Question 1

The meaning of interdependence in a monopolistically competitive market is

Accepted Answer

A)  that it is difficult for firms to get together to collude. 
B)  that products produced by firms will be good substitutes. 
C)  that firms will not take into account the reaction of rival firms. 
D)  that price rigging commonly occurs. 
A)  that it is difficult for firms to get together to collude. 
B)  that products produced by firms will be good substitutes. 
C)  that firms will not take into account the reaction of rival firms. 
D)  that price rigging commonly occurs.

Question 2

In the long run, monopolistic competitive firms are considered to be operating inefficiently because their

Accepted Answer

A)  economic profits are positive. 
B)  economic profits are zero. 
C)  average total costs are not at a minimum. 
D)  marginal costs are rising. 
A)  economic profits are positive. 
B)  economic profits are zero. 
C)  average total costs are not at a minimum. 
D)  marginal costs are rising.

Question 3

Why can't a monopolistic competitor earn economic profits in the long run?

Accepted Answer

A monopolistic competitor may earn econo

Question 4

Which of the following statements is TRUE for a monopolistically competitive firm in the long run?

Accepted Answer

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

Question 5

-The above table depicts prices, quantities, and marginal costs faced by the campus bookstore. Based on marginal analysis, what is the profit-maximizing level of output for the bookstore?

Accepted Answer

A)  1 book 
B)  2 books 
C)  3 books 
D)  4 books 
A)  1 book 
B)  2 books 
C)  3 books 
D)  4 books

Question 6

Interactive 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 7

Which of the following assumptions is TRUE about monopolistic competition?

Accepted Answer

A)  The firm's products are differentiated. 
B)  There are few producers of the product. 
C)  Firms will not advertise. 
D)  It is difficult for firms to enter this industry. 
A)  The firm's products are differentiated. 
B)  There are few producers of the product. 
C)  Firms will not advertise. 
D)  It is difficult for firms to enter this industry.

Question 8

In the short run, a monopolistically competitive firm can earn

Accepted Answer

A)  positive profits only. 
B)  zero profits only. 
C)  zero or positive profits only. 
D)  zero, positive or negative profits. 
A)  positive profits only. 
B)  zero profits only. 
C)  zero or positive profits only. 
D)  zero, positive or negative profits.

Question 9

-Use the above figure. The profit-maximizing monopolistically competitive firm

Accepted Answer

A)  is losing $0.05 per unit of output. 
B)  is earning $0.40 per unit of output. 
C)  is earning $0.15 per unit of output. 
D)  is earning $0.05 per unit of output. 
A)  is losing $0.05 per unit of output. 
B)  is earning $0.40 per unit of output. 
C)  is earning $0.15 per unit of output. 
D)  is earning $0.05 per unit of output.

Question 10

Typically a mix of informational and persuasive advertising is used for

Accepted Answer

A)  experience goods. 
B)  credence goods. 
C)  credible goods. 
D)  search goods. 
A)  experience goods. 
B)  credence goods. 
C)  credible goods. 
D)  search goods.

Question 11

A monopolistic competitor is like a competitive firm in the long run, because

Accepted Answer

A)  it earns positive economic profits. 
B)  it earns zero economic profits 
C)  both firms will earn positive economic profits. 
D)  both firms will increase price to increase profits. 
A)  it earns positive economic profits. 
B)  it earns zero economic profits 
C)  both firms will earn positive economic profits. 
D)  both firms will increase price to increase profits.

Question 12

The production of information products is characterized by

Accepted Answer

A)  relatively low fixed cost. 
B)  relatively low marginal cost. 
C)  diseconomies of operation. 
D)  an upward sloping marginal cost curve. 
A)  relatively low fixed cost. 
B)  relatively low marginal cost. 
C)  diseconomies of operation. 
D)  an upward sloping marginal cost curve.

Question 13

In a long-run monopolistically competitive equilibrium

Accepted Answer

A)  P = ATC, and ATC is not at its minimum value. 
B)  P = ATC, and ATC is at its minimum value. 
C)  P > ATC, and ATC is at its minimum value. 
D)  P > ATC, and ATC is not at its minimum value. 
A)  P = ATC, and ATC is not at its minimum value. 
B)  P = ATC, and ATC is at its minimum value. 
C)  P > ATC, and ATC is at its minimum value. 
D)  P > ATC, and ATC is not at its minimum value.

Question 14

It has been argued that a monopolistically competitive industry involves "waste" because

Accepted Answer

A)  there is too much product differentiation making shelves too crowded. 
B)  they end up producing to the right of the minimum of the average total cost curve and the price is below the marginal cost. 
C)  the firms do not equate marginal cost to marginal revenue to find the profit maximizing price and output. 
D)  the firms do not produce at the minimum of the average total cost curve and price is above marginal cost. 
A)  there is too much product differentiation making shelves too crowded. 
B)  they end up producing to the right of the minimum of the average total cost curve and the price is below the marginal cost. 
C)  the firms do not equate marginal cost to marginal revenue to find the profit maximizing price and output. 
D)  the firms do not produce at the minimum of the average total cost curve and price is above marginal cost.

Question 15

In the 1920s and 1930s, economists became increasingly aware that there were industries that did not fit the model of perfect competition or pure monopoly. Two separate theories of monopolistic competition resulted. Edward Chamberlin of Harvard published the Theory of Monopolistic Competition in 1933. Chamberlin defined monopolistic competition as

Accepted Answer

A)  a relatively large number of producers offering similar but differentiated products. 
B)  a relatively small number of producers offering similar but differentiated products. 
C)  a market situation in which a large number of firms produce identical products. 
D)  a market situation in which a small number of firms produce similar products. 
A)  a relatively large number of producers offering similar but differentiated products. 
B)  a relatively small number of producers offering similar but differentiated products. 
C)  a market situation in which a large number of firms produce identical products. 
D)  a market situation in which a small number of firms produce similar products.

Question 16

Direct 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 17

A monopolistic competitor is in long-run equilibrium when

Accepted Answer

A)  economic profits are equal to zero and the average total cost curve is tangent to the demand curve. 
B)  economic profits are equal to zero and the marginal cost curve is tangent to the demand curve. 
C)  economic profits are greater than zero and the average total cost curve is tangent to the demand curve. 
D)  economic profits are greater than zero and the marginal cost curve is tangent to the demand curve. 
A)  economic profits are equal to zero and the average total cost curve is tangent to the demand curve. 
B)  economic profits are equal to zero and the marginal cost curve is tangent to the demand curve. 
C)  economic profits are greater than zero and the average total cost curve is tangent to the demand curve. 
D)  economic profits are greater than zero and the marginal cost curve is tangent to the demand curve.

Question 18

If firms in a monopolistically competitive industry are operating with economic losses, over time we would see

Accepted Answer

A)  firms alter their advertising rates until they made at least normal profits. 
B)  some firms exiting the industry, causing the market supply curve to shift to the left, raising price. 
C)  some firms exiting the industry, causing the demand curves of the remaining firms to shift to the right. 
D)  the firms working together to increase price and everyone's profitability. 
A)  firms alter their advertising rates until they made at least normal profits. 
B)  some firms exiting the industry, causing the market supply curve to shift to the left, raising price. 
C)  some firms exiting the industry, causing the demand curves of the remaining firms to shift to the right. 
D)  the firms working together to increase price and everyone's profitability.

Question 19

The demand curve for the product of a monopolistic competitor

Accepted Answer

A)  is the same as the market demand curve. 
B)  is horizontal. 
C)  is vertical. 
D)  slopes downward. 
A)  is the same as the market demand curve. 
B)  is horizontal. 
C)  is vertical. 
D)  slopes downward.

Question 20

-Refer to the above figure. The figure shows the cost structure of a firm producing an information product. Which curve would represent the marginal cost for an information product?

Accepted Answer

A)  Curve 1 
B)  Curve 2 
C)  Curve 3 
D)  none of the above 
A)  Curve 1 
B)  Curve 2 
C)  Curve 3 
D)  none of the above

Exam 25: Monopolistic Competition

The meaning of interdependence in a monopolistically competitive market is

In the long run, monopolistic competitive firms are considered to be operating inefficiently because their

Why can't a monopolistic competitor earn economic profits in the long run?

Which of the following statements is TRUE for a monopolistically competitive firm in the long run?

-The above table depicts prices, quantities, and marginal costs faced by the campus bookstore. Based on marginal analysis, what is the profit-maximizing level of output for the bookstore?

Interactive marketing is

Which of the following assumptions is TRUE about monopolistic competition?

In the short run, a monopolistically competitive firm can earn

-Use the above figure. The profit-maximizing monopolistically competitive firm

Typically a mix of informational and persuasive advertising is used for

A monopolistic competitor is like a competitive firm in the long run, because

The production of information products is characterized by

In a long-run monopolistically competitive equilibrium

It has been argued that a monopolistically competitive industry involves "waste" because

Direct marketing is

A monopolistic competitor is in long-run equilibrium when

If firms in a monopolistically competitive industry are operating with economic losses, over time we would see

The demand curve for the product of a monopolistic competitor

-Refer to the above figure. The figure shows the cost structure of a firm producing an information product. Which curve would represent the marginal cost for an information product?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

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Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

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Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

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Environmental Economics

Comparative Advantage and the Open Economy

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