Question 1

Why does a typical monopolistically competitive firm face a downward-sloping demand curve?

Accepted Answer

Because its product

Question 2

The market structure in which each firm has a monopoly over the product it makes, but many other firms make similar products that compete for the same customers is called

Accepted Answer

monopolist

Question 3

Figure 16-2. The figure is drawn for a monopolistically competitive firm.  
-Refer to Figure 16-2. If the average variable cost is $24 at the profit­maximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is

Accepted Answer

A)  $-60. 
B)  $196. 
C)  $228. 
D)  $288. 
A)  $-60. 
B)  $196. 
C)  $228. 
D)  $288.

Question 4

When advertising is used to relay information about price, each firm is able to enhance market power.

Accepted Answer

A) True 
 B)False

Question 5

Table 16-5
This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm.
  
-Refer to Table 16-5. How much profit will this firm earn at the monopolistically competitive price?

Accepted Answer

A)  $0 
B)  $5 
C)  $12 
D)  $16 
A)  $0 
B)  $5 
C)  $12 
D)  $16

Question 6

There are four basic types of market structure.

Accepted Answer

A) True 
 B)False

Question 7

A monopolistically competitive firm is currently earning a positive economic profit. If other firms enter the market, we would expect that the added competition will cause this firm to adjust its output such that it

Accepted Answer

A)  will operate closer to its efficient scale. 
B)  will operate further from its efficient scale. 
C)  will no longer be at its efficient scale. 
D)  might move either closer to or further from its efficient scale. 
A)  will operate closer to its efficient scale. 
B)  will operate further from its efficient scale. 
C)  will no longer be at its efficient scale. 
D)  might move either closer to or further from its efficient scale.

Question 8

Two bottles of over-the-counter pain reliever sit side-by-side in a grocery store: Advil (a brand name) sells for $5.00, while Feel Better (not a brand name) sells for $2.50. In a typical day the store sells some of each type of pain reliever, which suggests that

Accepted Answer

A)  no rational consumer would spend twice as much for Advil as he would for Feel Better. 
B)  some consumers must perceive that Advil is a higher quality product. 
C)  Advil has no incentive to maintain the quality of its product just because of the Advil brand name. 
D)  Advil spends money on advertising to reduce competition in the market. 
A)  no rational consumer would spend twice as much for Advil as he would for Feel Better. 
B)  some consumers must perceive that Advil is a higher quality product. 
C)  Advil has no incentive to maintain the quality of its product just because of the Advil brand name. 
D)  Advil spends money on advertising to reduce competition in the market.

Question 9

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.
  
-Refer to Table 16-1. What is the concentration ratio in Industry D?

Accepted Answer

A)  23% 
B)  39% 
C)  58% 
D)  72% 
A)  23% 
B)  39% 
C)  58% 
D)  72%

Question 10

Figure 16-3
This figure depicts a situation in a monopolistically competitive market.  
-Refer to Figure 16-3. This firm is operating

Accepted Answer

A)  in the short run and earning a positive economic profit. 
B)  in the short run and breaking even. 
C)  in the long run and earning a positive economic profit. 
D)  in the long run and incurring and economic loss. 
A)  in the short run and earning a positive economic profit. 
B)  in the short run and breaking even. 
C)  in the long run and earning a positive economic profit. 
D)  in the long run and incurring and economic loss.

Question 11

When a firm exits a monopolistically competitive market, the individual demand curves faced by all remaining firms in that market will

Accepted Answer

A)  shift in a direction that is unpredictable without further information. 
B)  shift to the right. 
C)  shift to the left. 
D)  remain unchanged. It is the supply curve that will shift. 
A)  shift in a direction that is unpredictable without further information. 
B)  shift to the right. 
C)  shift to the left. 
D)  remain unchanged. It is the supply curve that will shift.

Question 12

For a profit-maximizing monopolistically competitive firm, marginal revenue exceeds marginal cost in

Accepted Answer

A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run. 
A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run.

Question 13

A profit-maximizing firm in a monopolistically competitive market can earn positive, negative, or zero profits in the short run.

Accepted Answer

A) True 
 B)False

Question 14

Monopolistically competitive firms, like monopoly firms, maximize their profits by charging a price that exceeds marginal cost.

Accepted Answer

A) True 
 B)False

Question 15

Compared to the monopoly outcome with a single price, imperfect price discrimination (i) sometimes raises total surplus.
(ii) sometimes lowers total surplus.
(iii) always leads to a lower quantity of output.

Accepted Answer

A)  (i) and (ii) only 
B)  (ii) and (iii) only 
C)  (i) and (iii) only 
D)  (iii) only 
A)  (i) and (ii) only 
B)  (ii) and (iii) only 
C)  (i) and (iii) only 
D)  (iii) only

Question 16

Advertising during the Super Bowl is an example of information about quality contained primarily in the existence and expense of the advertising.

Accepted Answer

A) True 
 B)False

Question 17

What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?

Accepted Answer

Monopolistically competitive f

Question 18

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market

Accepted Answer

A)  chooses its profit-maximizing quantity where marginal revenue equals marginal cost. 
B)  sells its product in a highly-concentrated market. 
C)  faces a downward-sloping demand curve for its product. 
D)  can earn profits in the long run. 
A)  chooses its profit-maximizing quantity where marginal revenue equals marginal cost. 
B)  sells its product in a highly-concentrated market. 
C)  faces a downward-sloping demand curve for its product. 
D)  can earn profits in the long run.

Question 19

Which of the following is not a characteristic of monopolistic competition?

Accepted Answer

A)  a large number of sellers 
B)  firms are price takers 
C)  free entry into the market 
D)  a differentiated product 
A)  a large number of sellers 
B)  firms are price takers 
C)  free entry into the market 
D)  a differentiated product

Question 20

Monopolistic competition and monopoly are examples of a market structure called imperfect competition.

Accepted Answer

A) True 
 B)False

Exam 16: Monopolistic Competition

Why does a typical monopolistically competitive firm face a downward-sloping demand curve?

The market structure in which each firm has a monopoly over the product it makes, but many other firms make similar products that compete for the same customers is called

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $24 at the profit­maximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is

When advertising is used to relay information about price, each firm is able to enhance market power.

Table 16-5 This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm. -Refer to Table 16-5. How much profit will this firm earn at the monopolistically competitive price?

There are four basic types of market structure.

A monopolistically competitive firm is currently earning a positive economic profit. If other firms enter the market, we would expect that the added competition will cause this firm to adjust its output such that it

Two bottles of over-the-counter pain reliever sit side-by-side in a grocery store: Advil (a brand name) sells for $5.00, while Feel Better (not a brand name) sells for $2.50. In a typical day the store sells some of each type of pain reliever, which suggests that

Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1. What is the concentration ratio in Industry D?

Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. This firm is operating

When a firm exits a monopolistically competitive market, the individual demand curves faced by all remaining firms in that market will

For a profit-maximizing monopolistically competitive firm, marginal revenue exceeds marginal cost in

A profit-maximizing firm in a monopolistically competitive market can earn positive, negative, or zero profits in the short run.

Monopolistically competitive firms, like monopoly firms, maximize their profits by charging a price that exceeds marginal cost.

Compared to the monopoly outcome with a single price, imperfect price discrimination (i) sometimes raises total surplus. (ii) sometimes lowers total surplus. (iii) always leads to a lower quantity of output.

Advertising during the Super Bowl is an example of information about quality contained primarily in the existence and expense of the advertising.

What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market

Which of the following is not a characteristic of monopolistic competition?

Monopolistic competition and monopoly are examples of a market structure called imperfect competition.

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

Filters

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $24 at the profitmaximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is