Question 1

Which of the following is NOT a characteristic of long-run equilibrium in monopolistic competition?

Accepted Answer

A)  Price exceeds marginal revenue. 
B)  The firm makes zero economic profit. 
C)  Production occurs at minimum average total cost. 
D)  Price is equal to average total cost. 
E)  Marginal revenue is equal to marginal cost. 
A)  Price exceeds marginal revenue. 
B)  The firm makes zero economic profit. 
C)  Production occurs at minimum average total cost. 
D)  Price is equal to average total cost. 
E)  Marginal revenue is equal to marginal cost. C

Question 2

Advertising is a ________ cost that is incurred by ________.

Accepted Answer

A)  fixed; perfectly competitive firms 
B)  marginal; monopolistically competitive firms 
C)  fixed; monopolistically competitive firms 
D)  variable; monopolies 
E)  variable; perfectly competitive firms 
A)  fixed; perfectly competitive firms 
B)  marginal; monopolistically competitive firms 
C)  fixed; monopolistically competitive firms 
D)  variable; monopolies 
E)  variable; perfectly competitive firms C

Question 3

In the long run, a firm in monopolistic competition will produce

Accepted Answer

A)  zero output. 
B)  where average total cost is minimised. 
C)  where price equals marginal cost. 
D)  any possible amount of output. 
E)  where price equals average total cost, but average total cost is not at its minimum. 
A)  zero output. 
B)  where average total cost is minimised. 
C)  where price equals marginal cost. 
D)  any possible amount of output. 
E)  where price equals average total cost, but average total cost is not at its minimum. E

Question 4

A firm is spending the profit-maximising amount on product development when

Accepted Answer

A)  the advertising costs are covered. 
B)  people perceive the firm's product to be better than those of its competitors. 
C)  the price of the good is higher than its marginal cost. 
D)  the firm's total revenue exceeds its total costs. 
E)  the marginal cost of product development is equal to the marginal revenue from product development. 
A)  the advertising costs are covered. 
B)  people perceive the firm's product to be better than those of its competitors. 
C)  the price of the good is higher than its marginal cost. 
D)  the firm's total revenue exceeds its total costs. 
E)  the marginal cost of product development is equal to the marginal revenue from product development.

Question 5

-Kevin owns a personal training gymnasium in Adelaide. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. What price will Kevin charge per session?

Accepted Answer

A)  $40 
B)  $100 
C)  $60 
D)  $80 
E)  $20 
A)  $40 
B)  $100 
C)  $60 
D)  $80 
E)  $20

Question 6

If a firm is maximising its profit and producing less than the output at which its average total cost is minimised, then that firm

Accepted Answer

A)  must be earning an economic profit. 
B)  has excess capacity. 
C)  must be earning a normal profit. 
D)  must be suffering an economic loss. 
E)  is producing at its capacity output. 
A)  must be earning an economic profit. 
B)  has excess capacity. 
C)  must be earning a normal profit. 
D)  must be suffering an economic loss. 
E)  is producing at its capacity output.

Question 7

When weighing the efficiency of monopolistic competition, which of the following should be considered? i. The information provided by advertising.
Ii) Product variety.
Iii) The extra cost of excess capacity.

Accepted Answer

A)  i, ii and iii 
B)  ii only 
C)  ii and iii 
D)  i and iii 
E)  iii only 
A)  i, ii and iii 
B)  ii only 
C)  ii and iii 
D)  i and iii 
E)  iii only

Question 8

In monopolistic competition, profit is maximised by producing so that marginal revenue

Accepted Answer

A)  is negative. 
B)  equals marginal cost and which are less than price. 
C)  equals marginal cost and equals price. 
D)  equals average total cost but not marginal cost. 
E)  equals price. 
A)  is negative. 
B)  equals marginal cost and which are less than price. 
C)  equals marginal cost and equals price. 
D)  equals average total cost but not marginal cost. 
E)  equals price.

Question 9

Product differentiation involves making a product that is

Accepted Answer

A)  completely different from the products of competing firms. 
B)  slightly different from the products of competing firms. 
C)  cheaper than the products of competing firms. 
D)  very different from the products of competing firms. 
E)  no different to the products of competing firms. 
A)  completely different from the products of competing firms. 
B)  slightly different from the products of competing firms. 
C)  cheaper than the products of competing firms. 
D)  very different from the products of competing firms. 
E)  no different to the products of competing firms.

Question 10

In the long run, a firm in monopolistic competition ________ excess capacity and a firm in perfect competition ________ excess capacity.

Accepted Answer

A)  has; does not have 
B)  does not have; does not have 
C)  has; has 
D)  does not have; has 
E)  might have; might have 
A)  has; does not have 
B)  does not have; does not have 
C)  has; has 
D)  does not have; has 
E)  might have; might have

Question 11

In monopolistic competition, each firm supplies a small part of the market. This occurs because

Accepted Answer

A)  firms produce differentiated products. 
B)  there are barriers to entry. 
C)  there are a large number of buyers. 
D)  there are a large number of firms. 
E)  there are no barriers to exit. 
A)  firms produce differentiated products. 
B)  there are barriers to entry. 
C)  there are a large number of buyers. 
D)  there are a large number of firms. 
E)  there are no barriers to exit.

Question 12

Which of the following statements about a firm in long-run equilibrium is true?

Accepted Answer

A) P = MC for firms in both monopolistic competition and perfect competition. B) MR > P for a firm in monopolistic competition, and P = ATC for a firm in perfect competition. C) P > MC for a firm in monopolistic competition, and P = ATC for a firm in perfect competition. D) P = MC for a firm in perfect competition, and P < ATC for a firm in monopolistic competition. E) Both answers A and B are correct. A) P = MC for firms in both monopolistic competition and perfect competition. B) MR > P for a firm in monopolistic competition, and P = ATC for a firm in perfect competition. C) P > MC for a firm in monopolistic competition, and P = ATC for a firm in perfect competition. D) P = MC for a firm in perfect competition, and P < ATC for a firm in monopolistic competition. E) Both answers A and B are correct.

Question 13

In an industry with a large number of firms,

Accepted Answer

A)  competition is eliminated. 
B)  one firm will dominate the market. 
C)  collusion is impossible. 
D)  barriers to exit must exist. 
E)  each firm will produce a large quantity, relative to market demand. 
A)  competition is eliminated. 
B)  one firm will dominate the market. 
C)  collusion is impossible. 
D)  barriers to exit must exist. 
E)  each firm will produce a large quantity, relative to market demand.

Question 14

Firms in monopolistic competition compete on i. quality.
Ii) price.
Iii) marketing.

Accepted Answer

A)  i and ii 
B)  ii only 
C)  i and iii 
D)  i, ii and iii 
E)  ii and iii 
A)  i and ii 
B)  ii only 
C)  i and iii 
D)  i, ii and iii 
E)  ii and iii

Question 15

The marginal revenue curve facing a monopolistically competitive firm

Accepted Answer

A)  is equal to its price curve. 
B)  lies on its demand curve. 
C)  lies below its demand curve. 
D)  lies above its demand curve. 
E)  is parallel to its demand curve. 
A)  is equal to its price curve. 
B)  lies on its demand curve. 
C)  lies below its demand curve. 
D)  lies above its demand curve. 
E)  is parallel to its demand curve.

Question 16

The efficiency of monopolistic competition

Accepted Answer

A)  is as clear-cut as the efficiency of perfect competition. 
B)  comes from its excess capacity. 
C)  is equal to that of monopoly. 
D)  depends on whether the gain from extra product variety offsets the selling costs and the extra cost that arises from excess capacity. 
E)  is eliminated in the long run. 
A)  is as clear-cut as the efficiency of perfect competition. 
B)  comes from its excess capacity. 
C)  is equal to that of monopoly. 
D)  depends on whether the gain from extra product variety offsets the selling costs and the extra cost that arises from excess capacity. 
E)  is eliminated in the long run.

Question 17

Firms in monopolistic competition have demand curves that are

Accepted Answer

A)  vertical. 
B)  U-shaped. 
C)  downward sloping. 
D)  horizontal. 
E)  upward sloping. 
A)  vertical. 
B)  U-shaped. 
C)  downward sloping. 
D)  horizontal. 
E)  upward sloping.

Question 18

A differentiated product has

Accepted Answer

A)  many different complements. 
B)  no close substitutes. 
C)  no substitutes of any kind. 
D)  many perfect substitutes. 
E)  close but not perfect substitutes. 
A)  many different complements. 
B)  no close substitutes. 
C)  no substitutes of any kind. 
D)  many perfect substitutes. 
E)  close but not perfect substitutes.

Question 19

For a firm in monopolistic competition, selling costs

Accepted Answer

A)  have no effect on the quantity sold. 
B)  can lower total cost. 
C)  always increase demand. 
D)  can change the quantity produced and lower the average total cost. 
E)  increase costs and reduce profits. 
A)  have no effect on the quantity sold. 
B)  can lower total cost. 
C)  always increase demand. 
D)  can change the quantity produced and lower the average total cost. 
E)  increase costs and reduce profits.

Question 20

A market in which the Herfindahl-Hirschman Index exceeds 1,800 is considered to be

Accepted Answer

A)  not competitive. 
B)  competitive. 
C)  moderately competitive. 
D)  purely competitive. 
E)  either a monopoly or monopolistic competition. 
A)  not competitive. 
B)  competitive. 
C)  moderately competitive. 
D)  purely competitive. 
E)  either a monopoly or monopolistic competition.

Which of the following is NOT a characteristic of long-run equilibrium in monopolistic competition?

Advertising is a cost that is incurred by .

In the long run, a firm in monopolistic competition will produce

A firm is spending the profit-maximising amount on product development when

-Kevin owns a personal training gymnasium in Adelaide. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. What price will Kevin charge per session?

If a firm is maximising its profit and producing less than the output at which its average total cost is minimised, then that firm

When weighing the efficiency of monopolistic competition, which of the following should be considered? i. The information provided by advertising. Ii) Product variety. Iii) The extra cost of excess capacity.

In monopolistic competition, profit is maximised by producing so that marginal revenue

Product differentiation involves making a product that is

In the long run, a firm in monopolistic competition excess capacity and a firm in perfect competition excess capacity.

In monopolistic competition, each firm supplies a small part of the market. This occurs because

Which of the following statements about a firm in long-run equilibrium is true?

In an industry with a large number of firms,

Firms in monopolistic competition compete on i. quality. Ii) price. Iii) marketing.

The marginal revenue curve facing a monopolistically competitive firm

The efficiency of monopolistic competition

Firms in monopolistic competition have demand curves that are

A differentiated product has

For a firm in monopolistic competition, selling costs

A market in which the Herfindahl-Hirschman Index exceeds 1,800 is considered to be

Getting Started

The Australian and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Taxes

Global Markets in Action

Externalities

Public Goods and Common Resources

Consumer Choice and Demand

Production and Cost

Perfect Competition

Monopoly

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

Exam 16: Monopolistic Competition

Which of the following is NOT a characteristic of long-run equilibrium in monopolistic competition?

Advertising is a ________ cost that is incurred by ________.

In the long run, a firm in monopolistic competition will produce

A firm is spending the profit-maximising amount on product development when

-Kevin owns a personal training gymnasium in Adelaide. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. What price will Kevin charge per session?

If a firm is maximising its profit and producing less than the output at which its average total cost is minimised, then that firm

When weighing the efficiency of monopolistic competition, which of the following should be considered? i. The information provided by advertising. Ii) Product variety. Iii) The extra cost of excess capacity.

In monopolistic competition, profit is maximised by producing so that marginal revenue

Product differentiation involves making a product that is

In the long run, a firm in monopolistic competition ________ excess capacity and a firm in perfect competition ________ excess capacity.

In monopolistic competition, each firm supplies a small part of the market. This occurs because

Which of the following statements about a firm in long-run equilibrium is true?

In an industry with a large number of firms,

Firms in monopolistic competition compete on i. quality. Ii) price. Iii) marketing.

The marginal revenue curve facing a monopolistically competitive firm

The efficiency of monopolistic competition

Firms in monopolistic competition have demand curves that are

A differentiated product has

For a firm in monopolistic competition, selling costs

A market in which the Herfindahl-Hirschman Index exceeds 1,800 is considered to be

Getting Started

The Australian and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Taxes

Global Markets in Action

Externalities

Public Goods and Common Resources

Consumer Choice and Demand

Production and Cost

Perfect Competition

Monopoly

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

Advertising is a cost that is incurred by .

In the long run, a firm in monopolistic competition excess capacity and a firm in perfect competition excess capacity.