Question 1

As new firms enter a monopolistically competitive market,profits of existing firms ____ and product diversity in the market ____.

Accepted Answer

A)  decline; decreases 
B)  rise; decreases 
C)  rise; increases 
D)  decline; increases 
A)  decline; decreases 
B)  rise; decreases 
C)  rise; increases 
D)  decline; increases

Question 2

Exhibit 14-2 The following diagram depicts monopolistically competitive firms.   Refer to Exhibit 14-2.In Graph A,a profit-maximizing (loss-minimizing)firm will experience a ____ at output quantity ____.

Accepted Answer

A)  loss; q1 
B)  loss; q2 
C)  profit; q1 
D)  profit; q2 
A)  loss; q1 
B)  loss; q2 
C)  profit; q1 
D)  profit; q2

Question 3

Which of the following is generally true of a monopolistic competitor operating in the long run?

Accepted Answer

A)  price equal to minimum average total cost 
B)  marginal cost exceeds marginal revenue 
C)  marginal revenue exceeds marginal cost 
D)  price exceeds marginal cost 
A)  price equal to minimum average total cost 
B)  marginal cost exceeds marginal revenue 
C)  marginal revenue exceeds marginal cost 
D)  price exceeds marginal cost

Question 4

Which of the following will not generally be true of a monopolistic competitor operating in the long run?

Accepted Answer

A)  It will be earning normal profits. 
B)  Its marginal revenue = marginal cost. 
C)  Its average total cost will be minimized. 
D)  Its price will be greater than its marginal cost. 
A)  It will be earning normal profits. 
B)  Its marginal revenue = marginal cost. 
C)  Its average total cost will be minimized. 
D)  Its price will be greater than its marginal cost.

Question 5

Exhibit 14-3 The following diagrams depict firms in monopolistically competitive markets.   Refer to Exhibit 14-3.Graph ____ demonstrates firms exiting the market,and a resulting ____ of the firm's share of the market.

Accepted Answer

A)  A; increase 
B)  B; increase 
C)  A; decrease 
D)  B; decrease 
A)  A; increase 
B)  B; increase 
C)  A; decrease 
D)  B; decrease

Question 6

If the firm in the graph below represents the typical firm in a monopolistically competitive industry,what would be most likely to occur?

Accepted Answer

A)  New firms would be likely to enter this industry. 
B)  Existing firms would be likely to exit this industry. 
C)  Firms would neither enter nor exit this industry. 
D)  New firms would like to enter but since there are substantial barriers to entry they cannot do so. 
A)  New firms would be likely to enter this industry. 
B)  Existing firms would be likely to exit this industry. 
C)  Firms would neither enter nor exit this industry. 
D)  New firms would like to enter but since there are substantial barriers to entry they cannot do so.

Question 7

Monopolistic competition is more similar to monopoly than any other industry model.

Accepted Answer

A) True 
 B)False

Question 8

Unlike purely competitive firms,firms in monopolistic competition will operate with excess capacity even in long-run equilibrium.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following conditions distinguishes perfect competition from monopolistic competition?

Accepted Answer

A)  the number of sellers 
B)  freedom of entry and exit 
C)  homogeneity of the product 
D)  none of the above 
A)  the number of sellers 
B)  freedom of entry and exit 
C)  homogeneity of the product 
D)  none of the above

Question 10

In monopolistically competitive markets,economic profits ____,and ____ shifts the demand curve of the remaining firms to the ____.

Accepted Answer

A)  signal some remaining firms to exit; exit; right 
B)  signal some remaining firms to exit; exit; left 
C)  signal new firms to enter; entry; left 
D)  signal new firms to enter; entry; right 
A)  signal some remaining firms to exit; exit; right 
B)  signal some remaining firms to exit; exit; left 
C)  signal new firms to enter; entry; left 
D)  signal new firms to enter; entry; right

Question 11

Which of the letters below represent the quantities of profit maximization,productive efficiency,and allocative efficiency?

Accepted Answer

A)  B = profit maximization; C = productive efficiency; D = allocative efficiency 
B)  B = profit maximization; D = productive efficiency; C = allocative efficiency 
C)  A = profit maximization; C = productive efficiency; B = allocative efficiency 
D)  A = profit maximization; B = productive efficiency; C = allocative efficiency 
A)  B = profit maximization; C = productive efficiency; D = allocative efficiency 
B)  B = profit maximization; D = productive efficiency; C = allocative efficiency 
C)  A = profit maximization; C = productive efficiency; B = allocative efficiency 
D)  A = profit maximization; B = productive efficiency; C = allocative efficiency

Question 12

The graph illustrates a firm in long-run equilibrium.Which of the following statements is true?

Accepted Answer

A)  The firm is making a normal profit, output is q*; D = MC, and MR = LRATC at q*. 
B)  The firm is making a loss, output is q*; D = MC, and MR = LRATC. 
C)  The firm is making a normal profit, output is q*; D = LRATC, and MR = MC at q*. 
D)  The firm is making a loss, output is q*; D = LRATC, and MR = MC at q*. 
A)  The firm is making a normal profit, output is q*; D = MC, and MR = LRATC at q*. 
B)  The firm is making a loss, output is q*; D = MC, and MR = LRATC. 
C)  The firm is making a normal profit, output is q*; D = LRATC, and MR = MC at q*. 
D)  The firm is making a loss, output is q*; D = LRATC, and MR = MC at q*.

Question 13

Product differentiation in monopolistically competitive markets ensures that ____ in equilibrium.

Accepted Answer

A)  marginal cost will exceed average revenue 
B)  price will exceed marginal cost 
C)  average variable cost will be declining 
D)  marginal revenue will equal average total cost 
A)  marginal cost will exceed average revenue 
B)  price will exceed marginal cost 
C)  average variable cost will be declining 
D)  marginal revenue will equal average total cost

Question 14

Exhibit 14-4 The following diagram depicts firms in monopolistically competitive markets.   Refer to Exhibit 14-4.If the firm maximizes profit,it will:

Accepted Answer

A)  produce 11,000 pairs of blue jeans each month. 
B)  produce 10,000 pairs of blue jeans each month. 
C)  produce 7,000 pairs of blue jeans each month. 
D)  produce 4,000 pairs of blue jeans each month. 
A)  produce 11,000 pairs of blue jeans each month. 
B)  produce 10,000 pairs of blue jeans each month. 
C)  produce 7,000 pairs of blue jeans each month. 
D)  produce 4,000 pairs of blue jeans each month.

Question 15

Long-run equilibrium under monopolistic competition is similar to long-run equilibrium under perfect competition in that:

Accepted Answer

A)  price equals the minimum average total cost. 
B)  firms face perfectly elastic demand curves. 
C)  price equals average cost. 
D)  marginal revenue equals average cost. 
A)  price equals the minimum average total cost. 
B)  firms face perfectly elastic demand curves. 
C)  price equals average cost. 
D)  marginal revenue equals average cost.

Question 16

Exhibit 14-1   Refer to Exhibit 14-1.Based on the graph,what would total cost be at the profit maximizing level of output?

Accepted Answer

A)  $560 
B)  $665 
C)  $875 
D)  $900 
A)  $560 
B)  $665 
C)  $875 
D)  $900

Question 17

The market for eyeglasses is monopolistically competitive.It follows that firms in the eyeglass industry:

Accepted Answer

A)  could earn economic profit in long-run equilibrium. 
B)  could earn economic profit in short-run equilibrium. 
C)  charge a price equal to marginal cost. 
D)  charge a price equal to the minimum average total cost. 
A)  could earn economic profit in long-run equilibrium. 
B)  could earn economic profit in short-run equilibrium. 
C)  charge a price equal to marginal cost. 
D)  charge a price equal to the minimum average total cost.

Question 18

If a profit-maximizing monopolistic competitor earns positive economic profits in the short run:

Accepted Answer

A)  demand will become increasingly inelastic as new firms enter. 
B)  the firm should increase its output as new firms enter. 
C)  there must be barriers to entry into the industry. 
D)  new firms will be attracted to the industry. 
E)  both b. and d. are correct. 
A)  demand will become increasingly inelastic as new firms enter. 
B)  the firm should increase its output as new firms enter. 
C)  there must be barriers to entry into the industry. 
D)  new firms will be attracted to the industry. 
E)  both b. and d. are correct.

Question 19

A monopolistically competitive industry is like a perfectly competitive industry in the sense that:

Accepted Answer

A)  non-price competition is significant in both industries. 
B)  there are no substantial barriers to entry in both cases. 
C)  economic profits in long run equilibrium are zero in both cases. 
D)  both (b) and (c) are true. 
A)  non-price competition is significant in both industries. 
B)  there are no substantial barriers to entry in both cases. 
C)  economic profits in long run equilibrium are zero in both cases. 
D)  both (b) and (c) are true.

Question 20

Why does inefficiency exist in monopolistic competition?

Accepted Answer

Inefficiency of monopolistic competition

Exam 14: Monopolistic Competition and Product Differentiation

As new firms enter a monopolistically competitive market,profits of existing firms ____ and product diversity in the market ____.

Exhibit 14-2 The following diagram depicts monopolistically competitive firms. Refer to Exhibit 14-2.In Graph A,a profit-maximizing (loss-minimizing)firm will experience a ____ at output quantity ____.

Which of the following is generally true of a monopolistic competitor operating in the long run?

Which of the following will not generally be true of a monopolistic competitor operating in the long run?

Exhibit 14-3 The following diagrams depict firms in monopolistically competitive markets. Refer to Exhibit 14-3.Graph ____ demonstrates firms exiting the market,and a resulting ____ of the firm's share of the market.

If the firm in the graph below represents the typical firm in a monopolistically competitive industry,what would be most likely to occur?

Monopolistic competition is more similar to monopoly than any other industry model.

Unlike purely competitive firms,firms in monopolistic competition will operate with excess capacity even in long-run equilibrium.

Which of the following conditions distinguishes perfect competition from monopolistic competition?

In monopolistically competitive markets,economic profits ____,and ____ shifts the demand curve of the remaining firms to the ____.

Which of the letters below represent the quantities of profit maximization,productive efficiency,and allocative efficiency?

The graph illustrates a firm in long-run equilibrium.Which of the following statements is true?

Product differentiation in monopolistically competitive markets ensures that ____ in equilibrium.

Exhibit 14-4 The following diagram depicts firms in monopolistically competitive markets. Refer to Exhibit 14-4.If the firm maximizes profit,it will:

Long-run equilibrium under monopolistic competition is similar to long-run equilibrium under perfect competition in that:

Exhibit 14-1 Refer to Exhibit 14-1.Based on the graph,what would total cost be at the profit maximizing level of output?

The market for eyeglasses is monopolistically competitive.It follows that firms in the eyeglass industry:

If a profit-maximizing monopolistic competitor earns positive economic profits in the short run:

A monopolistically competitive industry is like a perfectly competitive industry in the sense that:

Why does inefficiency exist in monopolistic competition?

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters

As new firms enter a monopolistically competitive market,profits of existing firms and product diversity in the market .

Exhibit 14-2 The following diagram depicts monopolistically competitive firms. Refer to Exhibit 14-2.In Graph A,a profit-maximizing (loss-minimizing)firm will experience a at output quantity .

Exhibit 14-3 The following diagrams depict firms in monopolistically competitive markets. Refer to Exhibit 14-3.Graph demonstrates firms exiting the market,and a resulting of the firm's share of the market.

In monopolistically competitive markets,economic profits ,and shifts the demand curve of the remaining firms to the .