Question 1

In the long run,

Accepted Answer

A)  monopolistically competitive firms earn a higher profit than perfectly competitive firms because monopolistically competitive firms have some monopoly power. 
B)  monopolistically competitive firms produce a higher output than perfectly competitive firms because competition drives the perfectly competitive firm's output down. 
C)  both monopolistically competitive and perfectly competitive firms produce where P = MC. 
D)  both monopolistically competitive and perfectly competitive firms produce where P = ATC. 
A)  monopolistically competitive firms earn a higher profit than perfectly competitive firms because monopolistically competitive firms have some monopoly power. 
B)  monopolistically competitive firms produce a higher output than perfectly competitive firms because competition drives the perfectly competitive firm's output down. 
C)  both monopolistically competitive and perfectly competitive firms produce where P = MC. 
D)  both monopolistically competitive and perfectly competitive firms produce where P = ATC.

Question 2

Among arguments for and against advertising,both sides agree that advertising leads to

Accepted Answer

A)  higher prices and less competitive markets. 
B)  higher prices and more competitive markets. 
C)  lower prices and more competitive markets. 
D)  None of the above is correct.The debate fails to resolve the question of advertising's effect on prices and competition. 
A)  higher prices and less competitive markets. 
B)  higher prices and more competitive markets. 
C)  lower prices and more competitive markets. 
D)  None of the above is correct.The debate fails to resolve the question of advertising's effect on prices and competition.

Question 3

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,

Accepted Answer

A)  its average revenue will equal its marginal cost. 
B)  its marginal revenue will exceed its marginal cost. 
C)  it will be earning positive economic profits. 
D)  its demand curve will be tangent to its average-total-cost curve. 
A)  its average revenue will equal its marginal cost. 
B)  its marginal revenue will exceed its marginal cost. 
C)  it will be earning positive economic profits. 
D)  its demand curve will be tangent to its average-total-cost curve.

Question 4

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,

Accepted Answer

A)  the demand curve will be perfectly elastic. 
B)  price exceeds marginal cost. 
C)  marginal cost must be falling. 
D)  marginal revenue exceeds marginal cost. 
A)  the demand curve will be perfectly elastic. 
B)  price exceeds marginal cost. 
C)  marginal cost must be falling. 
D)  marginal revenue exceeds marginal cost.

Question 5

Advertising

Accepted Answer

A)  provides information about products,including prices and seller locations. 
B)  has been proven to increase competition and reduce prices compared to markets without advertising. 
C)  signals quality to consumers,because advertising is expensive. 
D)  All of the above are correct. 
A)  provides information about products,including prices and seller locations. 
B)  has been proven to increase competition and reduce prices compared to markets without advertising. 
C)  signals quality to consumers,because advertising is expensive. 
D)  All of the above are correct.

Question 6

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,

Accepted Answer

A)  the firm must be earning a positive economic profit. 
B)  the firm may be incurring economic losses 
C)  there is a deadweight loss to society,but it is exactly offset by the benefit of excess capacity. 
D)  new firms will enter the market in the long run. 
A)  the firm must be earning a positive economic profit. 
B)  the firm may be incurring economic losses 
C)  there is a deadweight loss to society,but it is exactly offset by the benefit of excess capacity. 
D)  new firms will enter the market in the long run.

Question 7

A monopolistically competitive firm chooses the quantity to produce where

Accepted Answer

A)  price equals marginal cost. 
B)  demand equals marginal cost. 
C)  marginal revenue equals marginal cost. 
D)  Both a and c are correct. 
A)  price equals marginal cost. 
B)  demand equals marginal cost. 
C)  marginal revenue equals marginal cost. 
D)  Both a and c are correct.

Question 8

In his 1958 book,The Affluent Society,John Kenneth Galbraith argued that

Accepted Answer

A)  brand names give firms an incentive to produce and sell high-quality products. 
B)  consumers' tastes cannot,in any real sense,be "determined" by advertising. 
C)  firms use advertising to create demand for products that people otherwise do not want or need. 
D)  firms use advertising to send a signal to consumers about the quality of their products. 
A)  brand names give firms an incentive to produce and sell high-quality products. 
B)  consumers' tastes cannot,in any real sense,be "determined" by advertising. 
C)  firms use advertising to create demand for products that people otherwise do not want or need. 
D)  firms use advertising to send a signal to consumers about the quality of their products.

Question 9

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

Accepted Answer

A) True 
 B)False

Question 10

For a profit-maximizing firm in a monopolistically competitive market,when price is equal to average total cost,price must lie above marginal cost.

Accepted Answer

A) True 
 B)False

Question 11

In comparison to perfect competition,monopolistic competition is characterized by

Accepted Answer

A)  efficient scale. 
B)  pricing at marginal cost. 
C)  excess capacity. 
D)  All of the above are correct. 
A)  efficient scale. 
B)  pricing at marginal cost. 
C)  excess capacity. 
D)  All of the above are correct.

Question 12

Suppose that monopolistically competitive firms in a certain market are earning positive profits.In the transition from this initial situation to a long-run equilibrium,

Accepted Answer

A)  the number of firms in the market decreases. 
B)  each existing firm experiences a decrease in demand for its product. 
C)  each existing firm experiences a rightward shift of its marginal revenue curve. 
D)  each existing firm experiences an upward shift in its average total cost curve. 
A)  the number of firms in the market decreases. 
B)  each existing firm experiences a decrease in demand for its product. 
C)  each existing firm experiences a rightward shift of its marginal revenue curve. 
D)  each existing firm experiences an upward shift in its average total cost curve.

Question 13

Critics of advertising argue that advertising

Accepted Answer

A)  creates demand for products that people otherwise do not want or need. 
B)  lowers barriers to entry into an industry because new firms can more easily establish themselves as competitors. 
C)  increases competition by providing information about prices. 
D)  encourages monopolization of markets by raising entry barriers. 
A)  creates demand for products that people otherwise do not want or need. 
B)  lowers barriers to entry into an industry because new firms can more easily establish themselves as competitors. 
C)  increases competition by providing information about prices. 
D)  encourages monopolization of markets by raising entry barriers.

Question 14

Figure 16-5  
-Refer to Figure 16-5.Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

A)  panel a 
B)  panel b 
C)  panel c 
D)  None of the above is correct. 
A)  panel a 
B)  panel b 
C)  panel c 
D)  None of the above is correct.

Question 15

Among the following situations,which one is least likely to apply to a monopolistically competitive firm?

Accepted Answer

A)  profit is positive in the short run 
B)  total cost exceeds total revenue in the short run 
C)  profit is positive in the long run 
D)  total revenue equals total cost in the long run 
A)  profit is positive in the short run 
B)  total cost exceeds total revenue in the short run 
C)  profit is positive in the long run 
D)  total revenue equals total cost in the long run

Question 16

Monopolistic competition is characterized by many buyers and sellers,product differentiation,and barriers to entry.

Accepted Answer

A) True 
 B)False

Exam 16: Monopolistic Competition

In the long run,

Among arguments for and against advertising,both sides agree that advertising leads to

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,

Advertising

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,

A monopolistically competitive firm chooses the quantity to produce where

In his 1958 book,The Affluent Society,John Kenneth Galbraith argued that

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

For a profit-maximizing firm in a monopolistically competitive market,when price is equal to average total cost,price must lie above marginal cost.

In comparison to perfect competition,monopolistic competition is characterized by

Suppose that monopolistically competitive firms in a certain market are earning positive profits.In the transition from this initial situation to a long-run equilibrium,

Critics of advertising argue that advertising

Figure 16-5 -Refer to Figure 16-5.Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium?

Among the following situations,which one is least likely to apply to a monopolistically competitive firm?

Monopolistic competition is characterized by many buyers and sellers,product differentiation,and barriers to entry.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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