Question 1

The decision to undertake product development in monopolistic competition is made by comparing the

Accepted Answer

A) marginal benefit of product development to the marginal cost of product development. 
B) marginal revenue of product development to the average total cost of product development. 
C) total revenue of product development to the total cost of product development. 
D) firm's expenditure on product development to expenditures by competing firms. 
E) total benefit of product development to the total cost of advertising. 
A) marginal benefit of product development to the marginal cost of product development. 
B) marginal revenue of product development to the average total cost of product development. 
C) total revenue of product development to the total cost of product development. 
D) firm's expenditure on product development to expenditures by competing firms. 
E) total benefit of product development to the total cost of advertising. A

Question 2

Use the information below to answer the following questions.
Fact 14.2.1 Groceries for the Gourmet Palate
No food, it seems, is safe from being repackaged to look like an upscale product. Samuel Adams' $120 Utopias, in a ridiculous copper-covered 24-oz. bottle meant to resemble an old-fashioned brew kettle, is barely beer. It's not carbonated like a Bud, but aged in oak barrels like scotch. It has a vintage year, like a Bordeaux, is light, complex, and free of any alcohol sting, despite having six times as much alcohol content as a regular can of brew.
Source: Time, April 14, 2008
-Refer to Fact 14.2.1.Samuel Adams makes the market for beer inefficient if

Accepted Answer

A) the loss that arises from having greater product variety offsets the gain that arises because the quantity produced is less than the efficient quantity. 
B) more firms enter the market. 
C) the loss that arises because the quantity produced is less than the efficient quantity is not offset by the gain that arises from having greater product variety. 
D) firms exit the market. 
E) the marginal social cost of production equals the marginal social benefit received by consumers. 
A) the loss that arises from having greater product variety offsets the gain that arises because the quantity produced is less than the efficient quantity. 
B) more firms enter the market. 
C) the loss that arises because the quantity produced is less than the efficient quantity is not offset by the gain that arises from having greater product variety. 
D) firms exit the market. 
E) the marginal social cost of production equals the marginal social benefit received by consumers. C

Question 3

Which of the following goods is best described as being sold in a monopolistically competitive market?

Accepted Answer

A) batteries 
B) wheat 
C) fast food 
D) postage stamps 
E) the local newspaper 
A) batteries 
B) wheat 
C) fast food 
D) postage stamps 
E) the local newspaper C

Question 4

Use the information below to answer the following questions.
Fact 14.3.3
Suppose that Roots' marginal cost of a jacket is a constant $125.00 and the total fixed cost at one of its stores is $1,500 a day. This store sells 20 jackets a day, which is its profit-maximizing number of jackets. Then the stores nearby start to advertise their jackets. The Roots store now spends $2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 70 a day.
-Refer to Fact 14.3.3.In the long run, Roots' economic profit is

Accepted Answer

A) positive. 
B) negative. 
C) zero. 
D) greater than the economic profit of its competitors. 
E) less than the economic profit of its competitors. 
A) positive. 
B) negative. 
C) zero. 
D) greater than the economic profit of its competitors. 
E) less than the economic profit of its competitors.

Question 5

When firms in monopolistic competition incur an economic loss,

Accepted Answer

A) firms enter the industry and produce better products. 
B) firms exit the industry, and demand increases for the products of the firms that remain. 
C) firms exit the industry, and demand decreases for the firms that remain in the industry. 
D) firms enter the industry, and demand increases for the firms that were originally in the industry. 
E) the industry will eventually disappear. 
A) firms enter the industry and produce better products. 
B) firms exit the industry, and demand increases for the products of the firms that remain. 
C) firms exit the industry, and demand decreases for the firms that remain in the industry. 
D) firms enter the industry, and demand increases for the firms that were originally in the industry. 
E) the industry will eventually disappear.

Question 6

Monopolistic competition differs from monopoly because in monopolistic competition

Accepted Answer

A) firms maximize profits. 
B) firms set marginal revenue equal to marginal cost to maximize profit. 
C) firms are free to enter and exit. 
D) All of the above are differences between monopoly and monopolistically competitive firms. 
E) None of the above are differences between monopoly and monopolistically competitive firms. 
A) firms maximize profits. 
B) firms set marginal revenue equal to marginal cost to maximize profit. 
C) firms are free to enter and exit. 
D) All of the above are differences between monopoly and monopolistically competitive firms. 
E) None of the above are differences between monopoly and monopolistically competitive firms.

Question 7

Use the figure below to answer the following questions.
   
Figure 14.2.6
-Refer to Figure 14.2.6, which shows the demand curve, marginal revenue curve and cost curves faced by Gap.Gap maximizes its profit if it sells ________ jackets per day.

Accepted Answer

A) 200 
B) 240 
C) 275 
D) 140 
E) 280 
A) 200 
B) 240 
C) 275 
D) 140 
E) 280

Question 8

Mrs.Smith's bakery shop is a firm in monopolistic competition.She is currently selling a box of bread for $16.The firm's marginal cost is $7 and marginal revenue is $7.To maximize economic profit Mrs.Smith

Accepted Answer

A) shuts down. 
B) decreases output so that marginal revenue exceeds marginal cost. 
C) continues to produce the same level of output. 
D) increases output so that marginal cost exceeds marginal revenue. 
E) decreases output so that marginal cost equals the output price. 
A) shuts down. 
B) decreases output so that marginal revenue exceeds marginal cost. 
C) continues to produce the same level of output. 
D) increases output so that marginal cost exceeds marginal revenue. 
E) decreases output so that marginal cost equals the output price.

Question 9

Use the information below to answer the following questions.
Fact 14.2.1 Groceries for the Gourmet Palate
No food, it seems, is safe from being repackaged to look like an upscale product. Samuel Adams' $120 Utopias, in a ridiculous copper-covered 24-oz. bottle meant to resemble an old-fashioned brew kettle, is barely beer. It's not carbonated like a Bud, but aged in oak barrels like scotch. It has a vintage year, like a Bordeaux, is light, complex, and free of any alcohol sting, despite having six times as much alcohol content as a regular can of brew.
Source: Time, April 14, 2008
-Refer to Fact 14.2.1.The Utopia's price of $120 is ________ marginal cost in the short run and ________ marginal cost in the long run.

Accepted Answer

A) greater than; greater than 
B) greater than; less than 
C) less than; greater than 
D) less than; less than 
E) equal to; equal to 
A) greater than; greater than 
B) greater than; less than 
C) less than; greater than 
D) less than; less than 
E) equal to; equal to

Question 10

Monopolistically competitive firms engaging in advertising will definitely achieve which of the following?

Accepted Answer

A) an increase in demand 
B) an increase in average total cost 
C) an increase in total cost 
D) Both B and C are correct. 
E) A, B, and C are correct. 
A) an increase in demand 
B) an increase in average total cost 
C) an increase in total cost 
D) Both B and C are correct. 
E) A, B, and C are correct.

Question 11

Toronto has a large number of retail stores that sell clothes.Each store has its own characteristics which differ from the other stores.The clothing business in Toronto is an example of

Accepted Answer

A) a duopoly. 
B) an oligopoly. 
C) a perfectly competitive market. 
D) a monopoly. 
E) a monopolistically competitive market. 
A) a duopoly. 
B) an oligopoly. 
C) a perfectly competitive market. 
D) a monopoly. 
E) a monopolistically competitive market.

Question 12

In monopolistic competition

Accepted Answer

A) there are two firms in the market. 
B) the size of one firm is small relative to the size of the industry. 
C) the size of one firm is large relative to the size of the industry. 
D) each firm is a price-taker. 
E) there is only one firm in the market. 
A) there are two firms in the market. 
B) the size of one firm is small relative to the size of the industry. 
C) the size of one firm is large relative to the size of the industry. 
D) each firm is a price-taker. 
E) there is only one firm in the market.

Question 13

In the long run, all firms in an industry that is monopolistically competitive

Accepted Answer

A) produce at their efficient scale. 
B) set price equal to marginal cost. 
C) incur an economic profit. 
D) make an economic profit. 
E) make zero economic profit. 
A) produce at their efficient scale. 
B) set price equal to marginal cost. 
C) incur an economic profit. 
D) make an economic profit. 
E) make zero economic profit.

Question 14

Which one of the following characteristics is shared by perfect competition and monopolistic competition?

Accepted Answer

A) Firms face a downward-sloping demand curve. 
B) Profit-maximizing quantity occurs where MC = MR. 
C) Long-run equilibrium price equals minimum ATC. 
D) Firms make an economic profit in the long run. 
E) Demand is perfectly elastic. 
A) Firms face a downward-sloping demand curve. 
B) Profit-maximizing quantity occurs where MC = MR. 
C) Long-run equilibrium price equals minimum ATC. 
D) Firms make an economic profit in the long run. 
E) Demand is perfectly elastic.

Question 15

Which one of the following is true for perfect competition, monopolistic competition, and single-price monopoly?

Accepted Answer

A) Each firm produces an identical good. 
B) Each firm makes zero long-run economic profit. 
C) The profit maximizing quantity occurs at the quantity at which MC = MR. 
D) There is easy entry and exit. 
E) Demand is perfectly elastic. 
A) Each firm produces an identical good. 
B) Each firm makes zero long-run economic profit. 
C) The profit maximizing quantity occurs at the quantity at which MC = MR. 
D) There is easy entry and exit. 
E) Demand is perfectly elastic.

Question 16

When firms in monopolistic competition make an economic profit,

Accepted Answer

A) firms enter the industry, which increases demand for the product of the firms originally in the market. 
B) firms exit the industry, and demand increases for the products of the firms that remain. 
C) firms exit the industry, and demand decreases for the firms that remain in the industry. 
D) firms enter the industry, and demand decreases for the firms that were originally in the industry. 
E) eventually the market will become a monopoly. 
A) firms enter the industry, which increases demand for the product of the firms originally in the market. 
B) firms exit the industry, and demand increases for the products of the firms that remain. 
C) firms exit the industry, and demand decreases for the firms that remain in the industry. 
D) firms enter the industry, and demand decreases for the firms that were originally in the industry. 
E) eventually the market will become a monopoly.

Question 17

Advertising costs of a monopolistically competitive firm are

Accepted Answer

A) greater than a monopoly and the same as a perfectly competitive firm. 
B) greater than a perfectly competitive firm. 
C) less than a perfectly competitive firm. 
D) the same as a monopoly. 
E) less than a monopoly. 
A) greater than a monopoly and the same as a perfectly competitive firm. 
B) greater than a perfectly competitive firm. 
C) less than a perfectly competitive firm. 
D) the same as a monopoly. 
E) less than a monopoly.

Question 18

Use the figure below to answer the following questions.
   
Figure 14.2.5
-Refer to Figure 14.2.5.The figure shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators.The firm's markup is ________ per calculator.

Accepted Answer

A) zero 
B) $2 
C) $4 
D) $6 
E) $10 
A) zero 
B) $2 
C) $4 
D) $6 
E) $10

Question 19

Use the figure below to answer the following questions.
   
Figure 14.2.6
-Refer to Figure 14.2.6, which shows the demand curve, marginal revenue curve and cost curves faced by Gap.Gap maximizes its profit if it charges ________ per jacket.

Accepted Answer

A) $100 
B) $95 
C) $75 
D) $120 
E) $90 
A) $100 
B) $95 
C) $75 
D) $120 
E) $90

Question 20

Use the figure below to answer the following questions.
   
Figure 14.2.3
-Refer to Figure 14.2.3.Assume this firm faces demand curve D₂.To maximize economic profit, this firm in monopolistic competition will charge a price of ________ and produce an output of ________ units.

Accepted Answer

A) $40; 100 
B) $90; 220 
C) $80; 200 
D) $55; 140 
E) $70; 100 
A) $40; 100 
B) $90; 220 
C) $80; 200 
D) $55; 140 
E) $70; 100

The decision to undertake product development in monopolistic competition is made by comparing the

Which of the following goods is best described as being sold in a monopolistically competitive market?

When firms in monopolistic competition incur an economic loss,

Monopolistic competition differs from monopoly because in monopolistic competition

Use the figure below to answer the following questions. Figure 14.2.6 -Refer to Figure 14.2.6, which shows the demand curve, marginal revenue curve and cost curves faced by Gap.Gap maximizes its profit if it sells ________ jackets per day.

Mrs.Smith's bakery shop is a firm in monopolistic competition.She is currently selling a box of bread for $16.The firm's marginal cost is $7 and marginal revenue is $7.To maximize economic profit Mrs.Smith

Monopolistically competitive firms engaging in advertising will definitely achieve which of the following?

Toronto has a large number of retail stores that sell clothes.Each store has its own characteristics which differ from the other stores.The clothing business in Toronto is an example of

In monopolistic competition

In the long run, all firms in an industry that is monopolistically competitive

Which one of the following characteristics is shared by perfect competition and monopolistic competition?

Which one of the following is true for perfect competition, monopolistic competition, and single-price monopoly?

When firms in monopolistic competition make an economic profit,

Advertising costs of a monopolistically competitive firm are

Use the figure below to answer the following questions. Figure 14.2.5 -Refer to Figure 14.2.5.The figure shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators.The firm's markup is ________ per calculator.

Use the figure below to answer the following questions. Figure 14.2.6 -Refer to Figure 14.2.6, which shows the demand curve, marginal revenue curve and cost curves faced by Gap.Gap maximizes its profit if it charges ________ per jacket.

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D₂.To maximize economic profit, this firm in monopolistic competition will charge a price of and produce an output of units.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Filters

Exam 14: Monopolistic Competition

The decision to undertake product development in monopolistic competition is made by comparing the

Which of the following goods is best described as being sold in a monopolistically competitive market?

When firms in monopolistic competition incur an economic loss,

Monopolistic competition differs from monopoly because in monopolistic competition

Use the figure below to answer the following questions. Figure 14.2.6 -Refer to Figure 14.2.6, which shows the demand curve, marginal revenue curve and cost curves faced by Gap.Gap maximizes its profit if it sells ________ jackets per day.

Mrs.Smith's bakery shop is a firm in monopolistic competition.She is currently selling a box of bread for $16.The firm's marginal cost is $7 and marginal revenue is $7.To maximize economic profit Mrs.Smith

Monopolistically competitive firms engaging in advertising will definitely achieve which of the following?

Toronto has a large number of retail stores that sell clothes.Each store has its own characteristics which differ from the other stores.The clothing business in Toronto is an example of

In monopolistic competition

In the long run, all firms in an industry that is monopolistically competitive

Which one of the following characteristics is shared by perfect competition and monopolistic competition?

Which one of the following is true for perfect competition, monopolistic competition, and single-price monopoly?

When firms in monopolistic competition make an economic profit,

Advertising costs of a monopolistically competitive firm are

Use the figure below to answer the following questions. Figure 14.2.5 -Refer to Figure 14.2.5.The figure shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators.The firm's markup is ________ per calculator.

Use the figure below to answer the following questions. Figure 14.2.6 -Refer to Figure 14.2.6, which shows the demand curve, marginal revenue curve and cost curves faced by Gap.Gap maximizes its profit if it charges ________ per jacket.

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D₂.To maximize economic profit, this firm in monopolistic competition will charge a price of ________ and produce an output of ________ units.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Filters

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D₂.To maximize economic profit, this firm in monopolistic competition will charge a price of and produce an output of units.