Question 1

Which of the following statements about a monopolistically competitive firm is FALSE?

Accepted Answer

A)  It tries to differentiate its product from that of competitors. 
B)  It may earn short-run economic profits. 
C)  It produces the quantity at which MC=MR. 
D)  It sets price like a perfectly competitive firm. 
A)  It tries to differentiate its product from that of competitors. 
B)  It may earn short-run economic profits. 
C)  It produces the quantity at which MC=MR. 
D)  It sets price like a perfectly competitive firm. D

Question 2

The type of advertising used for a search good is

Accepted Answer

A)  informational advertising. 
B)  persuasive advertising. 
C)  search advertising. 
D)  experience advertising. 
A)  informational advertising. 
B)  persuasive advertising. 
C)  search advertising. 
D)  experience advertising. A

Question 3

-The above figure shows the situation of a monopolistic competitor in the short run. The maximum economic profits of the firm equal

Accepted Answer

A)  $50,000. 
B)  $30,000. 
C)  15,000. 
D)  zero. 
A)  $50,000. 
B)  $30,000. 
C)  15,000. 
D)  zero. B

Question 4

For a monopolistically competitive market, the number of firms in the market implies that

Accepted Answer

A)  each firm faces a perfectly elastic demand. 
B)  all firms will make losses. 
C)  each firm acts independently of other firms. 
D)  firms will collude to set monopoly price and output. 
A)  each firm faces a perfectly elastic demand. 
B)  all firms will make losses. 
C)  each firm acts independently of other firms. 
D)  firms will collude to set monopoly price and output.

Question 5

Is monopolistic competition efficient? Explain. What is Edward Chamberlin's view about the efficiency of monopolistic competition?

Accepted Answer

Monopolistic competition is not efficien

Question 6

A monopolistic competitor is like a monopolist in the short run in that when economic profits are

Accepted Answer

A)  equal to zero, price equals marginal cost. 
B)  equal to zero, price below marginal cost. 
C)  greater than zero, changes in output are due to changes to plants by existing firms and there is no entry. 
D)  greater than zero, price exceeds marginal cost. 
A)  equal to zero, price equals marginal cost. 
B)  equal to zero, price below marginal cost. 
C)  greater than zero, changes in output are due to changes to plants by existing firms and there is no entry. 
D)  greater than zero, price exceeds marginal cost.

Question 7

Suppose a sushi restaurant is making significant economic profit in the short run. In the long run

Accepted Answer

A)  more people will open sushi restaurants, reducing the economic profit for each restaurant. 
B)  high barriers to entry keep people from opening sushi restaurants. 
C)  the government will require the sushi restaurant to sell part of its interests in the city. 
D)  more people will open steak restaurants, increasing the economic profit for the sushi restaurant. 
A)  more people will open sushi restaurants, reducing the economic profit for each restaurant. 
B)  high barriers to entry keep people from opening sushi restaurants. 
C)  the government will require the sushi restaurant to sell part of its interests in the city. 
D)  more people will open steak restaurants, increasing the economic profit for the sushi restaurant.

Question 8

In the long run, if some monopolistically competitive firms are earning economic losses then

Accepted Answer

A)  firms will leave the industry. 
B)  raise prices until they earn economic profits. 
C)  they will increase production until marginal costs fall. 
D)  new firms will enter the industry. 
A)  firms will leave the industry. 
B)  raise prices until they earn economic profits. 
C)  they will increase production until marginal costs fall. 
D)  new firms will enter the industry.

Question 9

-Refer to the above figure. As more and more firms are able to and actually do enter the industry, the demand curve of each firm and its marginal revenue curve

Accepted Answer

A)  will shift inward until the demand curve is tangent to the average total cost curve. 
B)  will become vertical. 
C)  will become upward sloping. 
D)  None of the above will occur. 
A)  will shift inward until the demand curve is tangent to the average total cost curve. 
B)  will become vertical. 
C)  will become upward sloping. 
D)  None of the above will occur.

Question 10

The theory of monopolistic competition was developed in two separate models by

Accepted Answer

A)  Adam Smith and David Ricardo. 
B)  John Kenneth Galbraith and John Maynard Keynes. 
C)  Edward Chamberlin and Joan Robinson. 
D)  Roger Leroy Miller and Paul Samuelson. 
A)  Adam Smith and David Ricardo. 
B)  John Kenneth Galbraith and John Maynard Keynes. 
C)  Edward Chamberlin and Joan Robinson. 
D)  Roger Leroy Miller and Paul Samuelson.

Question 11

Which of the following is NOT a characteristic of the demand curve faced by a firm in a monopolistically competitive market?

Accepted Answer

A)  The demand curve is downward sloping. 
B)  The slope of the demand curve is negative. 
C)  The firm will produce where the demand curve is inelastic. 
D)  The firm will produce where the demand curve is elastic. 
A)  The demand curve is downward sloping. 
B)  The slope of the demand curve is negative. 
C)  The firm will produce where the demand curve is inelastic. 
D)  The firm will produce where the demand curve is elastic.

Question 12

The greater the product differentiation between monopolistically competitive firms

Accepted Answer

A)  the lower the barriers to entry. 
B)  the greater the price elasticity of demand. 
C)  the higher the average variable costs. 
D)  the lower the price elasticity of demand. 
A)  the lower the barriers to entry. 
B)  the greater the price elasticity of demand. 
C)  the higher the average variable costs. 
D)  the lower the price elasticity of demand.

Question 13

In the long run, firms in a monopolistically competitive market

Accepted Answer

A)  usually earn positive economic profits. 
B)  always earn monopoly profits. 
C)  usually earn economic losses. 
D)  earn zero economic profits. 
A)  usually earn positive economic profits. 
B)  always earn monopoly profits. 
C)  usually earn economic losses. 
D)  earn zero economic profits.

Question 14

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

Accepted Answer

A)  large number of sellers 
B)  differentiated products 
C)  advertising 
D)  barriers to entry 
A)  large number of sellers 
B)  differentiated products 
C)  advertising 
D)  barriers to entry

Question 15

Persuasive advertising is the type of advertising that

Accepted Answer

A)  is used exclusively on television. 
B)  is used exclusively on radio. 
C)  emphasizes the features of its product. 
D)  is used to induce a consumer to discover previously unknown tastes and preferences. 
A)  is used exclusively on television. 
B)  is used exclusively on radio. 
C)  emphasizes the features of its product. 
D)  is used to induce a consumer to discover previously unknown tastes and preferences.

Question 16

The long-run equilibrium for a firm in an information product industry exists at a point at which

Accepted Answer

A)  marginal cost equals marginal revenue. 
B)  the demand curve crosses the marginal cost curve. 
C)  the demand curve is tangent to the average total cost curve. 
D)  average total cost is minimized. 
A)  marginal cost equals marginal revenue. 
B)  the demand curve crosses the marginal cost curve. 
C)  the demand curve is tangent to the average total cost curve. 
D)  average total cost is minimized.

Question 17

Mass marketing is

Accepted Answer

A)  advertising that permits a consumer to follow up directly by searching for more information and placing direct product orders. 
B)  advertising that targets a specific audience and allows the consumer to follow up directly by placing direct product orders usually through television or radio. 
C)  advertising targeted at specific consumers. 
D)  advertising intended to reach as many consumers as possible. 
A)  advertising that permits a consumer to follow up directly by searching for more information and placing direct product orders. 
B)  advertising that targets a specific audience and allows the consumer to follow up directly by placing direct product orders usually through television or radio. 
C)  advertising targeted at specific consumers. 
D)  advertising intended to reach as many consumers as possible.

Question 18

Because of product differentiation in a monopolistically competitive market, the demand curve for an individual firm will be

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  downward sloping. 
D)  upward sloping. 
A)  horizontal. 
B)  vertical. 
C)  downward sloping. 
D)  upward sloping.

Question 19

If a firm that produces an information product uses marginal cost pricing, then the firm

Accepted Answer

A)  will earn negative profits. 
B)  will earn profits equal to zero. 
C)  will earn positive profits but could earn a higher profit by using a different method. 
D)  will maximize profits. 
A)  will earn negative profits. 
B)  will earn profits equal to zero. 
C)  will earn positive profits but could earn a higher profit by using a different method. 
D)  will maximize profits.

Question 20

A market situation in which a large number of firms produce similar but not identical products is

Accepted Answer

A)  a collusive market structure. 
B)  competitive monopoly. 
C)  a homogeneous market. 
D)  monopolistic competition. 
A)  a collusive market structure. 
B)  competitive monopoly. 
C)  a homogeneous market. 
D)  monopolistic competition.

Exam 25: Monopolistic Competition

Which of the following statements about a monopolistically competitive firm is FALSE?

The type of advertising used for a search good is

-The above figure shows the situation of a monopolistic competitor in the short run. The maximum economic profits of the firm equal

For a monopolistically competitive market, the number of firms in the market implies that

Is monopolistic competition efficient? Explain. What is Edward Chamberlin's view about the efficiency of monopolistic competition?

A monopolistic competitor is like a monopolist in the short run in that when economic profits are

Suppose a sushi restaurant is making significant economic profit in the short run. In the long run

In the long run, if some monopolistically competitive firms are earning economic losses then

-Refer to the above figure. As more and more firms are able to and actually do enter the industry, the demand curve of each firm and its marginal revenue curve

The theory of monopolistic competition was developed in two separate models by

Which of the following is NOT a characteristic of the demand curve faced by a firm in a monopolistically competitive market?

The greater the product differentiation between monopolistically competitive firms

In the long run, firms in a monopolistically competitive market

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

Persuasive advertising is the type of advertising that

The long-run equilibrium for a firm in an information product industry exists at a point at which

Mass marketing is

Because of product differentiation in a monopolistically competitive market, the demand curve for an individual firm will be

If a firm that produces an information product uses marginal cost pricing, then the firm

A market situation in which a large number of firms produce similar but not identical products is

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