Question 1

A feature of monopolistic competition that makes it different from monopoly is the:

Accepted Answer

A)  fact that firms in monopolistically competitive industries follow the marginal decision rule, while monopolies do not. 
B)  downward-sloping demand curve. 
C)  downward-sloping marginal revenue curve. 
D)  number of firms in the industry. 
A)  fact that firms in monopolistically competitive industries follow the marginal decision rule, while monopolies do not. 
B)  downward-sloping demand curve. 
C)  downward-sloping marginal revenue curve. 
D)  number of firms in the industry.

Question 2

In the long run, monopolistically competitive firms tend to have:

Accepted Answer

A)  high economic profits. 
B)  zero economic profits. 
C)  negative economic profits. 
D)  substantial economic losses. 
A)  high economic profits. 
B)  zero economic profits. 
C)  negative economic profits. 
D)  substantial economic losses.

Question 3

Which of the following is TRUE?

Accepted Answer

A)  There is no role for advertising in perfect competition. 
B)  Firms in monopolistic competition and oligopoly use advertising in expectation of increasing profit. 
C)  Advertising has costs but few if any benefits. 
D)  There is no role for advertising in perfect competition, and firms in monopolistic competition and oligopoly use advertising in expectation of increasing profit. 
A)  There is no role for advertising in perfect competition. 
B)  Firms in monopolistic competition and oligopoly use advertising in expectation of increasing profit. 
C)  Advertising has costs but few if any benefits. 
D)  There is no role for advertising in perfect competition, and firms in monopolistic competition and oligopoly use advertising in expectation of increasing profit.

Question 4

Firms in the monopolistically competitive movie industry face excess capacity. This means that there are _____ movies than the output at which _____ cost is minimized.

Accepted Answer

A)  fewer; marginal 
B)  more; average total 
C)  fewer; average total 
D)  more; marginal 
A)  fewer; marginal 
B)  more; average total 
C)  fewer; average total 
D)  more; marginal

Question 5

Excess capacity is a problem in monopolistic competition because if there were fewer firms in the industry:

Accepted Answer

A)  there would be more choices for consumers. 
B)  average total costs would be higher and profits would be lower. 
C)  average total costs would be lower and the prices paid by consumers could be lower. 
D)  there would be less need for government regulation. 
A)  there would be more choices for consumers. 
B)  average total costs would be higher and profits would be lower. 
C)  average total costs would be lower and the prices paid by consumers could be lower. 
D)  there would be less need for government regulation.

Question 6

Which of the following is TRUE?

Accepted Answer

A)  All markets should be oligopolies because that is the most efficient market structure. 
B)  Monopolistic competition results in excess capacity, since in the long run the point where MR = MC is to the right of the minimum of the ATC curve. 
C)  In monopolistic competition firms earn large economic profits in the long run. 
D)  In monopolistic competition firms earn zero economic profits in the long run. 
A)  All markets should be oligopolies because that is the most efficient market structure. 
B)  Monopolistic competition results in excess capacity, since in the long run the point where MR = MC is to the right of the minimum of the ATC curve. 
C)  In monopolistic competition firms earn large economic profits in the long run. 
D)  In monopolistic competition firms earn zero economic profits in the long run.

Question 7

When Henry Ford produced his cars, he _____, while GM produced its cars _____.

Accepted Answer

A)  maximized economies of scale; by also maximizing economies of scale 
B)  maximized economies of scale; with an emphasis on product differentiation 
C)  produced with excess capacity; maximized economies of scale 
D)  produced with excess capacity; also with excess capacity 
A)  maximized economies of scale; by also maximizing economies of scale 
B)  maximized economies of scale; with an emphasis on product differentiation 
C)  produced with excess capacity; maximized economies of scale 
D)  produced with excess capacity; also with excess capacity

Question 8

Use the following to answer questions:
Figure: The Restaurant Market  
-(Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the restaurant market. If the restaurant shown here were to raise its price above the profit-maximizing price, its total revenue would:

Accepted Answer

A)  decrease. 
B)  increase. 
C)  not change. 
D)  Not enough information is given to answer the question. 
A)  decrease. 
B)  increase. 
C)  not change. 
D)  Not enough information is given to answer the question.

Question 9

To maximize profits, a firm in monopolistic competition will likely produce so that marginal cost:

Accepted Answer

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

Question 10

In monopolistic competition:

Accepted Answer

A)  firms earn zero economic profits in the long run. 
B)  each firm produces a product identical to that of every other firm in the industry. 
C)  firms are aware of their strategic interdependence. 
D)  firms earn large economic profits in the long run. 
A)  firms earn zero economic profits in the long run. 
B)  each firm produces a product identical to that of every other firm in the industry. 
C)  firms are aware of their strategic interdependence. 
D)  firms earn large economic profits in the long run.

Question 11

A brand name may be valuable because it differentiates a company's products in the minds of consumers.

Accepted Answer

A) True 
 B)False

Question 12

Use the following to answer questions:
Figure: Monopolistic Competition III  
-(Figure: Monopolistic Competition III) The figure Monopolistic Competition III shows the demand, marginal revenue, marginal cost, and average total cost curves for Pat's Pizza Parlor, a monopolistic competitor in the food-to-go industry. Pat's Pizza Parlor's maximal profit will be:

Accepted Answer

A)  $0. 
B)  $350. 
C)  $700. 
D)  $900. 
A)  $0. 
B)  $350. 
C)  $700. 
D)  $900.

Question 13

Which of the following is CORRECT about celebrity spokespersons?

Accepted Answer

A)  Celebrities are better informed about the relative merits of different products than the rest of us. 
B)  Celebrity advertising signals consumers that the product is reliable, because the firm is willing to pay the high fees associated with hiring a celebrity. 
C)  Consumers assume that the celebrity has researched the product and that the claims being made on his or her behalf are true. 
D)  None of the statements is correct. 
A)  Celebrities are better informed about the relative merits of different products than the rest of us. 
B)  Celebrity advertising signals consumers that the product is reliable, because the firm is willing to pay the high fees associated with hiring a celebrity. 
C)  Consumers assume that the celebrity has researched the product and that the claims being made on his or her behalf are true. 
D)  None of the statements is correct.

Question 14

An industry with a large number of relatively small firms producing _____ in a market with easy entry and exit is a(n) _____.

Accepted Answer

A)  similar products; monopoly 
B)  identical products; monopolistic competition 
C)  differentiated products; oligopoly 
D)  differentiated products; monopolistic competition 
A)  similar products; monopoly 
B)  identical products; monopolistic competition 
C)  differentiated products; oligopoly 
D)  differentiated products; monopolistic competition

Question 15

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 16

Use the following to answer questions:
Figure: Firms in Monopolistic Competition  
-(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is _____ in panel _____.

Accepted Answer

A)  F; (
A)  
B)  G; (
A)  
C)  H; (
B)  
D)  I; (
C)  
A)  F; (
A)  
B)  G; (
A)  
C)  H; (
B)  
D)  I; (
C)

Question 17

All advertising is clearly a waste of resources.

Accepted Answer

A) True 
 B)False

Question 18

Use the following to answer questions:
Figure: Profit Maximization in Monopolistic Competition  
-(Figure: Profit Maximization in Monopolistic Competition) Look at the figure Profit Maximization in Monopolistic Competition. When the demand curve for a firm in monopolistic competition shifts, the marginal revenue curve:

Accepted Answer

A)  must also shift. 
B)  shifts in the opposite direction. 
C)  will stay the same. 
D)  will shift, but the profit-maximizing quantity will not change. 
A)  must also shift. 
B)  shifts in the opposite direction. 
C)  will stay the same. 
D)  will shift, but the profit-maximizing quantity will not change.

Question 19

The broccoli market is perfectly competitive. This means that the price of broccoli is _____ than if the market were monopolistically competitive, and broccoli output is _____ than if it were monopolistically competitive.

Accepted Answer

A)  lower; higher 
B)  lower; lower 
C)  higher; lower 
D)  higher; higher 
A)  lower; higher 
B)  lower; lower 
C)  higher; lower 
D)  higher; higher

Question 20

Use the following to answer questions:
Scenario: Monopolistically Competitive Firm
For a monopolistically competitive firm, Q = 160 - P; MC = 20 + 2Q; and TC = 20Q + QS1U1P12 S1S1P0+ 20.
-(Scenario: Monopolistically Competitive Firm) Given the information in the scenario Monopolistically Competitive Firm, what is the profit-maximizing price for this firm in the short run?

Accepted Answer

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

A feature of monopolistic competition that makes it different from monopoly is the:

In the long run, monopolistically competitive firms tend to have:

Which of the following is TRUE?

Firms in the monopolistically competitive movie industry face excess capacity. This means that there are _ movies than the output at which _ cost is minimized.

Excess capacity is a problem in monopolistic competition because if there were fewer firms in the industry:

Which of the following is TRUE?

When Henry Ford produced his cars, he _, while GM produced its cars _.

To maximize profits, a firm in monopolistic competition will likely produce so that marginal cost:

In monopolistic competition:

A brand name may be valuable because it differentiates a company's products in the minds of consumers.

Which of the following is CORRECT about celebrity spokespersons?

An industry with a large number of relatively small firms producing _ in a market with easy entry and exit is a(n) _.

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

Use the following to answer questions: Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is _ in panel _.

All advertising is clearly a waste of resources.

The broccoli market is perfectly competitive. This means that the price of broccoli is _ than if the market were monopolistically competitive, and broccoli output is _ than if it were monopolistically competitive.

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

A feature of monopolistic competition that makes it different from monopoly is the:

In the long run, monopolistically competitive firms tend to have:

Which of the following is TRUE?

Firms in the monopolistically competitive movie industry face excess capacity. This means that there are _____ movies than the output at which _____ cost is minimized.

Excess capacity is a problem in monopolistic competition because if there were fewer firms in the industry:

Which of the following is TRUE?

When Henry Ford produced his cars, he _____, while GM produced its cars _____.

To maximize profits, a firm in monopolistic competition will likely produce so that marginal cost:

In monopolistic competition:

A brand name may be valuable because it differentiates a company's products in the minds of consumers.

Which of the following is CORRECT about celebrity spokespersons?

An industry with a large number of relatively small firms producing _____ in a market with easy entry and exit is a(n) _____.

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

Use the following to answer questions: Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is _____ in panel _____.

All advertising is clearly a waste of resources.

The broccoli market is perfectly competitive. This means that the price of broccoli is _____ than if the market were monopolistically competitive, and broccoli output is _____ than if it were monopolistically competitive.

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

Firms in the monopolistically competitive movie industry face excess capacity. This means that there are _ movies than the output at which _ cost is minimized.

When Henry Ford produced his cars, he _, while GM produced its cars _.

An industry with a large number of relatively small firms producing _ in a market with easy entry and exit is a(n) _.

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

Use the following to answer questions: Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is _ in panel _.

The broccoli market is perfectly competitive. This means that the price of broccoli is _ than if the market were monopolistically competitive, and broccoli output is _ than if it were monopolistically competitive.