Question 1

Which of the following statements is true for a monopolistically competitive firm in the long run?

Accepted Answer

A)  P = ATC > MR 
B)  MC > P > ATC 
C)  P > MC > ATC 
D)  P = MC = MR 
A)  P = ATC > MR 
B)  MC > P > ATC 
C)  P > MC > ATC 
D)  P = MC = MR

Question 2

It has been argued that in the long run monopolistic competition is inefficient because

Accepted Answer

A)  there are too many firms, each with excess capacity, producing too little output. 
B)  there are few many firms, each with excess capacity, producing too much output. 
C)  minimum average total costs are achieved but price exceeds marginal cost. 
D)  minimum average total costs are not achieved and marginal cost exceeds price. 
A)  there are too many firms, each with excess capacity, producing too little output. 
B)  there are few many firms, each with excess capacity, producing too much output. 
C)  minimum average total costs are achieved but price exceeds marginal cost. 
D)  minimum average total costs are not achieved and marginal cost exceeds price.

Question 3

All of the following are characteristics of monopolistic competition EXCEPT

Accepted Answer

A)  a few firms dominate the industry. 
B)  product differentiation. 
C)  many firms in the industry. 
D)  advertising. 
A)  a few firms dominate the industry. 
B)  product differentiation. 
C)  many firms in the industry. 
D)  advertising.

Question 4

Which of the following statements is INCORRECT regarding the model for information products?

Accepted Answer

A)  Average total costs slope downward, because average variable cost is constant, average fixed cost slopes downward. 
B)  The firm maximizes profit by setting the price of its product equal to marginal cost. 
C)  Marginal cost equals average variable cost. 
D)  In the long run, accounting profit is positive. 
A)  Average total costs slope downward, because average variable cost is constant, average fixed cost slopes downward. 
B)  The firm maximizes profit by setting the price of its product equal to marginal cost. 
C)  Marginal cost equals average variable cost. 
D)  In the long run, accounting profit is positive.

Question 5

Advertisement in which firms aim messages to as many customers as possible via media is known as

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

-In the above figure, this profit-maximizing monopolistic competitive firm will realize an economic profit of

Accepted Answer

A)  -$1,400. 
B)  $2,100. 
C)  $1,400. 
D)  $700. 
A)  -$1,400. 
B)  $2,100. 
C)  $1,400. 
D)  $700.

Question 7

Firms that produce an information product experience short-run economies of operation because

Accepted Answer

A)  the firm will always produce in the decreasing portion of the marginal cost curve. 
B)  of the U-shaped nature of the average total cost curve. 
C)  of the U-shaped nature of the average variable cost curve. 
D)  the average total cost of producing and selling the product declines as output increases. 
A)  the firm will always produce in the decreasing portion of the marginal cost curve. 
B)  of the U-shaped nature of the average total cost curve. 
C)  of the U-shaped nature of the average variable cost curve. 
D)  the average total cost of producing and selling the product declines as output increases.

Question 8

The long-run equilibrium of monopolistic competition is characterized by

Accepted Answer

A)  P = MC = ATC. 
B)  P = MC > ATC. 
C)  P = MR = MC. 
D)  P = ATC > MC. 
A)  P = MC = ATC. 
B)  P = MC > ATC. 
C)  P = MR = MC. 
D)  P = ATC > MC.

Question 9

Which is NOT a characteristic of monopolistic competition?

Accepted Answer

A)  small share of market to each firm 
B)  lack of collusion among firms 
C)  few firms in the industry 
D)  independence of each firm's decisions 
A)  small share of market to each firm 
B)  lack of collusion among firms 
C)  few firms in the industry 
D)  independence of each firm's decisions

Question 10

Compared with a monopolist, the demand curve faced by a monopolistically competitive firm is

Accepted Answer

A)  more elastic. 
B)  more inelastic. 
C)  perfectly elastic. 
D)  perfectly inelastic. 
A)  more elastic. 
B)  more inelastic. 
C)  perfectly elastic. 
D)  perfectly inelastic.

Question 11

A good example of a monopolistic competitive industry is

Accepted Answer

A)  the federal highway system. 
B)  oil producing industry. 
C)  the rap music industry. 
D)  farming. 
A)  the federal highway system. 
B)  oil producing industry. 
C)  the rap music industry. 
D)  farming.

Question 12

-Refer to the above figure. Economic profits for this firm are

Accepted Answer

A)  negative. 
B)  zero. 
C)  positive. 
D)  undetermined without more information. 
A)  negative. 
B)  zero. 
C)  positive. 
D)  undetermined without more information.

Question 13

Which of the following is FALSE with respect to brand names and advertising?

Accepted Answer

A)  Because "differentness" has value to customers, monopolistically competitive firms regard their brand names as valuable. 
B)  Firms use trademarks-words, symbols, and logos-to distinguish their product brands. 
C)  Companies do not regard their brands as valuable private (intellectual) property because the value cannot be quantified. 
D)  There is considerable shifting over time in the market value rankings of various U.S. product brands. 
A)  Because "differentness" has value to customers, monopolistically competitive firms regard their brand names as valuable. 
B)  Firms use trademarks-words, symbols, and logos-to distinguish their product brands. 
C)  Companies do not regard their brands as valuable private (intellectual) property because the value cannot be quantified. 
D)  There is considerable shifting over time in the market value rankings of various U.S. product brands.

Question 14

Harry needs to hire a lawyer but does not know how to find a good one. The lawyer is a(n)

Accepted Answer

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

Question 15

Because there are low barriers to entry in a monopolistically competitive market,

Accepted Answer

A)  there are many firms in the industry. 
B)  they produce a homogeneous product. 
C)  the firms are price takers. 
D)  there is no non-price competition. 
A)  there are many firms in the industry. 
B)  they produce a homogeneous product. 
C)  the firms are price takers. 
D)  there is no non-price competition.

Question 16

For a firm that sells an information product, the long-run equilibrium exists at a point at which economic profits are

Accepted Answer

A)  negative. 
B)  zero. 
C)  positive. 
D)  dependent upon the particular product. 
A)  negative. 
B)  zero. 
C)  positive. 
D)  dependent upon the particular product.

Question 17

The greater the product differentiation between monopolistically competitive firms,

Accepted Answer

A)  the lower the barriers to entry. 
B)  the greater the price elasticity of demand. 
C)  the higher the average variable costs. 
D)  the lower the price elasticity of demand. 
A)  the lower the barriers to entry. 
B)  the greater the price elasticity of demand. 
C)  the higher the average variable costs. 
D)  the lower the price elasticity of demand.

Question 18

Is monopolistic competition efficient? Explain. What is Edward Chamberlin's view about the efficiency of monopolistic competition?

Accepted Answer

Monopolistic competition is not efficien

Question 19

Suppose a sushi restaurant is making significant economic profit in the short run. In the long run

Accepted Answer

A)  more people will open sushi restaurants, reducing the economic profit for each restaurant. 
B)  high barriers to entry keep people from opening sushi restaurants. 
C)  the government will require the sushi restaurant to sell part of its interests in the city. 
D)  more people will open steak restaurants, increasing the economic profit for the sushi restaurant. 
A)  more people will open sushi restaurants, reducing the economic profit for each restaurant. 
B)  high barriers to entry keep people from opening sushi restaurants. 
C)  the government will require the sushi restaurant to sell part of its interests in the city. 
D)  more people will open steak restaurants, increasing the economic profit for the sushi restaurant.

Question 20

How does the short-run equilibrium of a monopolistic competitor differ from a monopolist? How does it differ from a perfect competitor?

Accepted Answer

The short-run equilibrium of a monopolis

Exam 25: Monopolistic Competition

Which of the following statements is true for a monopolistically competitive firm in the long run?

It has been argued that in the long run monopolistic competition is inefficient because

All of the following are characteristics of monopolistic competition EXCEPT

Which of the following statements is INCORRECT regarding the model for information products?

Advertisement in which firms aim messages to as many customers as possible via media is known as

-In the above figure, this profit-maximizing monopolistic competitive firm will realize an economic profit of

Firms that produce an information product experience short-run economies of operation because

The long-run equilibrium of monopolistic competition is characterized by

Which is NOT a characteristic of monopolistic competition?

Compared with a monopolist, the demand curve faced by a monopolistically competitive firm is

A good example of a monopolistic competitive industry is

-Refer to the above figure. Economic profits for this firm are

Which of the following is FALSE with respect to brand names and advertising?

Harry needs to hire a lawyer but does not know how to find a good one. The lawyer is a(n)

Because there are low barriers to entry in a monopolistically competitive market,

For a firm that sells an information product, the long-run equilibrium exists at a point at which economic profits are

The greater the product differentiation between monopolistically competitive firms,

Is monopolistic competition efficient? Explain. What is Edward Chamberlin's view about the efficiency of monopolistic competition?

Suppose a sushi restaurant is making significant economic profit in the short run. In the long run

How does the short-run equilibrium of a monopolistic competitor differ from a monopolist? How does it differ from a perfect competitor?

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

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Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

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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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