Question 1

Tacit collusion is NOT feasible in monopolistic competition because of the large number of competing firms.

Accepted Answer

A) True 
 B)False

Question 2

Because of the lack of substitutes, the market for newly developed brand-name prescription drugs is best considered to be:

Accepted Answer

A)  perfect competition. 
B)  monopolistic competition. 
C)  oligopoly. 
D)  monopoly. 
A)  perfect competition. 
B)  monopolistic competition. 
C)  oligopoly. 
D)  monopoly.

Question 3

If a firm operating in monopolistic competition is producing a quantity that generates MC = MR, then the marginal decision rule tells us that profit:

Accepted Answer

A)  is maximized. 
B)  can be increased by decreasing production. 
C)  can be increased by decreasing the price. 
D)  is maximized only if MC = P. 
A)  is maximized. 
B)  can be increased by decreasing production. 
C)  can be increased by decreasing the price. 
D)  is maximized only if MC = P.

Question 4

Monopolistic competitors sell products that are _____ and as a result, each firm has a _____ demand curve.

Accepted Answer

A)  imperfect substitutes; downward-sloping 
B)  perfect substitutes; horizontal 
C)  imperfect substitutes; horizontal 
D)  perfect substitutes; downward-sloping 
A)  imperfect substitutes; downward-sloping 
B)  perfect substitutes; horizontal 
C)  imperfect substitutes; horizontal 
D)  perfect substitutes; downward-sloping

Question 5

Monopolistic competition is characterized by:

Accepted Answer

A)  free entry and exit in the long run. 
B)  each firm producing a standardized product. 
C)  few producers. 
D)  barriers to entry. 
A)  free entry and exit in the long run. 
B)  each firm producing a standardized product. 
C)  few producers. 
D)  barriers to entry.

Question 6

In the long run, perfect competitors and monopolistic competitors are similar in that they:

Accepted Answer

A)  set price where MR < MC. 
B)  produce an output level at which P = ATC. 
C)  produce a product that is standardized and hard to differentiate. 
D)  earn a positive economic profit. 
A)  set price where MR < MC. 
B)  produce an output level at which P = ATC. 
C)  produce a product that is standardized and hard to differentiate. 
D)  earn a positive economic profit.

Question 7

General Snacks is a typical firm in monopolistic competition. Initially, the market is in long-run equilibrium, and then there is an increase in the market demand for snacks. In the long run, the economic profits of typical firms in the industry will be:

Accepted Answer

A)  typical of those earned by monopoly firms. 
B)  positive but less than the level typically earned by monopoly firms. 
C)  zero. 
D)  negative. 
A)  typical of those earned by monopoly firms. 
B)  positive but less than the level typically earned by monopoly firms. 
C)  zero. 
D)  negative.

Question 8

Use the following to answer questions:
Figure: Profit Maximization for a Firm in Monopolistic Competition  
-(Figure: Profit Maximization for a Firm in Monopolistic Competition) Look at the figure Profit Maximization for a Firm in Monopolistic Competition. Suppose that an innovation reduces a firm's costs from ATC to ATC'. After the innovation reduces the cost, the firm's maximum economic profit is:

Accepted Answer

A)  $0. 
B)  $30. 
C)  $1,500. 
D)  $3,000. 
A)  $0. 
B)  $30. 
C)  $1,500. 
D)  $3,000.

Question 9

Use the following to answer questions:  
-(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 in perfect competition, the profit-maximizing output would be _____ cases.

Accepted Answer

A)  6 
B)  5 
C)  7 
D)  8 
A)  6 
B)  5 
C)  7 
D)  8

Question 10

In the long run, monopolistically competitive firms:

Accepted Answer

A)  always earn high economic profits. 
B)  tend to earn zero economic profits. 
C)  usually incur negative economic profits. 
D)  usually incur substantial economic losses. 
A)  always earn high economic profits. 
B)  tend to earn zero economic profits. 
C)  usually incur negative economic profits. 
D)  usually incur substantial economic losses.

Question 11

If a firm operating in monopolistic competition is producing a quantity that generates MC < MR, then the marginal decision rule tells us that profit:

Accepted Answer

A)  can be increased by increasing production. 
B)  can be increased by decreasing production. 
C)  can be increased by increasing the price. 
D)  is maximized only if MC = P. 
A)  can be increased by increasing production. 
B)  can be increased by decreasing production. 
C)  can be increased by increasing the price. 
D)  is maximized only if MC = P.

Question 12

Monopolistic competitors:

Accepted Answer

A)  have some ability to set price. 
B)  must accept the price as given and therefore are price takers. 
C)  produce goods that are standardized and hard to differentiate. 
D)  eventually produce at their minimum ATC at the profit-maximizing level. 
A)  have some ability to set price. 
B)  must accept the price as given and therefore are price takers. 
C)  produce goods that are standardized and hard to differentiate. 
D)  eventually produce at their minimum ATC at the profit-maximizing level.

Question 13

The wedding dress industry is monopolistically competitive. As a result:

Accepted Answer

A)  thousands of dress suppliers all sell identical products. 
B)  dresses tend to be differentiated among the many sellers serving this market. 
C)  it has freedom of entry but not exit. 
D)  prices tend to be lower than if the dress industry approximated perfect competition. 
A)  thousands of dress suppliers all sell identical products. 
B)  dresses tend to be differentiated among the many sellers serving this market. 
C)  it has freedom of entry but not exit. 
D)  prices tend to be lower than if the dress industry approximated perfect competition.

Question 14

Use the following to answer questions:
Figure: The Market for Gas Stations  
-(Figure: The Market for Gas Stations) Look at the figure The Market for Gas Stations. Assume that the market for gas stations is characterized by many firms, differentiated products, easy entry, and easy exit. The typical gas station will maximize profits at a quantity of:

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 15

Industries that are made up of many competing producers, each selling a differentiated product, and whose firms earn zero economic profits in the long run are:

Accepted Answer

A)  perfectly competitive. 
B)  monopolies. 
C)  oligopolies. 
D)  monopolistically competitive. 
A)  perfectly competitive. 
B)  monopolies. 
C)  oligopolies. 
D)  monopolistically competitive.

Question 16

Monopolistically competitive firms:

Accepted Answer

A)  engage in collusive activity 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 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 17

A monopolistically competitive industry is characterized by a _____ number of firms producing _____ products; it has _____ entry.

Accepted Answer

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

Question 18

Toby operates a small deli downtown. The deli industry is monopolistically competitive. Toby is producing the quantity that minimizes his average total cost. Assuming that Toby is maximizing profits, his:

Accepted Answer

A)  marginal cost is less than his average total cost. 
B)  marginal cost is less than his marginal revenue. 
C)  price equals his average total cost. 
D)  price is more than his average total cost. 
A)  marginal cost is less than his average total cost. 
B)  marginal cost is less than his marginal revenue. 
C)  price equals his average total cost. 
D)  price is more than his average total cost.

Question 19

The sources of product differentiation do NOT include:

Accepted Answer

A)  differences in location. 
B)  differences in quality. 
C)  the perception by consumers that products are different, even if they are physically identical. 
D)  consumers' value in uniformity. 
A)  differences in location. 
B)  differences in quality. 
C)  the perception by consumers that products are different, even if they are physically identical. 
D)  consumers' value in uniformity.

Question 20

In the long run, monopolistic competitors will:

Accepted Answer

A)  earn zero economic profits. 
B)  produce at the minimum of their ATC curves. 
C)  set price where MC = MR. 
D)  collude with other firms. 
A)  earn zero economic profits. 
B)  produce at the minimum of their ATC curves. 
C)  set price where MC = MR. 
D)  collude with other firms.

Tacit collusion is NOT feasible in monopolistic competition because of the large number of competing firms.

Because of the lack of substitutes, the market for newly developed brand-name prescription drugs is best considered to be:

If a firm operating in monopolistic competition is producing a quantity that generates MC = MR, then the marginal decision rule tells us that profit:

Monopolistic competitors sell products that are _ and as a result, each firm has a _ demand curve.

Monopolistic competition is characterized by:

In the long run, perfect competitors and monopolistic competitors are similar in that they:

General Snacks is a typical firm in monopolistic competition. Initially, the market is in long-run equilibrium, and then there is an increase in the market demand for snacks. In the long run, the economic profits of typical firms in the industry will be:

In the long run, monopolistically competitive firms:

If a firm operating in monopolistic competition is producing a quantity that generates MC < MR, then the marginal decision rule tells us that profit:

Monopolistic competitors:

The wedding dress industry is monopolistically competitive. As a result:

Industries that are made up of many competing producers, each selling a differentiated product, and whose firms earn zero economic profits in the long run are:

Monopolistically competitive firms:

A monopolistically competitive industry is characterized by a ___ number of firms producing _ products; it has ___ entry.

Toby operates a small deli downtown. The deli industry is monopolistically competitive. Toby is producing the quantity that minimizes his average total cost. Assuming that Toby is maximizing profits, his:

The sources of product differentiation do NOT include:

In the long run, monopolistic competitors will:

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 15: Monopolistic Competition and Product Differentiation

Tacit collusion is NOT feasible in monopolistic competition because of the large number of competing firms.

Because of the lack of substitutes, the market for newly developed brand-name prescription drugs is best considered to be:

If a firm operating in monopolistic competition is producing a quantity that generates MC = MR, then the marginal decision rule tells us that profit:

Monopolistic competitors sell products that are _____ and as a result, each firm has a _____ demand curve.

Monopolistic competition is characterized by:

In the long run, perfect competitors and monopolistic competitors are similar in that they:

General Snacks is a typical firm in monopolistic competition. Initially, the market is in long-run equilibrium, and then there is an increase in the market demand for snacks. In the long run, the economic profits of typical firms in the industry will be:

In the long run, monopolistically competitive firms:

If a firm operating in monopolistic competition is producing a quantity that generates MC < MR, then the marginal decision rule tells us that profit:

Monopolistic competitors:

The wedding dress industry is monopolistically competitive. As a result:

Industries that are made up of many competing producers, each selling a differentiated product, and whose firms earn zero economic profits in the long run are:

Monopolistically competitive firms:

A monopolistically competitive industry is characterized by a _____ number of firms producing _____ products; it has _____ entry.

Toby operates a small deli downtown. The deli industry is monopolistically competitive. Toby is producing the quantity that minimizes his average total cost. Assuming that Toby is maximizing profits, his:

The sources of product differentiation do NOT include:

In the long run, monopolistic competitors will:

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Monopolistic competitors sell products that are _ and as a result, each firm has a _ demand curve.

A monopolistically competitive industry is characterized by a ___ number of firms producing _ products; it has ___ entry.