Question 1

If the demand curve for a firm is downward-sloping, its marginal revenue curve

Accepted Answer

A)  will lie above the demand curve. 
B)  will lie below the demand curve. 
C)  is the same as the demand curve. 
D)  is horizontal. 
A)  will lie above the demand curve. 
B)  will lie below the demand curve. 
C)  is the same as the demand curve. 
D)  is horizontal.

Question 2

In the long run, if price is less than average cost

Accepted Answer

A)  there is an incentive for firms to exit the market. 
B)  there is profit incentive for firms to enter the market. 
C)  the market must be in long-run equilibrium. 
D)  there is no incentive for the number of firms in the market to change. 
A)  there is an incentive for firms to exit the market. 
B)  there is profit incentive for firms to enter the market. 
C)  the market must be in long-run equilibrium. 
D)  there is no incentive for the number of firms in the market to change.

Question 3

If a monopolistically competitive firm is producing 50 units of output where marginal cost equals marginal revenue, total cost is $1,674 and total revenue is $2,000, its average profit is

Accepted Answer

A)  $326. 
B)  $40. 
C)  $6.52. 
D)  impossible to determine without additional information. 
A)  $326. 
B)  $40. 
C)  $6.52. 
D)  impossible to determine without additional information.

Question 4

Table 13-2
   Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.
-Refer to Table 13-2. What is the output (Q) that maximizes profit and what is the price (P) charged?

Accepted Answer

A)  P = $55; Q = 5 cases 
B)  P = $50; Q = 6 cases 
C)  P = $45; Q = 7 cases 
D)  P = $40; Q = 8 cases 
A)  P = $55; Q = 5 cases 
B)  P = $50; Q = 6 cases 
C)  P = $45; Q = 7 cases 
D)  P = $40; Q = 8 cases

Question 5

Which of the following is not a characteristic of monopolistic competition?

Accepted Answer

A)  Firms are price takers. 
B)  There are many buyers and sellers. 
C)  Barriers to entry are low. 
D)  Firms sell similar, but not identical, products. 
A)  Firms are price takers. 
B)  There are many buyers and sellers. 
C)  Barriers to entry are low. 
D)  Firms sell similar, but not identical, products.

Question 6

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market, but by separate curves for a firm in a monopolistically competitive market?

Accepted Answer

A perfectly competitive firm faces a hor

Question 7

A monopolistically competitive firm can increase its profits beyond the long-run equilibrium break-even level by deliberately lowering its price to force some of its competitors out of the market.

Accepted Answer

A) True 
 B)False

Question 8

Central Grocery in New Orleans is famous for its muffaletta, a large round sandwich filled with deli meats and topped with a tangy olive salad. Suppose the following table represents cost and revenue data for Central Grocery. Fill in the columns for TR, MR, MC, ATC, and profit. If Central Grocery wants to maximize profits, what price should it charge for a muffaletta, what quantity should it sell, and what will be the amount of its total profit?

Accepted Answer

@#IMG-DLM& To maximize profits, Central

Question 9

Figure 13-8   Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 13-8. Based on the diagram, one can conclude that

Accepted Answer

A)  some existing firms will exit the market. 
B)  new firms will enter the market. 
C)  the industry is in long-run equilibrium. 
D)  firms achieve productive efficiency. 
A)  some existing firms will exit the market. 
B)  new firms will enter the market. 
C)  the industry is in long-run equilibrium. 
D)  firms achieve productive efficiency.

Question 10

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?

Accepted Answer

A)  The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies above its demand curve. 
B)  The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies below its demand curve. 
C)  The monopolistically competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a perfectly competitive firm lies below its demand curve. 
D)  The marginal revenue curve of a monopolistically competitive firm lies below its demand curve; the marginal revenue curve of a perfectly competitive firm lies above its demand curve. 
A)  The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies above its demand curve. 
B)  The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies below its demand curve. 
C)  The monopolistically competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a perfectly competitive firm lies below its demand curve. 
D)  The marginal revenue curve of a monopolistically competitive firm lies below its demand curve; the marginal revenue curve of a perfectly competitive firm lies above its demand curve.

Question 11

When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Accepted Answer

A) True 
 B)False

Question 12

Figure 13-13  
-Refer to Figure 13-13. What is the output price?

Accepted Answer

A)  P4 
B)  P3 
C)  P2 
D)  P1 
A)  P4 
B)  P3 
C)  P2 
D)  P1

Question 13

Figure 13-11  
-Why do most firms in monopolistic competition typically make zero profit in the long run?

Accepted Answer

A)  because firms produce differentiated products 
B)  because the lack of entry barriers would compete away profits 
C)  because firms do not produce at their minimum efficient scale 
D)  because the total market is not large enough to accommodate so many firms 
A)  because firms produce differentiated products 
B)  because the lack of entry barriers would compete away profits 
C)  because firms do not produce at their minimum efficient scale 
D)  because the total market is not large enough to accommodate so many firms

Question 14

Which of the following is a disadvantage of trademarking a firm's product?

Accepted Answer

A)  A trademark differentiates a firm's product. 
B)  A trademark conveys information about the product to the public. 
C)  A trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name. 
D)  A trademark does not affect demand for the firm's product. 
A)  A trademark differentiates a firm's product. 
B)  A trademark conveys information about the product to the public. 
C)  A trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name. 
D)  A trademark does not affect demand for the firm's product.

Question 15

What effect does the entry of new firms in a monopolistically competitive market have on the economic profits of existing firms in the market? How might existing firms attempt to counteract this effect?

Accepted Answer

New firms entering an industry cause the

Question 16

Compared to a perfectly competitive firm, the demand curve facing a monopolistically competitive firm is

Accepted Answer

A)  more elastic because there are many close substitutes for the product of a monopolistically competitive firm. 
B)  less elastic because monopolistically competitive firms produce similar, but not identical, products. 
C)  just as elastic because there are many sellers in both markets. 
D)  more elastic because in the long run, the demand curve is tangent to the firm's average total cost curve. 
A)  more elastic because there are many close substitutes for the product of a monopolistically competitive firm. 
B)  less elastic because monopolistically competitive firms produce similar, but not identical, products. 
C)  just as elastic because there are many sellers in both markets. 
D)  more elastic because in the long run, the demand curve is tangent to the firm's average total cost curve.

Question 17

Central Grocery in New Orleans is famous for its muffaletta, a large round sandwich filled with deli meats and topped with a tangy olive salad. Suppose the following table represents cost and revenue data for Central Grocery.
   Illustrate this data by graphing the demand, MR, MC, and ATC curves. Identify the profit-maximizing price and quantity, and show the area representing the total profit received by Central Grocery.

Accepted Answer

The answer of Central Grocery in New Orleans is famous...

Question 18

Suppose Jason owns a small pastry shop. Jason wants to maximize his profit, and thinking back to the microeconomics class he took in college, he decides he needs to produce a quantity of pastries which will minimize his average total cost. Will Jason's strategy necessarily maximize profits for his pastry shop?

Accepted Answer

A)  Yes; Since Jason's pastry shop is in a perfectly competitive market, the only way to maximize profit is to produce the quantity where average total cost is minimized. 
B)  Not necessarily; This strategy will only maximize Jason's profit in the long run, but not in the short run. 
C)  No; In order to maximize profit, Jason would never want to produce the quantity where average total cost is minimized. 
D)  Not necessarily; Depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum. 
A)  Yes; Since Jason's pastry shop is in a perfectly competitive market, the only way to maximize profit is to produce the quantity where average total cost is minimized. 
B)  Not necessarily; This strategy will only maximize Jason's profit in the long run, but not in the short run. 
C)  No; In order to maximize profit, Jason would never want to produce the quantity where average total cost is minimized. 
D)  Not necessarily; Depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.

Question 19

Figure 13-16  
-Refer to Figure 13-16. Figure 13-16 depicts a monopolistically competitive barber shop. Use the diagram to answer the following questions.
a. Suppose the average variable cost of production is $15 when output equals 110 haircuts and $15.25 when output equals 140 haircuts. If the firm wants to maximize its profit or minimize its losses, how many haircuts will it produce and what price should it charge? Explain your answer.
b. Calculate the firm's profit or loss.
c. What is likely to happen in this industry over time as it moves to its new long-run equilibrium?
d. Suppose the barber shop depicted in the diagram remains in the industry. Is this barber shop likely to produce this same quantity of haircuts as in part (a) in the long run?

Accepted Answer

a. Output = 110, Price = $21 whereby MR

Question 20

Figure 13-18  
-Refer to Figure 13-18. Which of the following statements is true?

Accepted Answer

A)  Da represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the demand curve in the short run. 
B)  Da represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the long-run demand curve in an increasing-cost industry. 
C)  Da represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor. 
D)  Da represents the long-run supply curve in a perfectly competitive, constant-cost industry while Db depicts the long-run demand curve facing a monopolistic competitor in a decreasing-cost industry. 
A)  Da represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the demand curve in the short run. 
B)  Da represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the long-run demand curve in an increasing-cost industry. 
C)  Da represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor. 
D)  Da represents the long-run supply curve in a perfectly competitive, constant-cost industry while Db depicts the long-run demand curve facing a monopolistic competitor in a decreasing-cost industry.

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

If the demand curve for a firm is downward-sloping, its marginal revenue curve

In the long run, if price is less than average cost

If a monopolistically competitive firm is producing 50 units of output where marginal cost equals marginal revenue, total cost is $1,674 and total revenue is $2,000, its average profit is

Table 13-2 Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules. -Refer to Table 13-2. What is the output (Q) that maximizes profit and what is the price (P) charged?

Which of the following is not a characteristic of monopolistic competition?

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market, but by separate curves for a firm in a monopolistically competitive market?

A monopolistically competitive firm can increase its profits beyond the long-run equilibrium break-even level by deliberately lowering its price to force some of its competitors out of the market.

Figure 13-8 Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 13-8. Based on the diagram, one can conclude that

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?

When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Figure 13-13 -Refer to Figure 13-13. What is the output price?

Figure 13-11 -Why do most firms in monopolistic competition typically make zero profit in the long run?

Which of the following is a disadvantage of trademarking a firm's product?

What effect does the entry of new firms in a monopolistically competitive market have on the economic profits of existing firms in the market? How might existing firms attempt to counteract this effect?

Compared to a perfectly competitive firm, the demand curve facing a monopolistically competitive firm is

Figure 13-18 -Refer to Figure 13-18. Which of the following statements is true?

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

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