Question 1

A monopolistically competitive firm has excess capacity in the long run.This means that it:

Accepted Answer

A) produces less than the output at which average total costs are minimized. 
B) produces less than the output at which price and marginal cost are equal. 
C) could produce more by moving to a larger plant. 
D) doesn't maximize profits. 
A) produces less than the output at which average total costs are minimized. 
B) produces less than the output at which price and marginal cost are equal. 
C) could produce more by moving to a larger plant. 
D) doesn't maximize profits. A

Question 2

When a monopolistically competitive firm is making zero economic profits, it is producing at the output level at which the average total cost curve is tangent to the demand curve faced by the firm.At this output:

Accepted Answer

A) the firm is maximizing profits, and marginal cost must equal marginal revenue. 
B) the firm is not maximizing profits, and a slight increase or decrease in output will lead to positive profits. 
C) since economic profits are equal to zero, the condition that marginal revenue equals marginal cost is irrelevant and need not hold. 
D) the condition that marginal revenue equals marginal cost continues to be relevant, but the marginal revenue and marginal cost curves need not intersect directly below the point of tangency between the average total cost curve and the demand curve faced by the firm. 
A) the firm is maximizing profits, and marginal cost must equal marginal revenue. 
B) the firm is not maximizing profits, and a slight increase or decrease in output will lead to positive profits. 
C) since economic profits are equal to zero, the condition that marginal revenue equals marginal cost is irrelevant and need not hold. 
D) the condition that marginal revenue equals marginal cost continues to be relevant, but the marginal revenue and marginal cost curves need not intersect directly below the point of tangency between the average total cost curve and the demand curve faced by the firm. A

Question 3

Figure: Monopolistic Competition II     (Figure: Monopolistic Competition II) Which of the panels in the figure Monopolistic Competition II shows a monopolistic competitor earning a profit in the short run?

Accepted Answer

A) panel a 
B) panel b 
C) panel c 
D) panels a and c 
A) panel a 
B) panel b 
C) panel c 
D) panels a and c A

Question 4

(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs.If the industry were perfect competition, the profit-maximizing output would be cases.

Accepted Answer

A) 6 
B) 0 
C) between 6 and 7 cases 
D) between 7 and 8 cases 
A) 6 
B) 0 
C) between 6 and 7 cases 
D) between 7 and 8 cases

Question 5

Why are some consumers willing to pay more for a bottle of Advil than they are willing to pay for a bottle of ibuprofen tablets, when ibuprofen is the pain-relieving ingredient found in Advil?

Accepted Answer

Advil is a successful brand name that se

Question 6

Figure: The Restaurant Market     (Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant in a community.Assume that many firms, differentiated products, and easy entry and easy exit characterize the restaurant market.The restaurant shown here will maximize profits at quantity:

Accepted Answer

A) Q₁. 
B) Q₂. 
C) Q₃. 
D) Not enough information is given to answer the question. 
A) Q₁. 
B) Q₂. 
C) Q₃. 
D) Not enough information is given to answer the question.

Question 7

The restaurant industry is characterized by excess capacity.This means that:

Accepted Answer

A) restaurants are producing more than their profit-maximizing level. 
B) the profit-maximizing level is less than the level that minimizes average total costs. 
C) the restaurants are producing less than their profit-maximizing level. 
D) the quantity of restaurant meals supplied exceeds the quantity of restaurant meals demanded. 
A) restaurants are producing more than their profit-maximizing level. 
B) the profit-maximizing level is less than the level that minimizes average total costs. 
C) the restaurants are producing less than their profit-maximizing level. 
D) the quantity of restaurant meals supplied exceeds the quantity of restaurant meals demanded.

Question 8

If a firm operating in monopolistic competition is producing a quantity at which MC < MR, then profit can be ________ by _.

Accepted Answer

A) increased; decreasing production 
B) increased; increasing production 
C) increased; increasing the price 
D) maximized; decreasing production 
A) increased; decreasing production 
B) increased; increasing production 
C) increased; increasing the price 
D) maximized; decreasing production

Question 9

The _________ demand curve for a firm operating in a monopolistically competitive market _.

Accepted Answer

A) downward-sloping; is the same as the demand curve facing a perfectly competitive firm. 
B) downward-sloping; differs from the horizontal demand curve facing a perfectly competitive firm. 
C) horizontal; differs from the downward-sloping demand curve facing a perfectly competitive firm. 
D) horizontal; is the same as the demand curve facing a perfectly competitive firm. 
A) downward-sloping; is the same as the demand curve facing a perfectly competitive firm. 
B) downward-sloping; differs from the horizontal demand curve facing a perfectly competitive firm. 
C) horizontal; differs from the downward-sloping demand curve facing a perfectly competitive firm. 
D) horizontal; is the same as the demand curve facing a perfectly competitive firm.

Question 10

A gas station operates in a monopolistically competitive market and is in short-run equilibrium.Suppose that a fixed cost for this firm decreases.As a result, the firm's price will ________, the firm's output will , and the firm's economic profit will ________.

Accepted Answer

A) increase; increase; 
B) increase increase; increase; decrease 
C) stay the same; stay the same; increase 
D) decrease; stay the same; increase 
A) increase; increase; 
B) increase increase; increase; decrease 
C) stay the same; stay the same; increase 
D) decrease; stay the same; increase

Question 11

Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price will be:

Accepted Answer

A) equal to marginal revenue. 
B) less than marginal revenue. 
C) greater than marginal revenue. 
D) equal to total revenue. 
A) equal to marginal revenue. 
B) less than marginal revenue. 
C) greater than marginal revenue. 
D) equal to total revenue.

Question 12

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits.Which of the following describes how this firm will adjust in the long run?

Accepted Answer

A) The entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output and the price the firm can charge until price equals average total cost. 
B) The entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output and increasing the price the firm can charge until price equals average total cost. 
C) The entry of new firms shifts the firm's marginal cost and average cost curves downward, decreasing the firm's level of output and the price the firm can charge until price equals average total cost. 
D) The exit of firms shifts the firm's demand and marginal revenue curves rightward, increasing the firm's level of output and the price the firm can charge until price equals average total cost. 
A) The entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output and the price the firm can charge until price equals average total cost. 
B) The entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output and increasing the price the firm can charge until price equals average total cost. 
C) The entry of new firms shifts the firm's marginal cost and average cost curves downward, decreasing the firm's level of output and the price the firm can charge until price equals average total cost. 
D) The exit of firms shifts the firm's demand and marginal revenue curves rightward, increasing the firm's level of output and the price the firm can charge until price equals average total cost.

Question 13

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of coffee.For these customers, cups of coffee are differentiated by:

Accepted Answer

A) style. 
B) location. 
C) quality. 
D) type. 
A) style. 
B) location. 
C) quality. 
D) type.

Question 14

Which of the following is true?

Accepted Answer

A) Monopolistic competition and perfect competition are both inefficient. 
B) Monopolistic competition is efficient because of product differentiation. 
C) The inefficiency of monopolistic competition may be a small price to pay for the wide range of product choices it offers. 
D) The inefficiency of monopolistic competition is a result of advertising expenses. 
A) Monopolistic competition and perfect competition are both inefficient. 
B) Monopolistic competition is efficient because of product differentiation. 
C) The inefficiency of monopolistic competition may be a small price to pay for the wide range of product choices it offers. 
D) The inefficiency of monopolistic competition is a result of advertising expenses.

Question 15

Scenario: Monopolistically Competitive Firm A monopolistically competitive firm's demand for its product is equal to Q = 160 - P, and its MC curve is equal to MC = 20 + 2Q.Its TC curve is as follows: TC = 20Q + Q₂ + 20.
(Scenario: Monopolistically Competitive Firm) Given the information in the scenario Monopolistically Competitive Firm, what is the profit-maximizing price for this firm?

Accepted Answer

A) $160 
B) $125 
C) $40 
D) $180 
A) $160 
B) $125 
C) $40 
D) $180

Question 16

A monopolistically competitive firm is limited in the price it can set by the competition it faces from other existing and potential firms that produce close substitutes.False

Accepted Answer

A) True 
 B)False

Question 17

Figure: Monopolistic Competition IV     (Figure: Monopolistic Competition IV) The monopolistic competitor in the figure Monopolistic Competition IV is producing at the output level that maximizes profits (minimizes losses).The shaded rectangle depicts the level of:

Accepted Answer

A) profit. 
B) loss. 
C) fixed cost. 
D) variable cost. 
A) profit. 
B) loss. 
C) fixed cost. 
D) variable cost.

Question 18

Monopolistic competition describes an industry characterized by a ________ number of firms producing products with for firms.

Accepted Answer

A) small; identical; barriers to entry 
B) small; similar; relatively easy entry . 
C) large; similar; relatively easy entry . 
D) large; identical; relatively easy entry 
A) small; identical; barriers to entry 
B) small; similar; relatively easy entry . 
C) large; similar; relatively easy entry . 
D) large; identical; relatively easy entry

Question 19

Monopolistically competitive firms:

Accepted Answer

A) engage in collusive activity in order to maximize profit. 
B) are very similar to perfect competitors in producing at the minimum ATC. 
C) earn a positive economic profit if price is greater than ATC. 
D) will set price where MC > MR. 
A) engage in collusive activity in order to maximize profit. 
B) are very similar to perfect competitors in producing at the minimum ATC. 
C) earn a positive economic profit if price is greater than ATC. 
D) will set price where MC > MR.

Question 20

General Snacks is a typical firm in a market characterized by the model of monopolistic competition.If the market is in long-run equilibrium, then the price General Snacks charges for its snack goods would:

Accepted Answer

A) equal average total cost. 
B) exceed average total cost. 
C) be less than average total cost. 
D) be greater than the average for all other firms in the market. 
A) equal average total cost. 
B) exceed average total cost. 
C) be less than average total cost. 
D) be greater than the average for all other firms in the market.

A monopolistically competitive firm has excess capacity in the long run.This means that it:

When a monopolistically competitive firm is making zero economic profits, it is producing at the output level at which the average total cost curve is tangent to the demand curve faced by the firm.At this output:

Figure: Monopolistic Competition II (Figure: Monopolistic Competition II) Which of the panels in the figure Monopolistic Competition II shows a monopolistic competitor earning a profit in the short run?

(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs.If the industry were perfect competition, the profit-maximizing output would be cases.

Why are some consumers willing to pay more for a bottle of Advil than they are willing to pay for a bottle of ibuprofen tablets, when ibuprofen is the pain-relieving ingredient found in Advil?

The restaurant industry is characterized by excess capacity.This means that:

If a firm operating in monopolistic competition is producing a quantity at which MC < MR, then profit can be ________ by _.

The _________ demand curve for a firm operating in a monopolistically competitive market _.

A gas station operates in a monopolistically competitive market and is in short-run equilibrium.Suppose that a fixed cost for this firm decreases.As a result, the firm's price will , the firm's output will , and the firm's economic profit will .

Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price will be:

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits.Which of the following describes how this firm will adjust in the long run?

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of coffee.For these customers, cups of coffee are differentiated by:

Which of the following is true?

A monopolistically competitive firm is limited in the price it can set by the competition it faces from other existing and potential firms that produce close substitutes.False

Figure: Monopolistic Competition IV (Figure: Monopolistic Competition IV) The monopolistic competitor in the figure Monopolistic Competition IV is producing at the output level that maximizes profits (minimizes losses).The shaded rectangle depicts the level of:

Monopolistic competition describes an industry characterized by a ________ number of firms producing products with for firms.

Monopolistically competitive firms:

General Snacks is a typical firm in a market characterized by the model of monopolistic competition.If the market is in long-run equilibrium, then the price General Snacks charges for its snack goods would:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals and Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 15: Monopolistic Competition and Product Differentiation

A monopolistically competitive firm has excess capacity in the long run.This means that it:

When a monopolistically competitive firm is making zero economic profits, it is producing at the output level at which the average total cost curve is tangent to the demand curve faced by the firm.At this output:

Figure: Monopolistic Competition II (Figure: Monopolistic Competition II) Which of the panels in the figure Monopolistic Competition II shows a monopolistic competitor earning a profit in the short run?

(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs.If the industry were perfect competition, the profit-maximizing output would be cases.

Why are some consumers willing to pay more for a bottle of Advil than they are willing to pay for a bottle of ibuprofen tablets, when ibuprofen is the pain-relieving ingredient found in Advil?

The restaurant industry is characterized by excess capacity.This means that:

If a firm operating in monopolistic competition is producing a quantity at which MC < MR, then profit can be ________ by _.

The _________ demand curve for a firm operating in a monopolistically competitive market _.

A gas station operates in a monopolistically competitive market and is in short-run equilibrium.Suppose that a fixed cost for this firm decreases.As a result, the firm's price will ________, the firm's output will , and the firm's economic profit will ________.

Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price will be:

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits.Which of the following describes how this firm will adjust in the long run?

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of coffee.For these customers, cups of coffee are differentiated by:

Which of the following is true?

A monopolistically competitive firm is limited in the price it can set by the competition it faces from other existing and potential firms that produce close substitutes.False

Figure: Monopolistic Competition IV (Figure: Monopolistic Competition IV) The monopolistic competitor in the figure Monopolistic Competition IV is producing at the output level that maximizes profits (minimizes losses).The shaded rectangle depicts the level of:

Monopolistic competition describes an industry characterized by a ________ number of firms producing products with for firms.

Monopolistically competitive firms:

General Snacks is a typical firm in a market characterized by the model of monopolistic competition.If the market is in long-run equilibrium, then the price General Snacks charges for its snack goods would:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals and Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

A gas station operates in a monopolistically competitive market and is in short-run equilibrium.Suppose that a fixed cost for this firm decreases.As a result, the firm's price will , the firm's output will , and the firm's economic profit will .