Question 1

Compared to perfect competition, a monopolistically competitive market will produce ________ output and charge a ________ price.

Accepted Answer

A)  more; higher 
B)  more; lower 
C)  less; higher 
D)  less; lower 
A)  more; higher 
B)  more; lower 
C)  less; higher 
D)  less; lower

Question 2

Monopolistic competitors advertise because

Accepted Answer

A)  they have downward sloping demand curves. 
B)  the demand curves they face are very elastic. 
C)  they produce goods that can be differentiated from the goods of other firms in the industry. 
D)  they can earn long-run profits if they advertise. 
A)  they have downward sloping demand curves. 
B)  the demand curves they face are very elastic. 
C)  they produce goods that can be differentiated from the goods of other firms in the industry. 
D)  they can earn long-run profits if they advertise.

Question 3

What are the implications of there being a large number of firms in a monopolistically competitive market?

Accepted Answer

A large number of firms has three implic

Question 4

-Use the above figure. The profit-maximizing output and price for this monopolistically competitive firm are respectively

Accepted Answer

A)  100 and $19. 
B)  160 and $13. 
C)  160 and $16. 
D)  210 and $15. 
A)  100 and $19. 
B)  160 and $13. 
C)  160 and $16. 
D)  210 and $15.

Question 5

-In the above figure, what would happen to the monopolistically competitive industry in the long run?

Accepted Answer

A)  More producers would enter the market, and the share of the market to this firm would fall, which would cause the demand curve to shift leftward until there is zero economic profit. 
B)  More producers would exit the market, and the share of the market to this firm would fall, which would cause the demand curve to shift leftward until there is zero economic profit. 
C)  More producers would enter the market, and the share of the market to this firm would rise, which would cause the demand curve to shift rightward until there is zero economic profit. 
D)  More producers would enter the market, and the share of the market to this firm would fall, which would cause the demand curve to shift leftward until there is negative economic profit. 
A)  More producers would enter the market, and the share of the market to this firm would fall, which would cause the demand curve to shift leftward until there is zero economic profit. 
B)  More producers would exit the market, and the share of the market to this firm would fall, which would cause the demand curve to shift leftward until there is zero economic profit. 
C)  More producers would enter the market, and the share of the market to this firm would rise, which would cause the demand curve to shift rightward until there is zero economic profit. 
D)  More producers would enter the market, and the share of the market to this firm would fall, which would cause the demand curve to shift leftward until there is negative economic profit.

Question 6

What did Harvard economist Edward Chamberlain say about the observation that a monopolistically competitive firm's average cost of production exceeds its minimum average total cost?

Accepted Answer

A)  Chamberlain argued that these higher costs represent the wastefulness of this market structure. 
B)  Chamberlain argued that this belief is incorrect. In his view, monopolistically competitive firms do not produce at a cost above their minimum average total costs. 
C)  According to Chamberlain, this cost difference represents the value consumers place on variety and having more choice. 
D)  In Chamberlain's view, this is evidence that monopolistic competition uses society's resources inefficiently and in a fashion that merits government intervention. 
A)  Chamberlain argued that these higher costs represent the wastefulness of this market structure. 
B)  Chamberlain argued that this belief is incorrect. In his view, monopolistically competitive firms do not produce at a cost above their minimum average total costs. 
C)  According to Chamberlain, this cost difference represents the value consumers place on variety and having more choice. 
D)  In Chamberlain's view, this is evidence that monopolistic competition uses society's resources inefficiently and in a fashion that merits government intervention.

Question 7

Compared to a perfectly competitive firm, in a long run the monopolistically competitive firm will have

Accepted Answer

A)  a lower price. 
B)  a lower average cost. 
C)  a horizontal demand function. 
D)  a lower rate of output. 
A)  a lower price. 
B)  a lower average cost. 
C)  a horizontal demand function. 
D)  a lower rate of output.

Question 8

A good that entails relatively high fixed costs associated with the use of knowledge and other information-intensive inputs as key factors of production is

Accepted Answer

A)  a logo good. 
B)  a search good. 
C)  a persuasive good. 
D)  an information product. 
A)  a logo good. 
B)  a search good. 
C)  a persuasive good. 
D)  an information product.

Question 9

Long-run equilibrium is characterized by zero profits in

Accepted Answer

A)  monopolistic competition only. 
B)  perfect competition only. 
C)  both perfect competition and monopolistic competition. 
D)  market structures in which there are barriers to entry. 
A)  monopolistic competition only. 
B)  perfect competition only. 
C)  both perfect competition and monopolistic competition. 
D)  market structures in which there are barriers to entry.

Question 10

Explain what will happen if firms in a monopolistically competitive industry are earning positive economic profits.

Accepted Answer

Positive economic profits will attract n

Question 11

If firms in a monopolistically competitive industry experience short-run losses

Accepted Answer

A)  some firms would like to exit the industry but find they cannot. 
B)  firms increase prices further, until they make at least a normal return. 
C)  firms increase advertising spending to increase demand, until they make at least a normal return. 
D)  some firms exit the industry, causing the demand curves for the remaining firms to shift to the right until they earn a normal profit. 
A)  some firms would like to exit the industry but find they cannot. 
B)  firms increase prices further, until they make at least a normal return. 
C)  firms increase advertising spending to increase demand, until they make at least a normal return. 
D)  some firms exit the industry, causing the demand curves for the remaining firms to shift to the right until they earn a normal profit.

Question 12

When Crest claims that its toothpaste product whitens teeth more than the products of its competitors, Crest is practicing

Accepted Answer

A)  product differentiation. 
B)  false advertising. 
C)  marginal revenue pricing. 
D)  marginal cost pricing. 
A)  product differentiation. 
B)  false advertising. 
C)  marginal revenue pricing. 
D)  marginal cost pricing.

Question 13

A firm's trademark is protected from misuse if it is registered with the

Accepted Answer

A)  U.S.D.A. 
B)  U.S. Patent and Trademark Office. 
C)  U.S. Supreme Court. 
D)  F.C.C. 
A)  U.S.D.A. 
B)  U.S. Patent and Trademark Office. 
C)  U.S. Supreme Court. 
D)  F.C.C.

Question 14

A monopolistic competitor is in long-run equilibrium when

Accepted Answer

A)  it is making zero profits and price equals marginal cost. 
B)  its average total cost curve is tangent to the demand curve at the profit-maximizing rate of output. 
C)  price is greater than marginal cost. 
D)  it is making positive profits or zero profits and price is greater than marginal cost. 
A)  it is making zero profits and price equals marginal cost. 
B)  its average total cost curve is tangent to the demand curve at the profit-maximizing rate of output. 
C)  price is greater than marginal cost. 
D)  it is making positive profits or zero profits and price is greater than marginal cost.

Question 15

For a monopolistic competitive firm, which of the following is TRUE in the long run?

Accepted Answer

A)  ATC is minimized. 
B)  P = ATC. 
C)  P = MC. 
D)  all of the above 
A)  ATC is minimized. 
B)  P = ATC. 
C)  P = MC. 
D)  all of the above

Question 16

In the long run, both monopolistically competitive and perfectly competitive firms attain

Accepted Answer

A)  lowest cost production. 
B)  positive economic profits. 
C)  zero economic profits. 
D)  productive efficiency. 
A)  lowest cost production. 
B)  positive economic profits. 
C)  zero economic profits. 
D)  productive efficiency.

Question 17

-Refer to the above figure. The above figure shows the cost structure of a firm producing an information product. Which curve represents average fixed cost?

Accepted Answer

A)  Curve 1 
B)  Curve 2 
C)  Curve 3 
D)  Any of the 3 could be AFC. 
A)  Curve 1 
B)  Curve 2 
C)  Curve 3 
D)  Any of the 3 could be AFC.

Question 18

The marginal revenue curve of a monopolistically competitive firm is

Accepted Answer

A)  downward sloping and above the demand curve. 
B)  downward sloping and below the demand curve. 
C)  identical to the demand curve as there are many small firms in the market. 
D)  perfectly elastic. 
A)  downward sloping and above the demand curve. 
B)  downward sloping and below the demand curve. 
C)  identical to the demand curve as there are many small firms in the market. 
D)  perfectly elastic.

Question 19

Which of the following products is most likely to be sold in a monopolistically competitive market?

Accepted Answer

A)  fast food 
B)  automobile 
C)  wheat 
D)  electricity 
A)  fast food 
B)  automobile 
C)  wheat 
D)  electricity

Question 20

The most significant difference between perfect competition and monopolistic competition is that

Accepted Answer

A)  in a perfectly competitive market products are differentiated, while in a monopolistically competitive market products are homogeneous. 
B)  in a perfectly competitive market products are homogeneous, while in a monopolistically competitive market products are differentiated. 
C)  in a perfectly competitive market there is a large number of sellers, while in a monopolistically competitive market there is a small number of sellers. 
D)  in a perfectly competitive market there is a small number of sellers, while in a monopolistically competitive market there is a large number of sellers. 
A)  in a perfectly competitive market products are differentiated, while in a monopolistically competitive market products are homogeneous. 
B)  in a perfectly competitive market products are homogeneous, while in a monopolistically competitive market products are differentiated. 
C)  in a perfectly competitive market there is a large number of sellers, while in a monopolistically competitive market there is a small number of sellers. 
D)  in a perfectly competitive market there is a small number of sellers, while in a monopolistically competitive market there is a large number of sellers.

Exam 25: Monopolistic Competition

Compared to perfect competition, a monopolistically competitive market will produce ________ output and charge a ________ price.

Monopolistic competitors advertise because

What are the implications of there being a large number of firms in a monopolistically competitive market?

-Use the above figure. The profit-maximizing output and price for this monopolistically competitive firm are respectively

-In the above figure, what would happen to the monopolistically competitive industry in the long run?

What did Harvard economist Edward Chamberlain say about the observation that a monopolistically competitive firm's average cost of production exceeds its minimum average total cost?

Compared to a perfectly competitive firm, in a long run the monopolistically competitive firm will have

A good that entails relatively high fixed costs associated with the use of knowledge and other information-intensive inputs as key factors of production is

Long-run equilibrium is characterized by zero profits in

Explain what will happen if firms in a monopolistically competitive industry are earning positive economic profits.

If firms in a monopolistically competitive industry experience short-run losses

When Crest claims that its toothpaste product whitens teeth more than the products of its competitors, Crest is practicing

A firm's trademark is protected from misuse if it is registered with the

A monopolistic competitor is in long-run equilibrium when

For a monopolistic competitive firm, which of the following is TRUE in the long run?

In the long run, both monopolistically competitive and perfectly competitive firms attain

-Refer to the above figure. The above figure shows the cost structure of a firm producing an information product. Which curve represents average fixed cost?

The marginal revenue curve of a monopolistically competitive firm is

Which of the following products is most likely to be sold in a monopolistically competitive market?

The most significant difference between perfect competition and monopolistic competition is that

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Compared to perfect competition, a monopolistically competitive market will produce output and charge a price.