Question 1

Which of the following characteristics is common to monopolistic competition and perfect competition?

Accepted Answer

A)  Firms produce identical products. 
B)  Entry barriers into the industry are low. 
C)  Each firm faces a downward-sloping demand curve. 
D)  Firms take market prices as given. 
A)  Firms produce identical products. 
B)  Entry barriers into the industry are low. 
C)  Each firm faces a downward-sloping demand curve. 
D)  Firms take market prices as given.

Question 2

There are many cattle ranchers in the world, and there are also many McDonald's restaurants in the world. Why, then, does a McDonald's restaurant face a downward-sloping demand curve while a cattle rancher faces a horizontal demand curve?

Accepted Answer

All cattle ranchers are selling identica

Question 3

A monopolistically competitive firm is producing an output level where marginal revenue is greater than marginal cost. What should this firm do to increase its profit or reduce its losses?

Accepted Answer

A)  The firm should raise its price. 
B)  The firm should decrease its fixed costs. 
C)  The firm should increase its implicit costs. 
D)  The firm should lower its price. 
A)  The firm should raise its price. 
B)  The firm should decrease its fixed costs. 
C)  The firm should increase its implicit costs. 
D)  The firm should lower its price.

Question 4

A firm that successfully differentiates its product or lowers its average cost of production creates

Accepted Answer

A)  value for its customers. 
B)  entry barriers into its market. 
C)  a perfectly inelastic demand curve for its product. 
D)  economies of scale. 
A)  value for its customers. 
B)  entry barriers into its market. 
C)  a perfectly inelastic demand curve for its product. 
D)  economies of scale.

Question 5

Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being?

Accepted Answer

A)  Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost. 
B)  Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes. 
C)  Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost. 
D)  Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets. 
A)  Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost. 
B)  Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes. 
C)  Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost. 
D)  Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets.

Question 6

Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?

Accepted Answer

A)  the ability to produce the product at a lower cost 
B)  changing consumer tastes 
C)  a rise in the price of a key input, for example, a rise in the price of oil leads to higher energy costs 
D)  the number of competitors in the market 
A)  the ability to produce the product at a lower cost 
B)  changing consumer tastes 
C)  a rise in the price of a key input, for example, a rise in the price of oil leads to higher energy costs 
D)  the number of competitors in the market

Question 7

A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?

Accepted Answer

A)  The firm is protected by a first-mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs. 
B)  They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product. 
C)  Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products. 
D)  The firm's cost increases as it improves the product, but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode, although its market share remains secure. 
A)  The firm is protected by a first-mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs. 
B)  They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product. 
C)  Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products. 
D)  The firm's cost increases as it improves the product, but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode, although its market share remains secure.

Question 8

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 9

Despite being in a market with ________, from the mid-1990s to the mid-2000s Starbucks was able to significantly differentiate its products from the products of its competitors.

Accepted Answer

A)  few barriers to entry 
B)  significant barriers to entry 
C)  blocked entry 
D)  no barriers to entry 
A)  few barriers to entry 
B)  significant barriers to entry 
C)  blocked entry 
D)  no barriers to entry

Question 10

-Refer to Table 10-3. What are the profit-maximising/loss-minimising output level and price?

Accepted Answer

A)  Q = 0 (firm should not produce) 
B)  Q = 3; P = $18 
C)  Q = 4; P = $17 
D)  Q = 5; P = $16 
A)  Q = 0 (firm should not produce) 
B)  Q = 3; P = $18 
C)  Q = 4; P = $17 
D)  Q = 5; P = $16

Question 11

Economists agree that a monopolistically competitive market structure

Accepted Answer

A)  lowers consumer utility because consumers pay a price higher than the marginal cost of production. 
B)  is detrimental to society because it leads to a waste of scarce resources. 
C)  benefits consumers because firms produce products that appeal to a wide range of consumer tastes. 
D)  can eliminate any excess capacity if all firms in the industry devote more funds to differentiating their products. 
A)  lowers consumer utility because consumers pay a price higher than the marginal cost of production. 
B)  is detrimental to society because it leads to a waste of scarce resources. 
C)  benefits consumers because firms produce products that appeal to a wide range of consumer tastes. 
D)  can eliminate any excess capacity if all firms in the industry devote more funds to differentiating their products.

Question 12

If a monopolistically competitive firm has excess capacity,

Accepted Answer

A)  it has exhausted all economies of scale. 
B)  it is producing beyond the minimum efficient scale. 
C)  it is experiencing diseconomies of scale. 
D)  it produces an output rate that places it on the negatively sloped portion of its average total cost curve. 
A)  it has exhausted all economies of scale. 
B)  it is producing beyond the minimum efficient scale. 
C)  it is experiencing diseconomies of scale. 
D)  it produces an output rate that places it on the negatively sloped portion of its average total cost curve.

Question 13

What is the profit-maximising rule for a monopolistically competitive firm?

Accepted Answer

A)  to produce a quantity that maximises market share 
B)  to produce a quantity that maximises total revenue 
C)  to produce a quantity such that marginal revenue equals marginal cost 
D)  to produce a quantity such that price equals marginal cost 
A)  to produce a quantity that maximises market share 
B)  to produce a quantity that maximises total revenue 
C)  to produce a quantity such that marginal revenue equals marginal cost 
D)  to produce a quantity such that price equals marginal cost

Question 14

When a firm faces a downward-sloping demand curve, marginal revenue

Accepted Answer

A)  must exceed price because the price effect outweighs the output effect. 
B)  is less than price because a firm must lower its price to sell more. 
C)  equals price because the firm sells a standardised product. 
D)  must exceed price because the output effect outweighs the price effect. 
A)  must exceed price because the price effect outweighs the output effect. 
B)  is less than price because a firm must lower its price to sell more. 
C)  equals price because the firm sells a standardised product. 
D)  must exceed price because the output effect outweighs the price effect.

Question 15

-Refer to Table 10-2. What is likely to happen to the product's price in the long run?

Accepted Answer

A)  It will fall. 
B)  It will increase. 
C)  It will remain constant. 
D)  This cannot be determined without information on its long-run demand curve. 
A)  It will fall. 
B)  It will increase. 
C)  It will remain constant. 
D)  This cannot be determined without information on its long-run demand curve.

Which of the following characteristics is common to monopolistic competition and perfect competition?

There are many cattle ranchers in the world, and there are also many McDonald's restaurants in the world. Why, then, does a McDonald's restaurant face a downward-sloping demand curve while a cattle rancher faces a horizontal demand curve?

A monopolistically competitive firm is producing an output level where marginal revenue is greater than marginal cost. What should this firm do to increase its profit or reduce its losses?

A firm that successfully differentiates its product or lowers its average cost of production creates

Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?

A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?

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

Despite being in a market with ________, from the mid-1990s to the mid-2000s Starbucks was able to significantly differentiate its products from the products of its competitors.

-Refer to Table 10-3. What are the profit-maximising/loss-minimising output level and price?

Economists agree that a monopolistically competitive market structure

If a monopolistically competitive firm has excess capacity,

What is the profit-maximising rule for a monopolistically competitive firm?

When a firm faces a downward-sloping demand curve, marginal revenue

-Refer to Table 10-2. What is likely to happen to the product's price in the long run?

Economics Foundations and Models

Choices and Trade - Offs in the Market

Where Prices Come Frome : The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency , Government Price Setting and Taxes

Concumer Choice and Behavioural Economics

Technology , Production and Costs

Firms in Perfectly Compitive Markets

Monopoly Markets

Oligopoly : Firms in Less Competitve Markets

The Market for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities , Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 10: Monopolistic Competition : The Competitive Model in More Realistic Setting

Which of the following characteristics is common to monopolistic competition and perfect competition?

There are many cattle ranchers in the world, and there are also many McDonald's restaurants in the world. Why, then, does a McDonald's restaurant face a downward-sloping demand curve while a cattle rancher faces a horizontal demand curve?

A monopolistically competitive firm is producing an output level where marginal revenue is greater than marginal cost. What should this firm do to increase its profit or reduce its losses?

A firm that successfully differentiates its product or lowers its average cost of production creates

Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?

A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?

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

Despite being in a market with ________, from the mid-1990s to the mid-2000s Starbucks was able to significantly differentiate its products from the products of its competitors.

-Refer to Table 10-3. What are the profit-maximising/loss-minimising output level and price?

Economists agree that a monopolistically competitive market structure

If a monopolistically competitive firm has excess capacity,

What is the profit-maximising rule for a monopolistically competitive firm?

When a firm faces a downward-sloping demand curve, marginal revenue

-Refer to Table 10-2. What is likely to happen to the product's price in the long run?

Economics Foundations and Models

Choices and Trade - Offs in the Market

Where Prices Come Frome : The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency , Government Price Setting and Taxes

Concumer Choice and Behavioural Economics

Technology , Production and Costs

Firms in Perfectly Compitive Markets

Monopoly Markets

Oligopoly : Firms in Less Competitve Markets

The Market for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities , Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters