Question 1

Excess capacity is

Accepted Answer

A)  an example of the inefficiencies of monopolistically competitive markets. 
B)  a short-run problem but not a long-run problem. 
C)  a characteristic of rising average total cost curves. 
D)  Both a and b are correct. 
A)  an example of the inefficiencies of monopolistically competitive markets. 
B)  a short-run problem but not a long-run problem. 
C)  a characteristic of rising average total cost curves. 
D)  Both a and b are correct.

Question 2

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market?

Accepted Answer

A)  monopoly 
B)  perfect competition 
C)  monopolistic competition 
D)  oligopoly 
A)  monopoly 
B)  perfect competition 
C)  monopolistic competition 
D)  oligopoly

Question 3

A study of the market for optometrists' services in the 1960s showed that

Accepted Answer

A)  all states in the United States prohibited advertising by optometrists. 
B)  almost all professional optometrists opposed legal restrictions on their rights to advertise. 
C)  the average price of eyeglasses would decrease if the legal restrictions on advertising by optometrists were removed. 
D)  advertising on eyeglasses limited competition among optometrists. 
A)  all states in the United States prohibited advertising by optometrists. 
B)  almost all professional optometrists opposed legal restrictions on their rights to advertise. 
C)  the average price of eyeglasses would decrease if the legal restrictions on advertising by optometrists were removed. 
D)  advertising on eyeglasses limited competition among optometrists.

Question 4

Figure 16-5  
-Refer to Figure 16-5. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

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 5

When a monopolistically competitive firm is in a long-run equilibrium, the values of marginal cost, average total cost, and price are all the same.

Accepted Answer

A) True 
 B)False

Question 6

The term excess capacity refers to the fact that a firm produces a lower quantity than it would if it operated at the efficient scale.

Accepted Answer

A) True 
 B)False

Question 7

The primary claim of defenders of advertising is that it

Accepted Answer

A)  conveys information about firm profitability. 
B)  is psychological rather than informational. 
C)  enhances the information available to consumers. 
D)  reduces the elasticity of demand for a firm's product. 
A)  conveys information about firm profitability. 
B)  is psychological rather than informational. 
C)  enhances the information available to consumers. 
D)  reduces the elasticity of demand for a firm's product.

Question 8

A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

Accepted Answer

A)  the firm is currently maximizing its profit. 
B)  the profits of the firm are negative. 
C)  firms are likely to leave this market in the long run. 
D)  All of the above are correct. 
A)  the firm is currently maximizing its profit. 
B)  the profits of the firm are negative. 
C)  firms are likely to leave this market in the long run. 
D)  All of the above are correct.

Question 9

Figure 16-2. The figure is drawn for a monopolistically competitive firm.  
-Refer to Figure 16-2. If the average variable cost is $24 at the profit­maximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is

Accepted Answer

A)  $-60. 
B)  $196. 
C)  $228. 
D)  $288. 
A)  $-60. 
B)  $196. 
C)  $228. 
D)  $288.

Question 10

Consider two industries in which firms hold the following market shares:
Industry A: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1%
Industry B: 30%, 10%, 9%, 8%, 8%, 8%, 8%, 6%, 6%, 5%, 2%
What are the concentration ratios for each industry? Which is more competitive?

Accepted Answer

The answer of Consider two industries in which firms hold...

Question 11

Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.)  
-Refer to Scenario 16-3. What is the maximum amount of profit that Peter can earn per day?

Accepted Answer

The answer of Scenario 16-3
Peter operates an ice cream shop...

Question 12

Which of the following statements is correct?

Accepted Answer

A)  Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers. 
B)  Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products. 
C)  Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market. 
D)  Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves for firms. 
A)  Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers. 
B)  Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products. 
C)  Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market. 
D)  Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves for firms.

Question 13

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

Accepted Answer

A)  firms would most likely experience economic losses. 
B)  firms would also operate at their efficient scale. 
C)  new firms would likely to enter the market. 
D)  the most efficient firms would not likely to be affected. 
A)  firms would most likely experience economic losses. 
B)  firms would also operate at their efficient scale. 
C)  new firms would likely to enter the market. 
D)  the most efficient firms would not likely to be affected.

Question 14

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 quantity would a profit-maximizing monopolist produce?

Accepted Answer

A)  Q = 0 
B)  Q = 2 
C)  Q = 5 
D)  Q = 10 
A)  Q = 0 
B)  Q = 2 
C)  Q = 5 
D)  Q = 10

Question 15

Monopolistic competition is an inefficient market structure because

Accepted Answer

A)  marginal revenue equals marginal cost. 
B)  it has a deadweight loss, just as monopoly does. 
C)  long-run profits are zero due to free entry. 
D)  All of the above are correct. 
A)  marginal revenue equals marginal cost. 
B)  it has a deadweight loss, just as monopoly does. 
C)  long-run profits are zero due to free entry. 
D)  All of the above are correct.

Question 16

Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.)  
-Refer to Scenario 16-3. How much profit will Peter earn each day if he chooses the price and quantity that maximize his profit?

Accepted Answer

A)  $176 
B)  $208 
C)  $225 
D)  $352 
A)  $176 
B)  $208 
C)  $225 
D)  $352

Question 17

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. If the government forced Beatrice's to produce at the efficient scale of output, what is the maximum profit Beatrice's could earn?

Accepted Answer

A)  $59 
B)  $67 
C)  $101 
D)  $126 
A)  $59 
B)  $67 
C)  $101 
D)  $126

Question 18

Figure 16-7  
-Refer to Figure 16-7. If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d), it would

Accepted Answer

A)  not be maximizing its profit. 
B)  be minimizing its losses. 
C)  be losing market share to other firms in the market. 
D)  be operating at excess capacity. 
A)  not be maximizing its profit. 
B)  be minimizing its losses. 
C)  be losing market share to other firms in the market. 
D)  be operating at excess capacity.

Question 19

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Accepted Answer

A)  P > AR 
B)  MR > MC 
C)  P > MC 
D)  All of the above are correct. 
A)  P > AR 
B)  MR > MC 
C)  P > MC 
D)  All of the above are correct.

Question 20

In a monopolistically competitive market, social welfare would be enhanced if

Accepted Answer

A)  price equaled marginal cost. 
B)  government regulation eliminated the product-variety externality. 
C)  the government raised taxes to subsidize firms that price below average total cost. 
D)  there were fewer firms, making the industry closer to an oligopoly. 
A)  price equaled marginal cost. 
B)  government regulation eliminated the product-variety externality. 
C)  the government raised taxes to subsidize firms that price below average total cost. 
D)  there were fewer firms, making the industry closer to an oligopoly.

Exam 16: Monopolistic Competition

Excess capacity is

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market?

A study of the market for optometrists' services in the 1960s showed that

Figure 16-5 -Refer to Figure 16-5. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

When a monopolistically competitive firm is in a long-run equilibrium, the values of marginal cost, average total cost, and price are all the same.

The term excess capacity refers to the fact that a firm produces a lower quantity than it would if it operated at the efficient scale.

The primary claim of defenders of advertising is that it

A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $24 at the profit­maximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is

Consider two industries in which firms hold the following market shares: Industry A: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1% Industry B: 30%, 10%, 9%, 8%, 8%, 8%, 8%, 6%, 6%, 5%, 2% What are the concentration ratios for each industry? Which is more competitive?

Which of the following statements is correct?

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

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 quantity would a profit-maximizing monopolist produce?

Monopolistic competition is an inefficient market structure because

Figure 16-7 -Refer to Figure 16-7. If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d), it would

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

In a monopolistically competitive market, social welfare would be enhanced if

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

Filters

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $24 at the profitmaximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is