entry

Question 9

Because the short-run average total cost curve slopes downward for an information product, the firm experiences

Accepted Answer

A)  a downward sloping marginal cost curve. 
B)  a downward sloping average variable cost curve. 
C)  short-run economies of operation. 
D)  long-run diseconomies of scale. 
A)  a downward sloping marginal cost curve. 
B)  a downward sloping average variable cost curve. 
C)  short-run economies of operation. 
D)  long-run diseconomies of scale.

Question 10

A product with qualities that consumers lack the expertise to assess without assistance is called a(n)

Accepted Answer

A)  search good. 
B)  experience good. 
C)  credence good. 
D)  inferior good. 
A)  search good. 
B)  experience good. 
C)  credence good. 
D)  inferior good.

Question 11

A market situation in which a large number of firms produce similar but not identical products is

Accepted Answer

A)  a collusive market structure. 
B)  competitive monopoly. 
C)  a homogeneous market. 
D)  monopolistic competition. 
A)  a collusive market structure. 
B)  competitive monopoly. 
C)  a homogeneous market. 
D)  monopolistic competition.

Question 12

The monopolistically competitive firm maximizes profit by producing to the point at which

Accepted Answer

A)  ATC = AVC. 
B)  MC = MR. 
C)  MR = AR. 
D)  MC = AR. 
A)  ATC = AVC. 
B)  MC = MR. 
C)  MR = AR. 
D)  MC = AR.

Question 13

Compared to a perfectly competitive firm, in a long run the monopolistically competitive firm will have

Accepted Answer

A)  a lower price. 
B)  a lower average cost. 
C)  a horizontal demand function. 
D)  a lower rate of output. 
A)  a lower price. 
B)  a lower average cost. 
C)  a horizontal demand function. 
D)  a lower rate of output.

Question 14

An implication of the downward slope of the demand curve for a monopolistic competitive firm is that

Accepted Answer

A)  its marginal revenue curve slopes upward. 
B)  its marginal revenue curve and its demand curve are identical (same) line. 
C)  its marginal revenue curve slopes downward but lies above the demand curve. 
D)  its marginal revenue curve slopes downward but lies below the demand curve. 
A)  its marginal revenue curve slopes upward. 
B)  its marginal revenue curve and its demand curve are identical (same) line. 
C)  its marginal revenue curve slopes downward but lies above the demand curve. 
D)  its marginal revenue curve slopes downward but lies below the demand curve.

Question 15

The model of perfect competition and the model of monopolistic competition differ in that

Accepted Answer

A)  perfect competition assumes many buyers and sellers while monopolistic competition assumes many buyers but few sellers. 
B)  perfect competition assumes easy entry of new firms while there are more significant barriers to entry in monopolistic competition. 
C)  perfect competition assumes firms make zero profits in the long run and monopolistic competition assumes firms make positive profits. 
D)  perfect competition assumes the product is homogeneous and monopolistic competition assumes the product is differentiated. 
A)  perfect competition assumes many buyers and sellers while monopolistic competition assumes many buyers but few sellers. 
B)  perfect competition assumes easy entry of new firms while there are more significant barriers to entry in monopolistic competition. 
C)  perfect competition assumes firms make zero profits in the long run and monopolistic competition assumes firms make positive profits. 
D)  perfect competition assumes the product is homogeneous and monopolistic competition assumes the product is differentiated.

Question 16

A monopolistically competitive firm finds its profit-maximizing rate of output by equating

Accepted Answer

A)  the marginal revenue of advertising with the marginal cost of advertising. 
B)  average revenue and average total cost. 
C)  price and marginal cost. 
D)  marginal revenue and marginal cost. 
A)  the marginal revenue of advertising with the marginal cost of advertising. 
B)  average revenue and average total cost. 
C)  price and marginal cost. 
D)  marginal revenue and marginal cost.

Question 17

Informational advertising is the type of advertising that

Accepted Answer

A)  is used exclusively on television. 
B)  is used exclusively on radio. 
C)  emphasizes the features of a product. 
D)  is used to influence a consumer's tastes and preferences. 
A)  is used exclusively on television. 
B)  is used exclusively on radio. 
C)  emphasizes the features of a product. 
D)  is used to influence a consumer's tastes and preferences.

Question 18

Out of all advertising spending, the largest share goes to

Accepted Answer

A)  television ads. 
B)  magazine ads. 
C)  direct marketing. 
D)  newspaper ads. 
A)  television ads. 
B)  magazine ads. 
C)  direct marketing. 
D)  newspaper ads.

Question 19

-The above figure shows the situations of a monopolistic competitor in the short run. To maximize profits, the firm should produce

Accepted Answer

A)  10,000 units. 
B)  12,000 units. 
C)  13,000 unit. 
D)  somewhere between 10,000 and 12,000 units. 
A)  10,000 units. 
B)  12,000 units. 
C)  13,000 unit. 
D)  somewhere between 10,000 and 12,000 units.

Question 20

The production of information products is characterized by

Accepted Answer

A)  relatively low fixed cost. 
B)  relatively low marginal cost. 
C)  diseconomies of operation. 
D)  an upward sloping marginal cost curve. 
A)  relatively low fixed cost. 
B)  relatively low marginal cost. 
C)  diseconomies of operation. 
D)  an upward sloping marginal cost curve.

Exam 25: Monopolistic Competition

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

The ATC curve for a firm that produces an information product

The marginal revenue curve of a monopolistically competitive firm is

A monopolistically competitive firm maximizes profits when it

Monopolistic competition means

What did Harvard economist Edward Chamberlain say about the observation that a monopolistically competitive firm's average cost of production exceeds its minimum average total cost?

There is no incentive for additional producers of an information product to enter the industry when the price charged for these products by each firm already in the industry is equal to

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

Because the short-run average total cost curve slopes downward for an information product, the firm experiences

A product with qualities that consumers lack the expertise to assess without assistance is called a(n)

A market situation in which a large number of firms produce similar but not identical products is

The monopolistically competitive firm maximizes profit by producing to the point at which

Compared to a perfectly competitive firm, in a long run the monopolistically competitive firm will have

An implication of the downward slope of the demand curve for a monopolistic competitive firm is that

The model of perfect competition and the model of monopolistic competition differ in that

A monopolistically competitive firm finds its profit-maximizing rate of output by equating

Informational advertising is the type of advertising that

Out of all advertising spending, the largest share goes to

-The above figure shows the situations of a monopolistic competitor in the short run. To maximize profits, the firm should produce

The production of information products is characterized by

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

Policies and Prospects for Global Economic Growth

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

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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