Question 1

Figure 16-11  
-Refer to Figure 16-11. The profit for this firm is

Accepted Answer

A)  $375. 
B)  $500. 
C)  $1000. 
D)  $1250. 
A)  $375. 
B)  $500. 
C)  $1000. 
D)  $1250.

Question 2

In the long run, monopolistically competitive firms produce where demand equals average total cost.

Accepted Answer

A) True 
 B)False

Question 3

A firm can earn economic profits in the long run

Accepted Answer

A)  only when the market is a monopoly. 
B)  only when the market is a monopoly or monopolistically competitive. 
C)  only when the market is monopolistically competitive or perfectly competitive. 
D)  when the market is perfectly competitive, monopolistically competitive, or monopolistic. 
A)  only when the market is a monopoly. 
B)  only when the market is a monopoly or monopolistically competitive. 
C)  only when the market is monopolistically competitive or perfectly competitive. 
D)  when the market is perfectly competitive, monopolistically competitive, or monopolistic.

Question 4

Firms in industries that have competitors but do not face so much competition that they are price takers are operating in either a(n)

Accepted Answer

A)  oligopoly or perfectly competitive market. 
B)  oligopoly or monopoly market. 
C)  oligopoly or monopolistically competitive market. 
D)  monopoly or monopolistically competitive market. 
A)  oligopoly or perfectly competitive market. 
B)  oligopoly or monopoly market. 
C)  oligopoly or monopolistically competitive market. 
D)  monopoly or monopolistically competitive market.

Question 5

A firm produces the welfare-maximizing level of output

Accepted Answer

A)  only when the market is perfectly competitive. 
B)  only when the market is a monopoly or monopolistically competitive. 
C)  only when the market is monopolistically competitive or perfectly competitive. 
D)  when the market is perfectly competitive, monopolistically competitive, or monopolistic. 
A)  only when the market is perfectly competitive. 
B)  only when the market is a monopoly or monopolistically competitive. 
C)  only when the market is monopolistically competitive or perfectly competitive. 
D)  when the market is perfectly competitive, monopolistically competitive, or monopolistic.

Question 6

Table 16-5
This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm.  
-Refer to Table 16-5. Which of the following statements regarding this monopolistically competitive firm is correct?

Accepted Answer

A)  New firms will enter this market in the long run since firm profits are greater than zero. 
B)  Firms will leave this market in the long run since firm profits are less than zero. 
C)  This firm is currently in long-run equilibrium. 
D)  This firm is currently in long-run equilibrium, and the firm is producing its efficient scale of output. 
A)  New firms will enter this market in the long run since firm profits are greater than zero. 
B)  Firms will leave this market in the long run since firm profits are less than zero. 
C)  This firm is currently in long-run equilibrium. 
D)  This firm is currently in long-run equilibrium, and the firm is producing its efficient scale of output.

Question 7

A monopolistically competitive market is characterized by

Accepted Answer

A)  free entry, but not differentiated products. 
B)  differentiated products, but not long run profits. 
C)  long run profits, but not many firms. 
D)  many firms, but not free entry. 
A)  free entry, but not differentiated products. 
B)  differentiated products, but not long run profits. 
C)  long run profits, but not many firms. 
D)  many firms, but not free entry.

Question 8

Table 16-6
Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's.  
-Refer to Table 16-6. Suppose the government forced Beatrice's to produce at the efficient scale of output. Who would be better off as a result of this policy? Who would be worse off as a result of this policy?

Accepted Answer

A)  Beatrice's would be better off; consumers would be worse off. 
B)  Consumers would be better off; Beatrice's would be worse off. 
C)  No one would be better off; consumers would be worse off. 
D)  No one would be better off; no one would be worse off. 
A)  Beatrice's would be better off; consumers would be worse off. 
B)  Consumers would be better off; Beatrice's would be worse off. 
C)  No one would be better off; consumers would be worse off. 
D)  No one would be better off; no one would be worse off.

Question 9

In both perfect competition and monopolistic competition, each firm

Accepted Answer

A)  has some monopoly power. 
B)  sells a product that is at least slightly different from those of other firms. 
C)  faces a downward-sloping demand curve. 
D)  has many competitors. 
A)  has some monopoly power. 
B)  sells a product that is at least slightly different from those of other firms. 
C)  faces a downward-sloping demand curve. 
D)  has many competitors.

Question 10

In perfect competition as well as in monopolistic competition,

Accepted Answer

A)  marginal revenue is equal to price for each firm. 
B)  profit is positive in a long-run equilibrium for each firm. 
C)  entry and exit by firms are restricted. 
D)  there are many firms in a single market. 
A)  marginal revenue is equal to price for each firm. 
B)  profit is positive in a long-run equilibrium for each firm. 
C)  entry and exit by firms are restricted. 
D)  there are many firms in a single market.

Question 11

A firm in a monopolistically competitive market can earn short-run profits but not long-run profits.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is correct?

Accepted Answer

A)  Cigarettes are likely to be produced in a monopolistically competitive industry. 
B)  Novels are likely to be produced in a monopoly industry. 
C)  Movies are likely to be produced in a monopolistically competitive industry. 
D)  Milk is likely to be produced in an oligopoly industry. 
A)  Cigarettes are likely to be produced in a monopolistically competitive industry. 
B)  Novels are likely to be produced in a monopoly industry. 
C)  Movies are likely to be produced in a monopolistically competitive industry. 
D)  Milk is likely to be produced in an oligopoly industry.

Question 13

Which of the following statements is correct?

Accepted Answer

A)  The more similar Firm A's product is to Firm B's product, the more likely Firm A is to advertise. 
B)  Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face. 
C)  According to the signaling theory, the more product information an advertisement contains, the more effective it is. 
D)  Brand names may help consumers if they provide information about the quality of a product when acquiring such information is difficult. 
A)  The more similar Firm A's product is to Firm B's product, the more likely Firm A is to advertise. 
B)  Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face. 
C)  According to the signaling theory, the more product information an advertisement contains, the more effective it is. 
D)  Brand names may help consumers if they provide information about the quality of a product when acquiring such information is difficult.

Question 14

Figure 16-1        
-Refer to Figure 16-1. Which of the graphs illustrates a relatively elastic, though not perfectly elastic, demand curve consistent with a market that has many substitute products?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 15

Among arguments for and against advertising, both sides agree that advertising leads to

Accepted Answer

A)  higher prices and less competitive markets. 
B)  higher prices and more competitive markets. 
C)  lower prices and more competitive markets. 
D)  None of the above is correct. The debate fails to resolve the question of advertising's effect on prices and competition. 
A)  higher prices and less competitive markets. 
B)  higher prices and more competitive markets. 
C)  lower prices and more competitive markets. 
D)  None of the above is correct. The debate fails to resolve the question of advertising's effect on prices and competition.

Question 16

A markup of price over marginal cost is inconsistent with free entry and zero profit.

Accepted Answer

A) True 
 B)False

Question 17

In a monopolistically competitive market,

Accepted Answer

A)  strategic interactions among the firms are very important. 
B)  the threat of entry by new firms is not an important consideration. 
C)  the attainment of a Nash equilibrium is an important objective. 
D)  firms may enter even though they will earn zero economic profit in the long run. 
A)  strategic interactions among the firms are very important. 
B)  the threat of entry by new firms is not an important consideration. 
C)  the attainment of a Nash equilibrium is an important objective. 
D)  firms may enter even though they will earn zero economic profit in the long run.

Question 18

Scenario 16-2
Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q.
-Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what price would a profit-maximizing monopolist charge for the product?

Accepted Answer

A)  P = 0 
B)  P = 5 
C)  P = 10 
D)  P = 20 
A)  P = 0 
B)  P = 5 
C)  P = 10 
D)  P = 20

Question 19

If advertising reduces a consumer's price sensitivity between identical goods, it is likely to

Accepted Answer

A)  increase the elasticity of demand for differentiated products. 
B)  enhance competition and encourage more product diversity. 
C)  reduce competition and reduce social welfare. 
D)  encourage the consumption of all homogenous goods. 
A)  increase the elasticity of demand for differentiated products. 
B)  enhance competition and encourage more product diversity. 
C)  reduce competition and reduce social welfare. 
D)  encourage the consumption of all homogenous goods.

Question 20

Figure 16-3
This figure depicts a situation in a monopolistically competitive market.  
-Refer to Figure 16-3. This firm is operating

Accepted Answer

A)  in the short run and earning a positive economic profit. 
B)  in the short run and breaking even. 
C)  in the long run and earning a positive economic profit. 
D)  in the long run and incurring and economic loss. 
A)  in the short run and earning a positive economic profit. 
B)  in the short run and breaking even. 
C)  in the long run and earning a positive economic profit. 
D)  in the long run and incurring and economic loss.

Exam 16: Monopolistic Competition

Figure 16-11 -Refer to Figure 16-11. The profit for this firm is

In the long run, monopolistically competitive firms produce where demand equals average total cost.

A firm can earn economic profits in the long run

Firms in industries that have competitors but do not face so much competition that they are price takers are operating in either a(n)

A firm produces the welfare-maximizing level of output

Table 16-5 This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm. -Refer to Table 16-5. Which of the following statements regarding this monopolistically competitive firm is correct?

A monopolistically competitive market is characterized by

In both perfect competition and monopolistic competition, each firm

In perfect competition as well as in monopolistic competition,

A firm in a monopolistically competitive market can earn short-run profits but not long-run profits.

Which of the following statements is correct?

Which of the following statements is correct?

Figure 16-1 -Refer to Figure 16-1. Which of the graphs illustrates a relatively elastic, though not perfectly elastic, demand curve consistent with a market that has many substitute products?

Among arguments for and against advertising, both sides agree that advertising leads to

A markup of price over marginal cost is inconsistent with free entry and zero profit.

In a monopolistically competitive market,

Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what price would a profit-maximizing monopolist charge for the product?

If advertising reduces a consumer's price sensitivity between identical goods, it is likely to

Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. This firm is operating

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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