Question 1

Which of the following goods are likely to be sold in a monopolistically competitive market?

Accepted Answer

A)  jeans 
B)  breakfast cereal 
C)  electricity distribution in Chicago 
D)  postage stamps 
A)  jeans 
B)  breakfast cereal 
C)  electricity distribution in Chicago 
D)  postage stamps

Question 2

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

Accepted Answer

A)  average revenue exceeds marginal revenue 
B)  marginal revenue exceeds average revenue 
C)  average revenue is equal to marginal revenue 
D)  revenue is always maximized along with profit 
A)  average revenue exceeds marginal revenue 
B)  marginal revenue exceeds average revenue 
C)  average revenue is equal to marginal revenue 
D)  revenue is always maximized along with profit

Question 3

Figure 16-4  
-Refer to Figure 16-4. The firm in this figure is monopolistically competitive. This firm

Accepted Answer

A)  is operating in the long run. 
B)  is earning a short-run economic profit. 
C)  is incurring a short-run loss. 
D)  The answer cannot be determined from the information given. 
A)  is operating in the long run. 
B)  is earning a short-run economic profit. 
C)  is incurring a short-run loss. 
D)  The answer cannot be determined from the information given.

Question 4

Excess capacity is

Accepted Answer

A)  an example of the inefficiencies of monopolistically competitive markets. 
B)  a short-run problem but not a long-run problem. 
C)  a characteristic of rising average total cost curves. 
D)  Both a and b are correct. 
A)  an example of the inefficiencies of monopolistically competitive markets. 
B)  a short-run problem but not a long-run problem. 
C)  a characteristic of rising average total cost curves. 
D)  Both a and b are correct.

Question 5

Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.)
  
-Refer to Scenario 16-3. When Peter maximizes his profits, what is his total cost per day?

Accepted Answer

The answer of Scenario 16-3
Peter operates an ice cream shop...

Question 6

Scenario 16-2
Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q.
-Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what price would a profit-maximizing monopolist charge for the product?

Accepted Answer

A)  P = 0 
B)  P = 5 
C)  P = 10 
D)  P = 20 
A)  P = 0 
B)  P = 5 
C)  P = 10 
D)  P = 20

Question 7

A markup of price over marginal cost is inconsistent with free entry and zero profit.

Accepted Answer

A) True 
 B)False

Question 8

Figure 16-14  
-Refer to Figure 16-14. Which letter identifies the efficient level of output for this firm?

Accepted Answer

The answer of Figure 16-14  
-Refer to Figure 16-14....

Question 9

New firms will likely enter a monopolistically competitive market when price exceeds

Accepted Answer

A)  marginal revenue. 
B)  average revenue. 
C)  marginal cost. 
D)  average total cost. 
A)  marginal revenue. 
B)  average revenue. 
C)  marginal cost. 
D)  average total cost.

Question 10

An oligopoly is a market in which

Accepted Answer

A)  there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. 
B)  firms are price takers. 
C)  the actions of one seller in the market have no impact on the other sellers' profits. 
D)  there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market. 
A)  there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. 
B)  firms are price takers. 
C)  the actions of one seller in the market have no impact on the other sellers' profits. 
D)  there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.

Question 11

Figure 16-5  
-Refer to Figure 16-5. Panel a shows a profit-maximizing monopolistically competitive firm that is

Accepted Answer

A)  earning zero economic profit. 
B)  likely to exit the market in the long run. 
C)  producing its efficient scale of output. 
D)  not maximizing its profit. 
A)  earning zero economic profit. 
B)  likely to exit the market in the long run. 
C)  producing its efficient scale of output. 
D)  not maximizing its profit.

Question 12

Figure 16-2. The figure is drawn for a monopolistically competitive firm.  
-Refer to Figure 16-2. In order to maximize profit, the firm will charge a price of

Accepted Answer

A)  $16. 
B)  $24. 
C)  $32. 
D)  $36. 
A)  $16. 
B)  $24. 
C)  $32. 
D)  $36.

Question 13

A monopolistically competitive firm

Accepted Answer

A)  has the usual deadweight loss of monopoly pricing. 
B)  experiences a zero profit in a long-run equilibrium. 
C)  is said to have excess capacity. 
D)  All of the above are correct. 
A)  has the usual deadweight loss of monopoly pricing. 
B)  experiences a zero profit in a long-run equilibrium. 
C)  is said to have excess capacity. 
D)  All of the above are correct.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

When a firm operates with excess capacity, it must be in a monopolistically competitive market.

Accepted Answer

A) True 
 B)False

Question 16

Figure 16-12  
-Refer to Figure 16-12. What, if any, long run adjustment will take place in this industry?

Accepted Answer

The answer of Figure 16-12  
-Refer to Figure 16-12....

Question 17

Figure 16-9
The figure is drawn for a monopolistically-competitive firm.  
-Refer to Figure 16-9. In response to the situation represented by the figure, we would expect

Accepted Answer

A)  new firms to enter the market. 
B)  some of the firms that are currently in the market to exit. 
C)  this firm's profit to move from its current value toward a positive value. 
D)  None of the above are correct. 
A)  new firms to enter the market. 
B)  some of the firms that are currently in the market to exit. 
C)  this firm's profit to move from its current value toward a positive value. 
D)  None of the above are correct.

Question 18

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with

Accepted Answer

A)  information about the availability of the product. 
B)  information about product price. 
C)  a signal of product quality. 
D)  a good example of wasted resources. 
A)  information about the availability of the product. 
B)  information about product price. 
C)  a signal of product quality. 
D)  a good example of wasted resources.

Question 19

Figure 16-2. The figure is drawn for a monopolistically competitive firm.  
-Refer to Figure 16-2. If the average variable cost is $26 at the profit­maximizing quantity, and if the firm's profit is $40 at that quantity, then its fixed costs amount to

Accepted Answer

A)  $12. 
B)  $152. 
C)  $200. 
D)  $240. 
A)  $12. 
B)  $152. 
C)  $200. 
D)  $240.

Question 20

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

Exam 16: Monopolistic Competition

Which of the following goods are likely to be sold in a monopolistically competitive market?

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

Figure 16-4 -Refer to Figure 16-4. The firm in this figure is monopolistically competitive. This firm

Excess capacity is

Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what price would a profit-maximizing monopolist charge for the product?

A markup of price over marginal cost is inconsistent with free entry and zero profit.

Figure 16-14 -Refer to Figure 16-14. Which letter identifies the efficient level of output for this firm?

New firms will likely enter a monopolistically competitive market when price exceeds

An oligopoly is a market in which

Figure 16-5 -Refer to Figure 16-5. Panel a shows a profit-maximizing monopolistically competitive firm that is

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. In order to maximize profit, the firm will charge a price of

A monopolistically competitive firm

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

When a firm operates with excess capacity, it must be in a monopolistically competitive market.

Figure 16-12 -Refer to Figure 16-12. What, if any, long run adjustment will take place in this industry?

Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. In response to the situation represented by the figure, we would expect

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $26 at the profit­maximizing quantity, and if the firm's profit is $40 at that quantity, then its fixed costs amount to

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

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 $26 at the profitmaximizing quantity, and if the firm's profit is $40 at that quantity, then its fixed costs amount to