Question 1

In long-run equilibrium, both purely competitive and monopolistically competitive firms will

Accepted Answer

A)  produce at minimum average total cost. 
B)  earn economic profits. 
C)  achieve allocative efficiency. 
D)  equate marginal cost and marginal revenue. 
A)  produce at minimum average total cost. 
B)  earn economic profits. 
C)  achieve allocative efficiency. 
D)  equate marginal cost and marginal revenue.

Question 2

An important similarity between a monopolistically competitive firm and a pure monopolist is that both

Accepted Answer

A)  realize an economic profit in the long run. 
B)  achieve allocative efficiency. 
C)  face demand curves that are less than perfectly elastic. 
D)  achieve productive efficiency. 
A)  realize an economic profit in the long run. 
B)  achieve allocative efficiency. 
C)  face demand curves that are less than perfectly elastic. 
D)  achieve productive efficiency.

Question 3

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will

Accepted Answer

A)  increase. 
B)  become less elastic. 
C)  not be affected. 
D)  decrease. 
A)  increase. 
B)  become less elastic. 
C)  not be affected. 
D)  decrease.

Question 4

Monopolistically competitive industries are inefficient because

Accepted Answer

A)  they realize diseconomies of scale. 
B)  advertising costs retard technological advance and product development. 
C)  they are overpopulated with firms whose plants are underutilized. 
D)  monopolistically competitive sellers engage in misleading advertising. 
A)  they realize diseconomies of scale. 
B)  advertising costs retard technological advance and product development. 
C)  they are overpopulated with firms whose plants are underutilized. 
D)  monopolistically competitive sellers engage in misleading advertising.

Question 5

In which of the following market models do demand and marginal revenue diverge?

Accepted Answer

A)  pure monopoly, oligopoly, and monopolistic competition 
B)  pure monopoly, oligopoly, and pure competition 
C)  pure monopoly only 
D)  oligopoly only 
A)  pure monopoly, oligopoly, and monopolistic competition 
B)  pure monopoly, oligopoly, and pure competition 
C)  pure monopoly only 
D)  oligopoly only

Question 6

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

Accepted Answer

A)  each firm has to take the market price as given. 
B)  product differentiation allows each firm some degree of monopoly power. 
C)  there are a few large firms in the industry and they each act as a monopolist. 
D)  mutual interdependence among all firms in the industry leads to collusion. 
A)  each firm has to take the market price as given. 
B)  product differentiation allows each firm some degree of monopoly power. 
C)  there are a few large firms in the industry and they each act as a monopolist. 
D)  mutual interdependence among all firms in the industry leads to collusion.

Question 7

Monopolistic competition is characterized by excess capacity because

Accepted Answer

A)  firms are always profitable in the long run. 
B)  firms charge a price that is greater than marginal cost. 
C)  firms produce at an output level less than the least-cost output. 
D)  the demand for the product is perfectly elastic in this type of industry. 
A)  firms are always profitable in the long run. 
B)  firms charge a price that is greater than marginal cost. 
C)  firms produce at an output level less than the least-cost output. 
D)  the demand for the product is perfectly elastic in this type of industry.

Question 8

Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264. These data suggest

Accepted Answer

A)  greater market power in X than in Y. 
B)  greater market power in Y than in X. 
C)  that X is more technologically progressive than Y. 
D)  that price competition is stronger in Y than in X. 
A)  greater market power in X than in Y. 
B)  greater market power in Y than in X. 
C)  that X is more technologically progressive than Y. 
D)  that price competition is stronger in Y than in X.

Question 9

As firms exit from a monopolistically competitive industry in the long run, the remaining firmsâ€™ profits will begin to rise.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is not true for a monopolistically competitive industry?

Accepted Answer

A)  Firms tend to operate with excess capacity. 
B)  Each firm faces a downward-sloping demand curve. 
C)  These firms earn zero economic profits in the long run. 
D)  Firms operate at the lowest point of their ATC curves in the long run. 
A)  Firms tend to operate with excess capacity. 
B)  Each firm faces a downward-sloping demand curve. 
C)  These firms earn zero economic profits in the long run. 
D)  Firms operate at the lowest point of their ATC curves in the long run.

Question 11

The less elastic a monopolistic competitor's long-run demand curve, the

Accepted Answer

A)  greater its excess capacity. 
B)  lower its price relative to that of a pure competitor having the same cost curves. 
C)  higher its long-run economic profit. 
D)  lower its average total cost at its equilibrium level of output. 
A)  greater its excess capacity. 
B)  lower its price relative to that of a pure competitor having the same cost curves. 
C)  higher its long-run economic profit. 
D)  lower its average total cost at its equilibrium level of output.

Question 12

Answer the question on the basis of the following demand and cost data for a specific firm.   Suppose that entry into this industry changes this firm's demand schedule from columns (1) and (3) to columns (2) and (3). We can conclude that this industry is

Accepted Answer

A)  a pure monopoly. 
B)  purely competitive. 
C)  a constant cost industry. 
D)  monopolistically competitive. 
A)  a pure monopoly. 
B)  purely competitive. 
C)  a constant cost industry. 
D)  monopolistically competitive.

Question 13

Which of the following is a measure of the degree of industry concentration?

Accepted Answer

A)  Dow Jones Industrial Average 
B)  Herfindahl Index 
C)  Employment Cost Index 
D)  S&P 500 Index 
A)  Dow Jones Industrial Average 
B)  Herfindahl Index 
C)  Employment Cost Index 
D)  S&P 500 Index

Question 14

A monopolistically competitive industry is like a purely competitive industry in that

Accepted Answer

A)  each firm produces a standardized product. 
B)  nonprice competition is a feature in both industries. 
C)  neither industry has significant barriers to entry. 
D)  firms in both industries face a horizontal demand curve. 
A)  each firm produces a standardized product. 
B)  nonprice competition is a feature in both industries. 
C)  neither industry has significant barriers to entry. 
D)  firms in both industries face a horizontal demand curve.

Question 15

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, economic profit will be

Accepted Answer

A)  $10. 
B)  $19. 
C)  $6. 
D)  $8. 
A)  $10. 
B)  $19. 
C)  $6. 
D)  $8.

Question 16

In long-run equilibrium, monopolistic competition entails

Accepted Answer

A)  an efficient allocation of resources. 
B)  an overallocation of resources due to inadequate capacity. 
C)  an underallocation of resources due to excess capacity. 
D)  production at the minimum attainable average total cost. 
A)  an efficient allocation of resources. 
B)  an overallocation of resources due to inadequate capacity. 
C)  an underallocation of resources due to excess capacity. 
D)  production at the minimum attainable average total cost.

Question 17

In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the profit-maximizing firm will

Accepted Answer

A)  always earn an economic profit. 
B)  set price equal to marginal cost. 
C)  set price above marginal cost. 
D)  produce at minimum average total cost. 
A)  always earn an economic profit. 
B)  set price equal to marginal cost. 
C)  set price above marginal cost. 
D)  produce at minimum average total cost.

Question 18

In the long run, economic theory predicts that a monopolistically competitive firm will

Accepted Answer

A)  earn an economic profit. 
B)  realize all economies of scale. 
C)  equate price and marginal cost. 
D)  have excess production capacity. 
A)  earn an economic profit. 
B)  realize all economies of scale. 
C)  equate price and marginal cost. 
D)  have excess production capacity.

Question 19

In the long run, a profit-maximizing monopolistically competitive firm sets it price

Accepted Answer

A)  above marginal cost. 
B)  below marginal cost. 
C)  equal to marginal revenue. 
D)  equal to marginal cost. 
A)  above marginal cost. 
B)  below marginal cost. 
C)  equal to marginal revenue. 
D)  equal to marginal cost.

Question 20

The demand curve of a monopolistically competitive firm is more elastic than that of a pure monopolist.

Accepted Answer

A) True 
 B)False

Exam 13: Monopolistic Competition

In long-run equilibrium, both purely competitive and monopolistically competitive firms will

An important similarity between a monopolistically competitive firm and a pure monopolist is that both

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will

Monopolistically competitive industries are inefficient because

In which of the following market models do demand and marginal revenue diverge?

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

Monopolistic competition is characterized by excess capacity because

Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264. These data suggest

As firms exit from a monopolistically competitive industry in the long run, the remaining firmsâ€™ profits will begin to rise.

Which of the following statements is not true for a monopolistically competitive industry?

The less elastic a monopolistic competitor's long-run demand curve, the

Answer the question on the basis of the following demand and cost data for a specific firm. Suppose that entry into this industry changes this firm's demand schedule from columns (1) and (3) to columns (2) and (3). We can conclude that this industry is

Which of the following is a measure of the degree of industry concentration?

A monopolistically competitive industry is like a purely competitive industry in that

In long-run equilibrium, monopolistic competition entails

In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the profit-maximizing firm will

In the long run, economic theory predicts that a monopolistically competitive firm will

In the long run, a profit-maximizing monopolistically competitive firm sets it price

The demand curve of a monopolistically competitive firm is more elastic than that of a pure monopolist.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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