Question 1

The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve.

Accepted Answer

A) True 
 B)False

Question 2

The price elasticity of a monopolistically competitive firm's demand curve varies

Accepted Answer

A)  inversely with the number of competitors and the degree of product differentiation. 
B)  directly with the number of competitors and the degree of product differentiation. 
C)  directly with the number of competitors but inversely with the degree of product differentiation. 
D)  inversely with the number of competitors but directly with the degree of product differentiation. 
A)  inversely with the number of competitors and the degree of product differentiation. 
B)  directly with the number of competitors and the degree of product differentiation. 
C)  directly with the number of competitors but inversely with the degree of product differentiation. 
D)  inversely with the number of competitors but directly with the degree of product differentiation.

Question 3

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. $\begin{array} { | c | c | c | c | } 
\hline \text { Price } & \begin{array} { c } 
\text { Quntity } \
\text { Dennded }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Cost }
\end{array} & \text { Output } \
\hline \$ 20 & 1 & \$ 10 & 1 \
\hline 18 & 2 & 20 & 2 \
\hline 16 & 3 & 29 & 3 \
\hline 14 & 4 & 36 & 4 \
\hline 12 & 5 & 40 & 5 \
\hline 10 & 6 & 42 & 6 \
\hline
\end{array}$ What output quantity will the monopolistically competitive firm produce to maximize profits?

Accepted Answer

A)  2 
B)  3 
C)  5 
D)  6 
A)  2 
B)  3 
C)  5 
D)  6

Question 4

Monopolistic competition provides the benefit of product variety but at the cost of productive inefficiency.

Accepted Answer

A) True 
 B)False

Question 5

(Last Word) Raising the minimum wage in the restaurant industry

Accepted Answer

A)  affects mom and pop and chain restaurants about the same. 
B)  benefits both mom and pop and chain restaurants by boosting demand. 
C)  makes it more difficult for mom and pop restaurants to compete with highly capitalized chain restaurants. 
D)  gives mom and pop restaurants a competitive advantage over highly capitalized chain restaurants. 
A)  affects mom and pop and chain restaurants about the same. 
B)  benefits both mom and pop and chain restaurants by boosting demand. 
C)  makes it more difficult for mom and pop restaurants to compete with highly capitalized chain restaurants. 
D)  gives mom and pop restaurants a competitive advantage over highly capitalized chain restaurants.

Question 6

In the long run, a representative firm in a monopolistically competitive industry will end up

Accepted Answer

A)  having an elasticity of demand that will be less than it was in the short run. 
B)  having a larger number of competitors than it will in the short run. 
C)  producing a level of output at which marginal cost and price are equal. 
D)  earning a normal profit, but not an economic profit. 
A)  having an elasticity of demand that will be less than it was in the short run. 
B)  having a larger number of competitors than it will in the short run. 
C)  producing a level of output at which marginal cost and price are equal. 
D)  earning a normal profit, but not an economic profit.

Question 7

Firms in an industry will not earn long-run economic profits if

Accepted Answer

A)  fixed costs are zero. 
B)  the number of firms in the industry is fixed. 
C)  there is free entry and exit of firms in the industry. 
D)  production costs for a given level of output are minimized. 
A)  fixed costs are zero. 
B)  the number of firms in the industry is fixed. 
C)  there is free entry and exit of firms in the industry. 
D)  production costs for a given level of output are minimized.

Question 8

Monopolistically competitive sellers realize economic profits in the long run because entry barriers are significant.

Accepted Answer

A) True 
 B)False

Question 9

Which statement concerning monopolistic competition is false?

Accepted Answer

A)  Long-run equilibrium under monopolistic competition and pure competition both entail zero economic profits for firms. 
B)  Monopolistic competition is likely to result in a greater variety of product brands than pure competition. 
C)  The monopolistically competitive demand curve is more elastic than the demand curve facing a monopoly. 
D)  Long-run equilibrium in monopolistic competition does not entail any economic inefficiency because of easy entry and exit. 
A)  Long-run equilibrium under monopolistic competition and pure competition both entail zero economic profits for firms. 
B)  Monopolistic competition is likely to result in a greater variety of product brands than pure competition. 
C)  The monopolistically competitive demand curve is more elastic than the demand curve facing a monopoly. 
D)  Long-run equilibrium in monopolistic competition does not entail any economic inefficiency because of easy entry and exit.

Question 10

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

A)  standardized product 
B)  a relatively small number of firms 
C)  absence of nonprice competition 
D)  relatively easy entry 
A)  standardized product 
B)  a relatively small number of firms 
C)  absence of nonprice competition 
D)  relatively easy entry

Question 11

The highest possible value of the Herfindahl index is 1,000.

Accepted Answer

A) True 
 B)False

Question 12

In monopolistic competition, which of the following would make an individual firm's demand curve less elastic?

Accepted Answer

A)  the purchase of more efficient machinery 
B)  an increase in the price of the firm's product 
C)  increased brand loyalty toward the firm's product 
D)  an increase in the number of rival firms 
A)  the purchase of more efficient machinery 
B)  an increase in the price of the firm's product 
C)  increased brand loyalty toward the firm's product 
D)  an increase in the number of rival firms

Question 13

The goal of product differentiation and advertising in monopolistic competition is to make

Accepted Answer

A)  the firm allocatively efficient even if it is not productively efficient. 
B)  the firm productively efficient even if it is not allocatively efficient. 
C)  price less of a factor and product differences more of a factor in consumer purchases. 
D)  price more of a factor and product differences less of a factor in consumer purchases. 
A)  the firm allocatively efficient even if it is not productively efficient. 
B)  the firm productively efficient even if it is not allocatively efficient. 
C)  price less of a factor and product differences more of a factor in consumer purchases. 
D)  price more of a factor and product differences less of a factor in consumer purchases.

Question 14

Answer the question on the basis of the following demand and cost data for a specific firm. $ \quad$$ \quad$$ \quad$$ \quad$$\text { Demand Data }$ $ \quad$$ \quad$$ \quad$ $\text { Cost Data }$
$\begin{array}{|c|c|c|c|c|}
\hline(1) &(2)&(3)&&\text { Total }  \
\text { Price }&\text { Price }&\text { Quanti }&\text { Outpu }&\text { Cost } \
&&\text { ty }& \text { t }\
\hline 11.0 & \$ 10.0 & 6 & 6 & \$ 61 \
0 & 0 & & & \
\hline 9.99 & 8.85 & 7 & 7 & 62 \
\hline 9.00 & 8.00 & 8 & 8 & 64 \
\hline 8.00 & 7.00 & 9 & 9 & 67 \
\hline 7.10 & 6.10 & 10 & 10 & 72 \
\hline 6.00 & 5.00 & 11 & 11 & 79 \
\hline 5.15 & 4.15 & 12 & 12 & 86 \
\hline
\end{array}$ If columns (1) and (3) of the demand data shown are this firm's demand schedule, the profit-maximizing price will be

Accepted Answer

A)  $9. 
B)  $7. 
C)  $11. 
D)  $6. 
A)  $9. 
B)  $7. 
C)  $11. 
D)  $6.

Question 15

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because

Accepted Answer

A)  of product differentiation and consequent product promotion activities. 
B)  monopolistically competitive firms cannot realize an economic profit in the long run. 
C)  the number of firms in the industry is larger. 
D)  monopolistically competitive producers use strategic pricing strategies to combat rivals. 
A)  of product differentiation and consequent product promotion activities. 
B)  monopolistically competitive firms cannot realize an economic profit in the long run. 
C)  the number of firms in the industry is larger. 
D)  monopolistically competitive producers use strategic pricing strategies to combat rivals.

Question 16

The larger the number of firms in an industry and the less the extent of product differentiation, the greater will be the elasticity of the individual seller's demand curve.

Accepted Answer

A) True 
 B)False

Question 17

Answer the question on the basis of the following demand and cost data for a specific firm. $ \quad$$ \quad$$ \quad$$ \quad$$\text { Demand Data }$ $ \quad$$ \quad$$ \quad$ $\text { Cost Data }$
$\begin{array}{|c|c|c|c|c|}
\hline(1) &(2)&(3)&&\text { Total }  \
\text { Price }&\text { Price }&\text { Quanti }&\text { Outpu }&\text { Cost } \
&&\text { ty }& \text { t }\
\hline 11.0 & \$ 10.0 & 6 & 6 & \$ 61 \
0 & 0 & & & \
\hline 9.99 & 8.85 & 7 & 7 & 62 \
\hline 9.00 & 8.00 & 8 & 8 & 64 \
\hline 8.00 & 7.00 & 9 & 9 & 67 \
\hline 7.10 & 6.10 & 10 & 10 & 72 \
\hline 6.00 & 5.00 & 11 & 11 & 79 \
\hline 5.15 & 4.15 & 12 & 12 & 86 \
\hline
\end{array}$ With the demand schedule shown by columns (2) and (3), in long-run equilibrium

Accepted Answer

A)  price will equal average total cost. 
B)  total cost will exceed total revenue. 
C)  marginal cost will exceed price. 
D)  price will equal marginal revenue. 
A)  price will equal average total cost. 
B)  total cost will exceed total revenue. 
C)  marginal cost will exceed price. 
D)  price will equal marginal revenue.

Question 18

Monopolistically competitive firms will achieve the most efficient allocation of society's resources because there are no significant barriers to entry into the industry.

Accepted Answer

A) True 
 B)False

Question 19

Which is not a common form of nonprice competition in monopolistic competition?

Accepted Answer

A)  customer services such as liberal guarantee and repair policies 
B)  advertisements featuring brand names 
C)  cash rebates and discount coupons 
D)  annual design and model changes 
A)  customer services such as liberal guarantee and repair policies 
B)  advertisements featuring brand names 
C)  cash rebates and discount coupons 
D)  annual design and model changes

Question 20

Product variety in monopolistic competition comes at the cost of

Accepted Answer

A)  nonprice competition. 
B)  barriers to entry. 
C)  diminishing returns. 
D)  excess capacity. 
A)  nonprice competition. 
B)  barriers to entry. 
C)  diminishing returns. 
D)  excess capacity.

Exam 13: Monopolistic Competition

The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve.

The price elasticity of a monopolistically competitive firm's demand curve varies

Monopolistic competition provides the benefit of product variety but at the cost of productive inefficiency.

(Last Word) Raising the minimum wage in the restaurant industry

In the long run, a representative firm in a monopolistically competitive industry will end up

Firms in an industry will not earn long-run economic profits if

Monopolistically competitive sellers realize economic profits in the long run because entry barriers are significant.

Which statement concerning monopolistic competition is false?

Which of the following is a characteristic of monopolistic competition?

The highest possible value of the Herfindahl index is 1,000.

In monopolistic competition, which of the following would make an individual firm's demand curve less elastic?

The goal of product differentiation and advertising in monopolistic competition is to make

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because

The larger the number of firms in an industry and the less the extent of product differentiation, the greater will be the elasticity of the individual seller's demand curve.

Monopolistically competitive firms will achieve the most efficient allocation of society's resources because there are no significant barriers to entry into the industry.

Which is not a common form of nonprice competition in monopolistic competition?

Product variety in monopolistic competition comes at the cost of

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