Question 1

Which of the following statements is TRUE about the economic profits earned by a monopolistic competitor firm in the long run?

Accepted Answer

A)  Economic profits can be positive since firms have some degree of monopoly power. 
B)  Economic profits will be positive since the firm has a downward sloping demand curve. 
C)  Economic profits will tend towards zero since positive profits will attract new firms into the industry. 
D)  Economic profits can be negative since there is so much competition in the market. 
A)  Economic profits can be positive since firms have some degree of monopoly power. 
B)  Economic profits will be positive since the firm has a downward sloping demand curve. 
C)  Economic profits will tend towards zero since positive profits will attract new firms into the industry. 
D)  Economic profits can be negative since there is so much competition in the market.

Question 2

Firms in a monopolistically competitive market will advertise because

Accepted Answer

A)  they want to differentiate their products. 
B)  they want to increase the elasticity of the demand curve. 
C)  of the significant differences in their product over their competitors. 
D)  the elasticity for their product is inelastic. 
A)  they want to differentiate their products. 
B)  they want to increase the elasticity of the demand curve. 
C)  of the significant differences in their product over their competitors. 
D)  the elasticity for their product is inelastic.

Question 3

Graphically, how does a monopolistically competitive firm determine its profit-maximizing price?

Accepted Answer

A)  It accepts the price set by the industry-wide forces of supply and demand. 
B)  Graphically, it finds the place where MR = MC and charges the price directly to the left of that point. 
C)  The firm's pricing structure is set by government regulators. 
D)  The firm determines its profit-maximizing output and then charges the price associated with the point on its demand curve directly above that quantity. 
A)  It accepts the price set by the industry-wide forces of supply and demand. 
B)  Graphically, it finds the place where MR = MC and charges the price directly to the left of that point. 
C)  The firm's pricing structure is set by government regulators. 
D)  The firm determines its profit-maximizing output and then charges the price associated with the point on its demand curve directly above that quantity.

Question 4

A product that must be actually consumed before the quality of the product can be determined is a(n)

Accepted Answer

A)  search good. 
B)  consumable good. 
C)  consumption good. 
D)  experience good. 
A)  search good. 
B)  consumable good. 
C)  consumption good. 
D)  experience good.

Question 5

For a firm that sells an information product, the long-run equilibrium exists at a point at which economic profits are

Accepted Answer

A)  negative. 
B)  zero. 
C)  positive. 
D)  dependent upon the particular product. 
A)  negative. 
B)  zero. 
C)  positive. 
D)  dependent upon the particular product.

Question 6

-In the above figure, the profit-maximizing monopolistically competitive firm will

Accepted Answer

A)  make a profit of $24,000. 
B)  make a profit of $30,000. 
C)  make a profit of $0. 
D)  incur a loss of $20,000. 
A)  make a profit of $24,000. 
B)  make a profit of $30,000. 
C)  make a profit of $0. 
D)  incur a loss of $20,000.

Question 7

Harry needs to hire an accountant but does NOT know how to find a good one. The accountant is a(n)

Accepted Answer

A)  experience good. 
B)  credence good. 
C)  logo good. 
D)  search good. 
A)  experience good. 
B)  credence good. 
C)  logo good. 
D)  search good.

Question 8

In the long run in a monopolistically competitive market, a firm will, in theory,

Accepted Answer

A)  earn economic profits. 
B)  suffer losses. 
C)  break even. 
D)  earn zero accounting profits. 
A)  earn economic profits. 
B)  suffer losses. 
C)  break even. 
D)  earn zero accounting profits.

Question 9

Out of all advertising spending, the largest share goes to

Accepted Answer

A)  television ads. 
B)  false advertising. 
C)  direct marketing. 
D)  newspaper ads. 
A)  television ads. 
B)  false advertising. 
C)  direct marketing. 
D)  newspaper ads.

Question 10

Because the products of firms in a monopolistically competitive market are NOT homogeneous, the

Accepted Answer

A)  demand curve for the industry is the same for the firm. 
B)  demand curve for the firm's product is horizontal. 
C)  demand curve for the firm's product is downward sloping. 
D)  demand curve for the firm's product is upward sloping. 
A)  demand curve for the industry is the same for the firm. 
B)  demand curve for the firm's product is horizontal. 
C)  demand curve for the firm's product is downward sloping. 
D)  demand curve for the firm's product is upward sloping.

Question 11

Advertising intended to reach as many consumers as possible, typically through television, newspaper, or magazine ads is referred to as

Accepted Answer

A)  interactive advertising. 
B)  direct marketing. 
C)  mass marketing. 
D)  subliminal advertising. 
A)  interactive advertising. 
B)  direct marketing. 
C)  mass marketing. 
D)  subliminal advertising.

Question 12

A monopolistically competitive firm differs from a perfectly competitive firm in the long run in that

Accepted Answer

A)  the demand curve faced by a monopolistically competitive firm is downward sloping, while the demand curve faced by a perfectly competitive firm is horizontal. 
B)  profits are positive for a monopolistically competitive firm and zero for a perfectly competitive firm. 
C)  profits are zero for a monopolistically competitive firm and positive for a perfectly competitive firm. 
D)  marginal cost equals the market price for a monopolistically competitive firm but not for a perfectly competitive firm. 
A)  the demand curve faced by a monopolistically competitive firm is downward sloping, while the demand curve faced by a perfectly competitive firm is horizontal. 
B)  profits are positive for a monopolistically competitive firm and zero for a perfectly competitive firm. 
C)  profits are zero for a monopolistically competitive firm and positive for a perfectly competitive firm. 
D)  marginal cost equals the market price for a monopolistically competitive firm but not for a perfectly competitive firm.

Question 13

-In the above figure for a monopolistically competitive firm, the total economic profit at the profit-maximizing point is

Accepted Answer

A)  $0. 
B)  $240. 
C)  $360. 
D)  $300. 
A)  $0. 
B)  $240. 
C)  $360. 
D)  $300.

Question 14

-Refer to the above figure. The profit maximizing quantity for a monopolistic competitor is

Accepted Answer

A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4. 
A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Question 15

In the long run, the price of information products in monopolistically competitive markets will be equal to

Accepted Answer

A)  zero. 
B)  MC. 
C)  AFC. 
D)  ATC. 
A)  zero. 
B)  MC. 
C)  AFC. 
D)  ATC.

Question 16

-Refer to the above figure. Economic profits for this firm are

Accepted Answer

A)  negative. 
B)  zero. 
C)  positive. 
D)  undetermined without more information. 
A)  negative. 
B)  zero. 
C)  positive. 
D)  undetermined without more information.

Question 17

Which of the following short-run outcomes for monopolistic competition is NOT possible?

Accepted Answer

A)  P = MR = MC. 
B)  P > MC > ATC. 
C)  P = ATC. 
D)  P > ATC. 
A)  P = MR = MC. 
B)  P > MC > ATC. 
C)  P = ATC. 
D)  P > ATC.

Question 18

The long-run equilibrium of a monopolistically competitive firm is characterized by

Accepted Answer

A)  a tangency of the average total cost curve with the firm's demand curve. 
B)  price equal to marginal cost. 
C)  production at the minimum point of the firm's average total cost curve. 
D)  production at the minimum point of the firm's average variable cost curve. 
A)  a tangency of the average total cost curve with the firm's demand curve. 
B)  price equal to marginal cost. 
C)  production at the minimum point of the firm's average total cost curve. 
D)  production at the minimum point of the firm's average variable cost curve.

Question 19

A monopolistically competitive firm maximizes profits when it

Accepted Answer

A)  produces the quantity at which marginal cost equals the market price. 
B)  produces the quantity at which marginal cost equals marginal revenue and uses the demand curve to determine the market price. 
C)  produces the quantity at which marginal cost equals marginal revenue and sets the price equal to the marginal cost. 
D)  produces the quantity at which marginal cost equals marginal revenue and sets the price equal to the marginal revenue. 
A)  produces the quantity at which marginal cost equals the market price. 
B)  produces the quantity at which marginal cost equals marginal revenue and uses the demand curve to determine the market price. 
C)  produces the quantity at which marginal cost equals marginal revenue and sets the price equal to the marginal cost. 
D)  produces the quantity at which marginal cost equals marginal revenue and sets the price equal to the marginal revenue.

Question 20

The demand curve for the product of a monopolistic competitor is

Accepted Answer

A)  downward sloping. 
B)  horizontal. 
C)  vertical. 
D)  unitary elastic. 
A)  downward sloping. 
B)  horizontal. 
C)  vertical. 
D)  unitary elastic.

Exam 25: Monopolistic Competition

Which of the following statements is TRUE about the economic profits earned by a monopolistic competitor firm in the long run?

Firms in a monopolistically competitive market will advertise because

Graphically, how does a monopolistically competitive firm determine its profit-maximizing price?

A product that must be actually consumed before the quality of the product can be determined is a(n)

For a firm that sells an information product, the long-run equilibrium exists at a point at which economic profits are

-In the above figure, the profit-maximizing monopolistically competitive firm will

Harry needs to hire an accountant but does NOT know how to find a good one. The accountant is a(n)

In the long run in a monopolistically competitive market, a firm will, in theory,

Out of all advertising spending, the largest share goes to

Because the products of firms in a monopolistically competitive market are NOT homogeneous, the

Advertising intended to reach as many consumers as possible, typically through television, newspaper, or magazine ads is referred to as

A monopolistically competitive firm differs from a perfectly competitive firm in the long run in that

-In the above figure for a monopolistically competitive firm, the total economic profit at the profit-maximizing point is

-Refer to the above figure. The profit maximizing quantity for a monopolistic competitor is

In the long run, the price of information products in monopolistically competitive markets will be equal to

-Refer to the above figure. Economic profits for this firm are

Which of the following short-run outcomes for monopolistic competition is NOT possible?

The long-run equilibrium of a monopolistically competitive firm is characterized by

A monopolistically competitive firm maximizes profits when it

The demand curve for the product of a monopolistic competitor is

The Nature of Economics

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