Question 1

Product differentiation in monopolistically competitive markets implies that:

Accepted Answer

A)  firms make economic profits in the long run. 
B)  firms will produce at the minimum of the average total cost curve in the long run. 
C)  individual firms face downward-sloping demand curves. 
D)  firms are certain to earn economic profits in the short run. 
A)  firms make economic profits in the long run. 
B)  firms will produce at the minimum of the average total cost curve in the long run. 
C)  individual firms face downward-sloping demand curves. 
D)  firms are certain to earn economic profits in the short run.

Question 2

If the ice cream industry is monopolistically competitive,then:

Accepted Answer

A)  the price of ice cream equals marginal cost in equilibrium. 
B)  the price of ice cream equals average cost in long-run equilibrium. 
C)  the price of ice cream is less than marginal cost in equilibrium. 
D)  there are significant barriers to entering the ice cream business. 
A)  the price of ice cream equals marginal cost in equilibrium. 
B)  the price of ice cream equals average cost in long-run equilibrium. 
C)  the price of ice cream is less than marginal cost in equilibrium. 
D)  there are significant barriers to entering the ice cream business.

Question 3

A monopolistically competitive firm derives its ability to influence price from:

Accepted Answer

A)  the perfectly elastic demand curve it faces. 
B)  barriers to entry. 
C)  its product, which is differentiated in some way from competing products. 
D)  its position as the sole supplier in the market. 
A)  the perfectly elastic demand curve it faces. 
B)  barriers to entry. 
C)  its product, which is differentiated in some way from competing products. 
D)  its position as the sole supplier in the market.

Question 4

In the long run a perfectly competitive firm operates ____ and a monopolistically competitive firm operates ____.

Accepted Answer

A)  at the efficient scale; with excess capacity 
B)  at the efficient scale; at the efficient scale 
C)  with excess capacity; with excess capacity 
D)  with excess capacity; at the efficient scale 
A)  at the efficient scale; with excess capacity 
B)  at the efficient scale; at the efficient scale 
C)  with excess capacity; with excess capacity 
D)  with excess capacity; at the efficient scale

Question 5

In equilibrium under monopolistic competition:

Accepted Answer

A)  marginal revenue exceeds average revenue. 
B)  marginal revenue exceeds marginal cost. 
C)  marginal revenue is equal to marginal cost. 
D)  marginal revenue is less than marginal cost. 
A)  marginal revenue exceeds average revenue. 
B)  marginal revenue exceeds marginal cost. 
C)  marginal revenue is equal to marginal cost. 
D)  marginal revenue is less than marginal cost.

Question 6

Which of the following is not a source of product differentiation?

Accepted Answer

A)  physical differences in products 
B)  differences in service provided by firms 
C)  differences in the location of sales outlets 
D)  All of the above are sources of product differentiation. 
A)  physical differences in products 
B)  differences in service provided by firms 
C)  differences in the location of sales outlets 
D)  All of the above are sources of product differentiation.

Question 7

If regulators were to ensure that monopolistically competitive firms follow a marginal cost-pricing rule:

Accepted Answer

A)  new firms would be likely to enter the market. 
B)  the most efficient firms would not likely be affected. 
C)  all firms would experience losses. 
D)  firms would operate at the most efficient scale. 
A)  new firms would be likely to enter the market. 
B)  the most efficient firms would not likely be affected. 
C)  all firms would experience losses. 
D)  firms would operate at the most efficient scale.

Question 8

Exhibit 14-5 The graph depicts a monopolistically competitive firm's demand,marginal revenue,and cost curves.   Refer to Exhibit 14-5.A profit-maximizing (or loss-minimizing)firm in this situation:

Accepted Answer

A)  earns a profit of $360 each week. 
B)  earns a profit of $240 each week. 
C)  suffers a loss of $360 each week. 
D)  suffers a loss of $240 each week. 
A)  earns a profit of $360 each week. 
B)  earns a profit of $240 each week. 
C)  suffers a loss of $360 each week. 
D)  suffers a loss of $240 each week.

Question 9

Characteristics of a monopolistically competitive market include all of the following except:

Accepted Answer

A)  some influence over price. 
B)  a large number of sellers. 
C)  barriers to entry. 
D)  differentiated products. 
A)  some influence over price. 
B)  a large number of sellers. 
C)  barriers to entry. 
D)  differentiated products.

Question 10

In the monopolistic competition model,the attribute of free entry suggests that:

Accepted Answer

A)  all firms earn zero economic profits in the long run. 
B)  some firms will be able to earn economic profits in the long run. 
C)  some firms will be forced to incur economic losses in the long run. 
D)  the market structure will eventually be characterized by perfect competition in the long run. 
A)  all firms earn zero economic profits in the long run. 
B)  some firms will be able to earn economic profits in the long run. 
C)  some firms will be forced to incur economic losses in the long run. 
D)  the market structure will eventually be characterized by perfect competition in the long run.

Question 11

The force that leads to zero economic profits for monopolistically competitive firms in the long run is:

Accepted Answer

A)  excess capacity. 
B)  price wars among firms. 
C)  new entry. 
D)  excessive advertising. 
A)  excess capacity. 
B)  price wars among firms. 
C)  new entry. 
D)  excessive advertising.

Question 12

A monopolistically competitive firm:

Accepted Answer

A)  tries to differentiate its product from the products of competitors. 
B)  faces a perfectly elastic demand curve for its product. 
C)  unlike a perfectly competitive firm, is able to earn positive economic profits in the long run. 
D)  is always a retail establishment. 
A)  tries to differentiate its product from the products of competitors. 
B)  faces a perfectly elastic demand curve for its product. 
C)  unlike a perfectly competitive firm, is able to earn positive economic profits in the long run. 
D)  is always a retail establishment.

Question 13

Characteristics shared by monopolistically competitive markets and perfectly competitive markets include:

Accepted Answer

A)  differentiated products. 
B)  advertising. 
C)  many sellers. 
D)  brand identity. 
A)  differentiated products. 
B)  advertising. 
C)  many sellers. 
D)  brand identity.

Question 14

For a monopolistically competitive firm in long run equilibrium:

Accepted Answer

A)  marginal revenue equals marginal cost and price equals average cost. 
B)  the economic profits it is earning will soon be competed away by entry. 
C)  accounting profits are zero and price equals marginal cost. 
D)  marginal revenue equals marginal cost and average total cost is minimized. 
A)  marginal revenue equals marginal cost and price equals average cost. 
B)  the economic profits it is earning will soon be competed away by entry. 
C)  accounting profits are zero and price equals marginal cost. 
D)  marginal revenue equals marginal cost and average total cost is minimized.

Question 15

When firms exit a monopolistically competitive industry:

Accepted Answer

A)  the average total cost curves of remaining firms will shift upward. 
B)  the demand curves of remaining firms are decreased at each level of output. 
C)  the remaining firms will decrease production. 
D)  the average revenue received by remaining firms will increase at each level of output. 
A)  the average total cost curves of remaining firms will shift upward. 
B)  the demand curves of remaining firms are decreased at each level of output. 
C)  the remaining firms will decrease production. 
D)  the average revenue received by remaining firms will increase at each level of output.

Question 16

Advertising is very important to firm operating in:

Accepted Answer

A)  perfect competition but not in monopolistic competition. 
B)  monopolistic competition but not in perfect competition. 
C)  perfect competition and monopolistic competition but not in monopoly. 
D)  none of the above 
A)  perfect competition but not in monopolistic competition. 
B)  monopolistic competition but not in perfect competition. 
C)  perfect competition and monopolistic competition but not in monopoly. 
D)  none of the above

Question 17

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)  charge $50 per pair of blue jeans. 
B)  charge $48 per pair of blue jeans. 
C)  charge $34 per pair of blue jeans. 
D)  charge $45 per pair of blue jeans. 
A)  charge $50 per pair of blue jeans. 
B)  charge $48 per pair of blue jeans. 
C)  charge $34 per pair of blue jeans. 
D)  charge $45 per pair of blue jeans.

Question 18

Due to the entry and exit of firms in a monopolistically competitive market:

Accepted Answer

A)  economic profits and economic losses are dissipated in the long run. 
B)  economic profits persist in the long run, but not economic losses. 
C)  economic losses will exist in the long run, but not economic profits. 
D)  both economic profits and economic losses exist in the long run. 
A)  economic profits and economic losses are dissipated in the long run. 
B)  economic profits persist in the long run, but not economic losses. 
C)  economic losses will exist in the long run, but not economic profits. 
D)  both economic profits and economic losses exist in the long run.

Question 19

In long-run equilibrium in a monopolistically competitive market,firms typically:

Accepted Answer

A)  earn a normal profit. 
B)  charge a price equal to marginal cost. 
C)  earn an above-normal profit. 
D)  charge a price equal to marginal revenue. 
A)  earn a normal profit. 
B)  charge a price equal to marginal cost. 
C)  earn an above-normal profit. 
D)  charge a price equal to marginal revenue.

Question 20

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

Accepted Answer

A)  $245 
B)  $350 
C)  $875 
D)  $1,050 
A)  $245 
B)  $350 
C)  $875 
D)  $1,050

Exam 14: Monopolistic Competition and Product Differentiation

Product differentiation in monopolistically competitive markets implies that:

If the ice cream industry is monopolistically competitive,then:

A monopolistically competitive firm derives its ability to influence price from:

In the long run a perfectly competitive firm operates ____ and a monopolistically competitive firm operates ____.

In equilibrium under monopolistic competition:

Which of the following is not a source of product differentiation?

If regulators were to ensure that monopolistically competitive firms follow a marginal cost-pricing rule:

Exhibit 14-5 The graph depicts a monopolistically competitive firm's demand,marginal revenue,and cost curves. Refer to Exhibit 14-5.A profit-maximizing (or loss-minimizing)firm in this situation:

Characteristics of a monopolistically competitive market include all of the following except:

In the monopolistic competition model,the attribute of free entry suggests that:

The force that leads to zero economic profits for monopolistically competitive firms in the long run is:

A monopolistically competitive firm:

Characteristics shared by monopolistically competitive markets and perfectly competitive markets include:

For a monopolistically competitive firm in long run equilibrium:

When firms exit a monopolistically competitive industry:

Advertising is very important to firm operating in:

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

Due to the entry and exit of firms in a monopolistically competitive market:

In long-run equilibrium in a monopolistically competitive market,firms typically:

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

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

In the long run a perfectly competitive firm operates and a monopolistically competitive firm operates .