Question 1

For a profit-maximizing firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost.

Accepted Answer

A) True 
 B)False

Question 2

Figure 16-3
This figure depicts a situation in a monopolistically competitive market.  
-Refer to Figure 16-3. How much profit will the monopolistically competitive firm earn in this situation?

Accepted Answer

A)  $0 
B)  $80 
C)  $200 
D)  $400 
A)  $0 
B)  $80 
C)  $200 
D)  $400

Question 3

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. Which of the following statements regarding this monopolistically competitive firm is correct?

Accepted Answer

A)  New firms will enter this market in the long run since firm profits are greater than zero. 
B)  Firms will leave this market in the long run since firm profits are less than zero. 
C)  This firm is currently in long-run equilibrium. 
D)  This firm is currently in long-run equilibrium, and the firm is producing its efficient scale of output. 
A)  New firms will enter this market in the long run since firm profits are greater than zero. 
B)  Firms will leave this market in the long run since firm profits are less than zero. 
C)  This firm is currently in long-run equilibrium. 
D)  This firm is currently in long-run equilibrium, and the firm is producing its efficient scale of output.

Question 4

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy. Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.

Accepted Answer

A) True 
 B)False

Question 5

Defenders of advertising argue that firms use advertising as a signal of quality, even if the advertising delivers little helpful information about the product.

Accepted Answer

A) True 
 B)False

Question 6

Figure 16-4  
-Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, how many units of output will the firm in this figure produce?

Accepted Answer

A)  20 
B)  30 
C)  40 
D)  This firm will choose not to produce. 
A)  20 
B)  30 
C)  40 
D)  This firm will choose not to produce.

Question 7

Which two curves are tangent to each other in a monopolistically competitive market with zero economic profit?

Accepted Answer

A)  demand and average variable cost 
B)  demand and average total cost 
C)  marginal revenue and average variable cost 
D)  marginal revenue and average total cost 
A)  demand and average variable cost 
B)  demand and average total cost 
C)  marginal revenue and average variable cost 
D)  marginal revenue and average total cost

Question 8

Figure 16-12  
-Refer to Figure 16-12. Compare the price and marginal cost in this market with price and marginal cost if this were a perfectly competitive market.

Accepted Answer

Monopolistic competi

Question 9

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

Accepted Answer

A)  marginal cost exceeds marginal revenue 
B)  average revenue equals marginal cost 
C)  price exceeds marginal cost 
D)  All of the above are correct. 
A)  marginal cost exceeds marginal revenue 
B)  average revenue equals marginal cost 
C)  price exceeds marginal cost 
D)  All of the above are correct.

Question 10

Which of the following statements is not correct?

Accepted Answer

A)  Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run. 
B)  Both monopolies and monopolistically competitive firms can earn economic profits in the long run. 
C)  Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost. 
D)  Only competitive firms produce the welfare-maximizing level of output. 
A)  Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run. 
B)  Both monopolies and monopolistically competitive firms can earn economic profits in the long run. 
C)  Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost. 
D)  Only competitive firms produce the welfare-maximizing level of output.

Question 11

A monopolistically competitive market is characterized by

Accepted Answer

A)  free entry, but not differentiated products. 
B)  differentiated products, but not long run profits. 
C)  long run profits, but not many firms. 
D)  many firms, but not free entry. 
A)  free entry, but not differentiated products. 
B)  differentiated products, but not long run profits. 
C)  long run profits, but not many firms. 
D)  many firms, but not free entry.

Question 12

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. What price should this firm charge to maximize profit?

Accepted Answer

A)  $6 
B)  $12 
C)  $18 
D)  $24 
A)  $6 
B)  $12 
C)  $18 
D)  $24

Question 13

Figure 16-10
The figure is drawn for a monopolistically-competitive firm.  
-Refer to Figure 16-10. When the firm is maximizing its profit,

Accepted Answer

A)  TR = $9,000 and TC =$16,000. 
B)  TR = $14,000 and TC =$16,000. 
C)  TR = $16,000 and TC =$16,000. 
D)  MC exceeds MR by $66.66 on the last unit of output produced. 
A)  TR = $9,000 and TC =$16,000. 
B)  TR = $14,000 and TC =$16,000. 
C)  TR = $16,000 and TC =$16,000. 
D)  MC exceeds MR by $66.66 on the last unit of output produced.

Question 14

Table 16-6
Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's.
  
-Refer to Table 16-6. Suppose the government forced Beatrice's to produce at the efficient scale of output. Who would be better off as a result of this policy? Who would be worse off as a result of this policy?

Accepted Answer

A)  Beatrice's would be better off; consumers would be worse off. 
B)  Consumers would be better off; Beatrice's would be worse off. 
C)  No one would be better off; consumers would be worse off. 
D)  No one would be better off; no one would be worse off. 
A)  Beatrice's would be better off; consumers would be worse off. 
B)  Consumers would be better off; Beatrice's would be worse off. 
C)  No one would be better off; consumers would be worse off. 
D)  No one would be better off; no one would be worse off.

Question 15

A monopolistically competitive firm faces the following demand curve for its product:   The firm has total fixed costs of $100 and a constant marginal cost of $25 per unit. The firm will maximize profit with the production of

Accepted Answer

A)  4 units of output. 
B)  10 units of output. 
C)  16 units of output. 
D)  22 units of output. 
A)  4 units of output. 
B)  10 units of output. 
C)  16 units of output. 
D)  22 units of output.

Question 16

In a monopolistically competitive industry, a firm's demand curve also represent its

Accepted Answer

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

Question 17

Figure 16-5  
-Refer to Figure 16-5. Panel b is consistent with a firm in a monopolistically competitive market that is

Accepted Answer

A)  not in long-run equilibrium. 
B)  in long-run equilibrium. 
C)  producing its efficient scale of output. 
D)  earning a positive economic profit. 
A)  not in long-run equilibrium. 
B)  in long-run equilibrium. 
C)  producing its efficient scale of output. 
D)  earning a positive economic profit.

Question 18

In a long-run equilibrium,

Accepted Answer

A)  excess capacity applies to monopolistically competitive firms but not to competitive firms. 
B)  zero economic profit applies to competitive firms but not to monopolistically competitive firms. 
C)  markup over marginal cost applies to both monopolistically competitive and competitive firms. 
D)  product variety externalities apply to both perfectly competitive firms and monopolistically competitive firms. 
A)  excess capacity applies to monopolistically competitive firms but not to competitive firms. 
B)  zero economic profit applies to competitive firms but not to monopolistically competitive firms. 
C)  markup over marginal cost applies to both monopolistically competitive and competitive firms. 
D)  product variety externalities apply to both perfectly competitive firms and monopolistically competitive firms.

Question 19

A monopolistically competitive market is like a monopoly in that

Accepted Answer

A)  both market structures feature easy entry by new firms in the long run. 
B)  the main objective of firms in both market structures is something other than profit maximization. 
C)  firms in both market structures produce the welfare-maximizing level of output. 
D)  firms in both market structures set price above marginal cost. 
A)  both market structures feature easy entry by new firms in the long run. 
B)  the main objective of firms in both market structures is something other than profit maximization. 
C)  firms in both market structures produce the welfare-maximizing level of output. 
D)  firms in both market structures set price above marginal cost.

Question 20

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short-run and the long run?

Accepted Answer

A) P > MC B) MC = ATC C) P < MR D) All of the above are correct. A) P > MC B) MC = ATC C) P < MR D) All of the above are correct.

Exam 16: Monopolistic Competition

For a profit-maximizing firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost.

Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. How much profit will the monopolistically competitive firm earn in this situation?

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. Which of the following statements regarding this monopolistically competitive firm is correct?

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy. Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.

Defenders of advertising argue that firms use advertising as a signal of quality, even if the advertising delivers little helpful information about the product.

Figure 16-4 -Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, how many units of output will the firm in this figure produce?

Which two curves are tangent to each other in a monopolistically competitive market with zero economic profit?

Figure 16-12 -Refer to Figure 16-12. Compare the price and marginal cost in this market with price and marginal cost if this were a perfectly competitive market.

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

Which of the following statements is not correct?

A monopolistically competitive market is characterized by

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. What price should this firm charge to maximize profit?

Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. When the firm is maximizing its profit,

A monopolistically competitive firm faces the following demand curve for its product: The firm has total fixed costs of $100 and a constant marginal cost of $25 per unit. The firm will maximize profit with the production of

In a monopolistically competitive industry, a firm's demand curve also represent its

Figure 16-5 -Refer to Figure 16-5. Panel b is consistent with a firm in a monopolistically competitive market that is

In a long-run equilibrium,

A monopolistically competitive market is like a monopoly in that

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short-run and the long run?

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

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