Question 1

Figure 13-11  
-Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing output?

Accepted Answer

A)  Q1 units 
B)  Q2 units 
C)  Q3 units 
D)  Q4 units 
A)  Q1 units 
B)  Q2 units 
C)  Q3 units 
D)  Q4 units

Question 2

What is the most important difference between perfectly competitive markets and monopolistically competitive markets?

Accepted Answer

In both perfectly competitive and monopo

Question 3

For a downward-sloping demand curve, the marginal revenue decreases as the quantity sold increases.

Accepted Answer

A) True 
 B)False

Question 4

A monopolistically competitive market is described as one in which there are

Accepted Answer

A)  a few firms producing an identical product. 
B)  a large number of firms selling similar, but not identical, products. 
C)  a few firms producing differentiated products. 
D)  one large firm and many small firms producing identical products. 
A)  a few firms producing an identical product. 
B)  a large number of firms selling similar, but not identical, products. 
C)  a few firms producing differentiated products. 
D)  one large firm and many small firms producing identical products.

Question 5

Explain the similarities and differences between the long-run equilibrium for a perfectly competitive firm and a monopolistically competitive firm. Illustrate your answer with a graph demonstrating the long-run equilibrium for the two types of firms.

Accepted Answer

@#IMG-DLM& Refer to the graph above. For both type

Question 6

Assume price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should

Accepted Answer

A)  continue to produce the same quantity. 
B)  increase output. 
C)  decrease output. 
D)  shut down. 
A)  continue to produce the same quantity. 
B)  increase output. 
C)  decrease output. 
D)  shut down.

Question 7

A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?

Accepted Answer

A)  The firm is protected by a first-mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs. 
B)  They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product. 
C)  Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products. 
D)  The firm's cost increases as it improves the product but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode although its market share remains secure. 
A)  The firm is protected by a first-mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs. 
B)  They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product. 
C)  Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products. 
D)  The firm's cost increases as it improves the product but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode although its market share remains secure.

Question 8

The key characteristics of a monopolistically competitive market structure include

Accepted Answer

A)  many small (relative to the total market) sellers acting independently. 
B)  all sellers sell a homogeneous product. 
C)  barriers to entry are strong. 
D)  sellers have no incentive to advertise their products. 
A)  many small (relative to the total market) sellers acting independently. 
B)  all sellers sell a homogeneous product. 
C)  barriers to entry are strong. 
D)  sellers have no incentive to advertise their products.

Question 9

Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?

Accepted Answer

A)  Selling price equals average total cost. 
B)  Production is at minimum average total cost. 
C)  Marginal revenue equals marginal cost. 
D)  Selling price is greater than marginal cost. 
A)  Selling price equals average total cost. 
B)  Production is at minimum average total cost. 
C)  Marginal revenue equals marginal cost. 
D)  Selling price is greater than marginal cost.

Question 10

Recent research has shown that the first firm to enter a market often does not have a long-term advantage over later entrants into the market. An example that has been used to illustrate this is

Accepted Answer

A)  McDonald's entry into the high-end coffee market. 
B)  Xerox, which became a generic term for making photocopies. 
C)  Abercrombie and Fitch, which was the first clothing company to market to young men. 
D)  the introduction of the first ballpoint pen in 1945. 
A)  McDonald's entry into the high-end coffee market. 
B)  Xerox, which became a generic term for making photocopies. 
C)  Abercrombie and Fitch, which was the first clothing company to market to young men. 
D)  the introduction of the first ballpoint pen in 1945.

Question 11

When a firm faces a downward-sloping demand curve, marginal revenue

Accepted Answer

A)  must exceed price because the price effect outweighs the output effect. 
B)  is less than price because a firm must lower its price to sell more. 
C)  equals price because the firm sells a standardized product. 
D)  must exceed price because the output effect outweighs the price effect. 
A)  must exceed price because the price effect outweighs the output effect. 
B)  is less than price because a firm must lower its price to sell more. 
C)  equals price because the firm sells a standardized product. 
D)  must exceed price because the output effect outweighs the price effect.

Question 12

A monopolistically competitive firm maximizes profit in the short run by producing where

Accepted Answer

A)  price is less than marginal cost. 
B)  price is less than marginal revenue. 
C)  price is less than average revenue. 
D)  price is greater than marginal cost. 
A)  price is less than marginal cost. 
B)  price is less than marginal revenue. 
C)  price is less than average revenue. 
D)  price is greater than marginal cost.

Question 13

If a monopolistically competitive firm has excess capacity

Accepted Answer

A)  it has exhausted all economies of scale. 
B)  it is producing beyond the minimum efficient scale. 
C)  it is experiencing diseconomies of scale. 
D)  it produces a level of output that places it on the negatively sloped portion of its average total cost curve. 
A)  it has exhausted all economies of scale. 
B)  it is producing beyond the minimum efficient scale. 
C)  it is experiencing diseconomies of scale. 
D)  it produces a level of output that places it on the negatively sloped portion of its average total cost curve.

Question 14

Suppose James and Katherine are successful in establishing a profitable market for their "ghost restaurants" in what is a monopolistically competitive industry. In the long run, James and Katherine will most likely find it ________ to remain profitable as they face ________ competition in the "ghost restaurant" market.

Accepted Answer

A)  harder; more 
B)  harder; less 
C)  easier; more 
D)  easier; less 
A)  harder; more 
B)  harder; less 
C)  easier; more 
D)  easier; less

Question 15

What is the profit-maximizing rule for a monopolistically competitive firm?

Accepted Answer

A)  to produce a quantity that maximizes market share 
B)  to produce a quantity that maximizes total revenue 
C)  to produce a quantity such that marginal revenue equals marginal cost 
D)  to produce a quantity such that price equals marginal cost 
A)  to produce a quantity that maximizes market share 
B)  to produce a quantity that maximizes total revenue 
C)  to produce a quantity such that marginal revenue equals marginal cost 
D)  to produce a quantity such that price equals marginal cost

Question 16

A monopolistically competitive firm faces a downward-sloping demand curve because

Accepted Answer

A)  it is able to control price and quantity demanded. 
B)  there are few substitutes for its product. 
C)  of product differentiation. 
D)  its market decisions are affected by the decisions of its rivals. 
A)  it is able to control price and quantity demanded. 
B)  there are few substitutes for its product. 
C)  of product differentiation. 
D)  its market decisions are affected by the decisions of its rivals.

Question 17

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

Accepted Answer

A)  The demand curve will shift to the left and became more elastic. 
B)  The demand curve will shift to the left and became less elastic. 
C)  The demand curve will shift to the right and became more elastic. 
D)  The demand curve will shift to the right and became less elastic. 
A)  The demand curve will shift to the left and became more elastic. 
B)  The demand curve will shift to the left and became less elastic. 
C)  The demand curve will shift to the right and became more elastic. 
D)  The demand curve will shift to the right and became less elastic.

Question 18

The ability to engage in product differentiation is one of the factors a manager or owner of a firm can control in order to create value for consumers.

Accepted Answer

A) True 
 B)False

Question 19

One way by which firms differentiate their products is to try to anticipate changes in consumer tastes and adapt their products to fit those changed tastes.

Accepted Answer

A) True 
 B)False

Question 20

Figure 13-14   Figure 13-14 illustrates a monopolistically competitive firm.
-Refer to Figure 13-14. It is possible to lower the average cost of production by expanding output beyond Q0 to Q1. Why wouldn't a firm expand its output to Q1?

Accepted Answer

A)  The firm wants to maximize accounting profit rather than economic profit. 
B)  The firm would suffer an economic loss at Q1 while it would break even at Q0. 
C)  The firm's marginal revenue would be negative at Q1. 
D)  Demand is not sufficient for consumers to buy Q1. 
A)  The firm wants to maximize accounting profit rather than economic profit. 
B)  The firm would suffer an economic loss at Q1 while it would break even at Q0. 
C)  The firm's marginal revenue would be negative at Q1. 
D)  Demand is not sufficient for consumers to buy Q1.

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

Figure 13-11 -Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing output?

What is the most important difference between perfectly competitive markets and monopolistically competitive markets?

For a downward-sloping demand curve, the marginal revenue decreases as the quantity sold increases.

A monopolistically competitive market is described as one in which there are

Explain the similarities and differences between the long-run equilibrium for a perfectly competitive firm and a monopolistically competitive firm. Illustrate your answer with a graph demonstrating the long-run equilibrium for the two types of firms.

Assume price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should

A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?

The key characteristics of a monopolistically competitive market structure include

Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?

Recent research has shown that the first firm to enter a market often does not have a long-term advantage over later entrants into the market. An example that has been used to illustrate this is

When a firm faces a downward-sloping demand curve, marginal revenue

A monopolistically competitive firm maximizes profit in the short run by producing where

If a monopolistically competitive firm has excess capacity

What is the profit-maximizing rule for a monopolistically competitive firm?

A monopolistically competitive firm faces a downward-sloping demand curve because

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

The ability to engage in product differentiation is one of the factors a manager or owner of a firm can control in order to create value for consumers.

One way by which firms differentiate their products is to try to anticipate changes in consumer tastes and adapt their products to fit those changed tastes.

Figure 13-14 Figure 13-14 illustrates a monopolistically competitive firm. -Refer to Figure 13-14. It is possible to lower the average cost of production by expanding output beyond Q0 to Q1. Why wouldn't a firm expand its output to Q1?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Figure 13-14 Figure 13-14 illustrates a monopolistically competitive firm. -Refer to Figure 13-14. It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁. Why wouldn't a firm expand its output to Q₁?