Question 1

Figure 13-4  Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 13-4. What is the area that represents the loss incurred by the firm?

Accepted Answer

A)  the area P0adP3 
B)  the area P1bcP2 
C)  the area P0acP2 
D)  the area P2cdP3

Question 2

Figure 13-18 
-Refer to Figure 13-18. The diagram demonstrates that

Accepted Answer

A)  in the short run, the monopolistic competitor produces an output Qb but in the long run after it adjusts its capacity, it will produce the allocatively efficient output, Qa. 
B)  it is not possible for a monopolistic competitor to produce the productively efficient output level, Qa, because of product differentiation. 
C)  it is possible for a monopolistic competitor to produce the productively efficient output level, Qa, if it is willing to lower its price from Pb to Pa. 
D)  in the long run, the monopolistic competitor produces the minimum-cost output level, Qa, but in the short run its output of Qb is not cost minimizing.

Question 3

For a monopolistically competitive firm, marginal revenue

Accepted Answer

A)  equals the price. 
B)  is greater than the price. 
C)  is less than the price. 
D)  and the price are unrelated.

Question 4

If firms in a monopolistically competitive industry are making profits in the short run, then

Accepted Answer

A)  barriers to entry will be erected to keep out rivals. 
B)  some firms will ultimately exit the industry. 
C)  they will resort to advertising wars to help sustain these profits. 
D)  new firms will enter the market.

Question 5

Figure 13-13 
-Refer to Figure 13-13. If the diagram represents a typical firm in the market, what is likely to happen to its average cost of production in the long run?

Accepted Answer

A)  It will probably fall since the firm must be cost efficient to remain competitive. 
B)  It will probably fall since the firm will be selling less than its current amount. 
C)  It will probably rise since the firm will be producing less than its current amount. 
D)  It will probably rise since its long-run demand is likely to be higher.

Question 6

The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair. It sells 8 pairs of jeans per day at a price of $90 per pair. The marginal revenue of the eighth pair of jeans is

Accepted Answer

A)  $20. 
B)  $90. 
C)  $100. 
D)  $700.

Question 7

In the highly competitive fast-food restaurant market, brand name restaurants have a strong profit incentive to maintain high sanitary conditions and avoid any negative consequences.

Accepted Answer

A) True 
 B)False

Question 8

Figure 13-13 
-Refer to Figure 13-13. What is the area that represents the firm's profit?

Accepted Answer

A)  profit = 0 
B)  P4edP2 
C)  P4eaP1 
D)  P3baP2

Question 9

Table 13-1
 
-Refer to Table 13-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

Accepted Answer

A)  output effect = $3.00; price effect = $0.50 
B)  output effect = $1.50; price effect = $2.00 
C)  output effect = $5.50; price effect = -$2.00 
D)  output effect = $4.00; price effect = -$0.50

Question 10

You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants. Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce. What is likely to happen to your business in the long run?

Accepted Answer

A)  Your competitors are likely to change their menus to make their products more similar to yours. 
B)  Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero. 
C)  If your success continues, you will be likely to establish a franchise and expand your market size. 
D)  If you continue to maintain consistent quality, you will be able to earn profits indefinitely.

Question 11

Draw a graph that shows the impact on a firm's profit when it increases spending on advertising and the increased advertising has no effect on the demand for a firm's product.

Accepted Answer

The answer of Draw a graph that shows the impact...

Question 12

In the short run, a profit-maximizing firm's decision to produce should be guided by whether

Accepted Answer

A)  it makes a profit. 
B)  its marginal profit is maximized. 
C)  its total revenue exceeds its fixed cost. 
D)  its total revenue covers its variable cost.

Question 13

In 2011, Red Robin announced that it would open 12 fast-casual restaurants, and in 2016 the company decided to abandon the fast-casual restaurant business. Which of the following reasons relating to the characteristics of monopolistic competition did the company give for getting out of the fast-casual restaurant business?

Accepted Answer

A)  Barriers to entry were too high. 
B)  The restaurants were not differentiated enough from their full-service restaurants. 
C)  There were very few buyers and sellers in the market. 
D)  Standardized pricing in the industry gave them no potential to earn a profit.

Question 14

Because the monopolistically competitive firm faces a ________ demand curve for its product, it ________ the price of its output.

Accepted Answer

A)  downward-sloping; cannot influence 
B)  horizontal; can influence 
C)  horizontal; cannot influence 
D)  downward-sloping; can influence

Question 15

For the monopolistically competitive firm,

Accepted Answer

A)  Price (P) = Marginal Revenue (MR) = Average Revenue (AR). 
B)  P = MR > AR. 
C)  P = AR > MR. 
D)  P > MR = AR.

Question 16

Which of the following statements is true about advertising by a monopolistically competitive firm?

Accepted Answer

A)  Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products. 
B)  Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand. 
C)  Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product. 
D)  Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry.

Question 17

In a monopolistically competitive market, a successful new restaurant

Accepted Answer

A)  can earn economic profits in the long run if it uses barriers to restrict entry by new restaurants. 
B)  will earn zero economic profit in the long run because of free entry, but competition will lead restaurants to offer different versions of the same product. 
C)  will face high entry barriers because of health and safety regulations to which all restaurants are subject. 
D)  must obtain a trademark to ensure that it will break even in the long run.

Question 18

Consumers in monopolistically competitive markets face a trade-off between paying prices greater than marginal costs and purchasing products that are more closely suited to their tastes.

Accepted Answer

A) True 
 B)False

Question 19

What are the key factors that determine the profitability of a firm in a monopolistically competitive market?

Accepted Answer

The answer of What are the key factors that determine...

Question 20

In long-run equilibrium, compared to a perfectly competitive market, a monopolistically competitive industry produces a ________ level of output and charges a ________ price.

Accepted Answer

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

Exam 13: Monopolistic Competition: the Competitive Model in a More Realistic Setting

Figure 13-4 Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-4. What is the area that represents the loss incurred by the firm?

Figure 13-18 -Refer to Figure 13-18. The diagram demonstrates that

For a monopolistically competitive firm, marginal revenue

If firms in a monopolistically competitive industry are making profits in the short run, then

Figure 13-13 -Refer to Figure 13-13. If the diagram represents a typical firm in the market, what is likely to happen to its average cost of production in the long run?

The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair. It sells 8 pairs of jeans per day at a price of $90 per pair. The marginal revenue of the eighth pair of jeans is

In the highly competitive fast-food restaurant market, brand name restaurants have a strong profit incentive to maintain high sanitary conditions and avoid any negative consequences.

Figure 13-13 -Refer to Figure 13-13. What is the area that represents the firm's profit?

Table 13-1 -Refer to Table 13-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?