Question 1

Compared to a monopolistic competitor,a monopoly producer who was currently earning economic profits:

Accepted Answer

A)  would face a more elastic demand curve. 
B)  would face a less elastic demand curve. 
C)  could continue to earn economic profits for a longer period of time. 
D)  would be characterized by both (b) and (c). 
A)  would face a more elastic demand curve. 
B)  would face a less elastic demand curve. 
C)  could continue to earn economic profits for a longer period of time. 
D)  would be characterized by both (b) and (c).

Question 2

A monopolistic competitor's demand curve becomes less elastic as new entry occurs.

Accepted Answer

A) True 
 B)False

Question 3

In the monopolistic competition model,firms earn zero economic profits in long-run equilibrium.

Accepted Answer

A) True 
 B)False

Question 4

In a monopolistically competitive industry,the competitive element results from ____ and the monopoly element results from ____.

Accepted Answer

A)  product differentiation; substantial barriers to entry. 
B)  a large number of firms and free entry; product differentiation. 
C)  advertising; product differentiation. 
D)  product differentiation; the small number of large producers. 
A)  product differentiation; substantial barriers to entry. 
B)  a large number of firms and free entry; product differentiation. 
C)  advertising; product differentiation. 
D)  product differentiation; the small number of large producers.

Question 5

Exhibit 14-4 The following diagram depicts firms in monopolistically competitive markets.   Refer to Exhibit 14-4.Based on the diagram above,one can surmise that:

Accepted Answer

A)  new firms will enter the blue jeans industry. 
B)  existing firms will exit the blue jeans industry. 
C)  the industry is in long-run equilibrium. 
D)  blue jeans will be produced at minimum average total cost. 
A)  new firms will enter the blue jeans industry. 
B)  existing firms will exit the blue jeans industry. 
C)  the industry is in long-run equilibrium. 
D)  blue jeans will be produced at minimum average total cost.

Question 6

In a monopolistically competitive scenario,as more firms enter into the industry,the long run demand curve for most firms will tend to become:

Accepted Answer

A)  more inelastic. 
B)  vertical. 
C)  horizontal. 
D)  more elastic. 
A)  more inelastic. 
B)  vertical. 
C)  horizontal. 
D)  more elastic.

Question 7

Excess capacity occurs in long-run equilibrium under monopolistic competition so that:

Accepted Answer

A)  price is less than marginal cost. 
B)  price exceeds minimum average cost. 
C)  marginal revenue exceeds price. 
D)  all of the above occur. 
A)  price is less than marginal cost. 
B)  price exceeds minimum average cost. 
C)  marginal revenue exceeds price. 
D)  all of the above occur.

Question 8

Firms in monopolistically competitive markets can differentiate their products on the basis of:

Accepted Answer

A)  geographical location. 
B)  service. 
C)  credit terms. 
D)  all of the above. 
A)  geographical location. 
B)  service. 
C)  credit terms. 
D)  all of the above.

Question 9

In the long run,the price charged by a monopolistic competitor will:

Accepted Answer

A)  equal marginal cost. 
B)  equal average total cost. 
C)  equal marginal revenue. 
D)  be characterized by both b. and c. 
A)  equal marginal cost. 
B)  equal average total cost. 
C)  equal marginal revenue. 
D)  be characterized by both b. and c.

Question 10

Because of product differentiation,a monopolistically competitive firm:

Accepted Answer

A)  possesses some degree of market power. 
B)  is very similar to a perfectly competitive firm. 
C)  faces a perfectly elastic demand curve. 
D)  is unaffected by the elasticity of demand. 
A)  possesses some degree of market power. 
B)  is very similar to a perfectly competitive firm. 
C)  faces a perfectly elastic demand curve. 
D)  is unaffected by the elasticity of demand.

Question 11

Which of the following is uncharacteristic of monopolistic competition in the long run?

Accepted Answer

A)  firms selling heterogeneous products 
B)  zero economic profits 
C)  price in excess of marginal revenue 
D)  equilibrium on the increasing portion of the average total cost curve 
A)  firms selling heterogeneous products 
B)  zero economic profits 
C)  price in excess of marginal revenue 
D)  equilibrium on the increasing portion of the average total cost curve

Question 12

Which of the following is uncharacteristic of monopolistic competition in the long run?

Accepted Answer

A)  a large number of sellers in the industry 
B)  zero economic profits 
C)  price in excess of marginal cost 
D)  firms have no excess capacity 
A)  a large number of sellers in the industry 
B)  zero economic profits 
C)  price in excess of marginal cost 
D)  firms have no excess capacity

Question 13

Exhibit 14-2 The following diagram depicts monopolistically competitive firms.   Refer to Exhibit 14-2.The firm illustrated in Graph A above maximizes profits (minimizes losses)by producing at level of output ____ and charging price ____.

Accepted Answer

A)  q1; P1 
B)  q2; P1 
C)  q1; P2 
D)  q2; P2 
A)  q1; P1 
B)  q2; P1 
C)  q1; P2 
D)  q2; P2

Question 14

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e.,on an average night,80 percent of their rooms are full).This excess capacity is indicative of a(n)____ industry.

Accepted Answer

A)  perfectly competitive 
B)  monopoly 
C)  monopolistically competitive 
D)  oligopoly 
A)  perfectly competitive 
B)  monopoly 
C)  monopolistically competitive 
D)  oligopoly

Question 15

Since a monopolistically competitive firm faces a ____ demand curve,it will always operate ____ in long-run equilibrium.

Accepted Answer

A)  perfectly elastic; with excess capacity 
B)  downward-sloping; with excess capacity 
C)  downward-sloping; at an economically efficient scale 
D)  perfectly inelastic; at an economically efficient scale 
A)  perfectly elastic; with excess capacity 
B)  downward-sloping; with excess capacity 
C)  downward-sloping; at an economically efficient scale 
D)  perfectly inelastic; at an economically efficient scale

Question 16

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

Accepted Answer

A)  price greater than minimum average total cost 
B)  price equal to marginal revenue 
C)  price equal to marginal cost 
D)  positive economic profits 
A)  price greater than minimum average total cost 
B)  price equal to marginal revenue 
C)  price equal to marginal cost 
D)  positive economic profits

Question 17

When new firms choose to enter monopolistically competitive markets:

Accepted Answer

A)  there must be little diversity of products in the market. 
B)  they are guaranteed economic profits upon entry. 
C)  some firms in the market must be making economic profits. 
D)  the demand curve faced by an established firm will shift to the right as a result. 
A)  there must be little diversity of products in the market. 
B)  they are guaranteed economic profits upon entry. 
C)  some firms in the market must be making economic profits. 
D)  the demand curve faced by an established firm will shift to the right as a result.

Question 18

Monopolistically competitive sellers are price takers.

Accepted Answer

A) True 
 B)False

Question 19

A monopolistic competitor is like a monopolist in that:

Accepted Answer

A)  it sells in the inelastic portion of its demand curve. 
B)  it earns zero economic profit in the long run. 
C)  the marginal revenue curve lies above the AR curve. 
D)  it faces a downward-sloping demand curve. 
A)  it sells in the inelastic portion of its demand curve. 
B)  it earns zero economic profit in the long run. 
C)  the marginal revenue curve lies above the AR curve. 
D)  it faces a downward-sloping demand curve.

Exam 14: Monopolistic Competition and Product Differentiation

Compared to a monopolistic competitor,a monopoly producer who was currently earning economic profits:

A monopolistic competitor's demand curve becomes less elastic as new entry occurs.

In the monopolistic competition model,firms earn zero economic profits in long-run equilibrium.

In a monopolistically competitive industry,the competitive element results from ____ and the monopoly element results from ____.

Exhibit 14-4 The following diagram depicts firms in monopolistically competitive markets. Refer to Exhibit 14-4.Based on the diagram above,one can surmise that:

In a monopolistically competitive scenario,as more firms enter into the industry,the long run demand curve for most firms will tend to become:

Excess capacity occurs in long-run equilibrium under monopolistic competition so that:

Firms in monopolistically competitive markets can differentiate their products on the basis of:

In the long run,the price charged by a monopolistic competitor will:

Because of product differentiation,a monopolistically competitive firm:

Which of the following is uncharacteristic of monopolistic competition in the long run?

Which of the following is uncharacteristic of monopolistic competition in the long run?

Exhibit 14-2 The following diagram depicts monopolistically competitive firms. Refer to Exhibit 14-2.The firm illustrated in Graph A above maximizes profits (minimizes losses)by producing at level of output ____ and charging price ____.

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e.,on an average night,80 percent of their rooms are full).This excess capacity is indicative of a(n)____ industry.

Since a monopolistically competitive firm faces a ____ demand curve,it will always operate ____ in long-run equilibrium.

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

When new firms choose to enter monopolistically competitive markets:

Monopolistically competitive sellers are price takers.

A monopolistic competitor is like a monopolist in that:

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 a monopolistically competitive industry,the competitive element results from and the monopoly element results from .

Exhibit 14-2 The following diagram depicts monopolistically competitive firms. Refer to Exhibit 14-2.The firm illustrated in Graph A above maximizes profits (minimizes losses)by producing at level of output and charging price .

Since a monopolistically competitive firm faces a demand curve,it will always operate in long-run equilibrium.