Question 1

Which of the following statements is not correct?

Accepted Answer

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

Question 2

The product-variety externality arises in monopolistically competitive markets because

Accepted Answer

A)  firms produce with excess capacity. 
B)  firms try to differentiate their products. 
C)  firms would like to produce homogeneous products, but the large number of firms prohibits it. 
D)  entry and exit is restricted.

Question 3

Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its

Accepted Answer

A)  marginal revenue curve and its total cost curve. 
B)  marginal revenue curve and its average total cost curve. 
C)  demand curve and its total cost curve. 
D)  demand curve and its average total cost curve.

Question 4

Because a monopolistically competitive firm has some market power,in the long-run the price of its product exceeds its

Accepted Answer

A)  average revenue. 
B)  average total cost. 
C)  marginal cost. 
D)  None of the above is correct.

Question 5

Figure 16-2
This figure depicts a situation in a monopolistically competitive market.
 
-Refer to Figure 16-2.What is the profit-maximizing price,quantity,and resulting profit?

Accepted Answer

A)  P=$60, Q=20 units, profit=$200 
B)  P=$80, Q=20 units, profit=$200 
C)  P=$75, Q=25 units, profit=$100 
D)  P=$60, Q=40 units, profit=$0

Question 6

As new firms enter a monopolistically competitive market,profits of existing firms

Accepted Answer

A)  rise, and product diversity in the market increases. 
B)  rise, and product diversity in the market decreases. 
C)  decline, and product diversity in the market increases. 
D)  decline, and product diversity in the market decreases.

Question 7

In a long-run equilibrium,a firm in a monopolistically competitive market operates

Accepted Answer

A)  where marginal revenue is zero. 
B)  where marginal revenue is negative. 
C)  on the rising portion of its average total cost curve. 
D)  on the declining portion of its average total cost curve.

Question 8

The government may not be able to improve the inefficiencies of a monopolistically competitive market.

Accepted Answer

A) True 
 B)False

Question 9

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy.Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.

Accepted Answer

A) True 
 B)False

Question 10

Table 16-4
This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm.
 
-Refer to Table 16-4.At the profit maximizing level of output,what is this firm's total cost?

Accepted Answer

A)  $0 
B)  $14 
C)  $20 
D)  $27

Question 11

In a monopolistically competitive market,

Accepted Answer

A)  the entry of new firms creates externalities. 
B)  the absence of restrictions on entry by new firms ensures that there will be no deadweight loss. 
C)  there are always too many firms in the market relative to the socially-optimal number of firms. 
D)  firms cannot earn positive economic profits in the short run.

Question 12

Which market structure would likely have the highest concentration ratio?

Accepted Answer

A)  Monopoly 
B)  Oligopoly 
C)  Monopolistic competition 
D)  Perfect competition

Question 13

A business-stealing externality is

Accepted Answer

A)  an externality that is likely to be punished under antitrust laws. 
B)  the negative externality that occurs when one firm attempts to duplicate exactly the product of a different firm. 
C)  an externality that is considered to be an explicit cost of business in monopolistically competitive markets. 
D)  the negative externality associated with entry of new firms in a monopolistically competitive market.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Both monopolistic competition and oligopoly are market structures

Accepted Answer

A)  that fail to achieve the total surplus achieved by perfect competition. 
B)  that feature only a few firms in each market. 
C)  to which the concept of Nash equilibrium is frequently applied by economists. 
D)  in which firms earn zero economic profit in the long run.

Question 16

Figure 16-8
The figure is drawn for a monopolistically-competitive firm.
 
-Refer to Figure 16-8.For this firm,the long-run equilibrium quantity of output is

Accepted Answer

A)  100 and the long-run equilibrium price is $90. 
B)  100 and the long-run equilibrium price is $140. 
C)  133.33 and the long-run equilibrium price is $56.67. 
D)  133.33 and the long-run equilibrium price is $123.33.

Question 17

Some firms have an incentive to advertise because they sell a

Accepted Answer

A)  homogeneous product and charge a price equal to marginal cost. 
B)  homogeneous product and charge a price above marginal cost. 
C)  differentiated product and charge a price equal to marginal cost. 
D)  differentiated product and charge a price above marginal cost.

Question 18

The market for novels is

Accepted Answer

A)  perfectly competitive. 
B)  a monopoly. 
C)  monopolistically competitive. 
D)  an oligopoly.

Question 19

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

Question 20

In monopolistically competitive markets,economic losses

Accepted Answer

A)  suggest that some existing firms will exit the market. 
B)  suggest that new firms will enter the market. 
C)  are minimized through government-imposed barriers to entry. 
D)  are never possible.

Exam 16: Monopolistic Competition.

Which of the following statements is not correct?

The product-variety externality arises in monopolistically competitive markets because

Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its

Because a monopolistically competitive firm has some market power,in the long-run the price of its product exceeds its

Figure 16-2 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-2.What is the profit-maximizing price,quantity,and resulting profit?

As new firms enter a monopolistically competitive market,profits of existing firms

In a long-run equilibrium,a firm in a monopolistically competitive market operates

The government may not be able to improve the inefficiencies of a monopolistically competitive market.

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy.Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.

Table 16-4 This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm. -Refer to Table 16-4.At the profit maximizing level of output,what is this firm's total cost?

In a monopolistically competitive market,

Which market structure would likely have the highest concentration ratio?

A business-stealing externality is

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

Both monopolistic competition and oligopoly are market structures

Figure 16-8 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-8.For this firm,the long-run equilibrium quantity of output is

Some firms have an incentive to advertise because they sell a

The market for novels 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?

In monopolistically competitive markets,economic losses