Question 1

In the short run, a profit-maximising firm's decision to produce should be guided by whether

Accepted Answer

A)  it makes a profit. 
B)  its marginal profit is maximised. 
C)  its total revenue exceeds its fixed cost. 
D)  its total revenue covers its variable cost. 
A)  it makes a profit. 
B)  its marginal profit is maximised. 
C)  its total revenue exceeds its fixed cost. 
D)  its total revenue covers its variable cost.

Question 2

Monopolistically competitive firms face a perfectly elastic demand curve.

Accepted Answer

A) True 
 B)False

Question 3

-Refer to Figure 10-12. The firm represented in the diagram

Accepted Answer

A)  makes zero economic profit. 
B)  makes zero accounting profit. 
C)  should exit the industry. 
D)  should expand its output to take advantage of economies of scale. 
A)  makes zero economic profit. 
B)  makes zero accounting profit. 
C)  should exit the industry. 
D)  should expand its output to take advantage of economies of scale.

Question 4

Consumers in a monopolistically competitive market do not receive any consumer surplus because the price paid for the product exceeds the marginal cost of production.

Accepted Answer

A) True 
 B)False

Question 5

Refer to Table 10-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

Accepted Answer

A)  output effect = $3.00; price effect = $0.50 
B)  output effect = $1.50; price effect = $2.00 
C)  output effect = $5.50; price effect = -$2.00 
D)  output effect = $4.00; price effect = -$0.50 
A)  output effect = $3.00; price effect = $0.50 
B)  output effect = $1.50; price effect = $2.00 
C)  output effect = $5.50; price effect = -$2.00 
D)  output effect = $4.00; price effect = -$0.50

Question 6

-Refer to Figure 10-3. The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit. Based on the diagram in the figure,

Accepted Answer

A)  X represents the gain (price effect) and Y the loss (output effect). 
B)  X + Z represents the loss (output effect) and Y the gain (price effect). 
C)  Y represents the gain (output effect) and X the loss (price effect). 
D)  X represents the loss (price effect) and Y + Z the gain (output effect). 
A)  X represents the gain (price effect) and Y the loss (output effect). 
B)  X + Z represents the loss (output effect) and Y the gain (price effect). 
C)  Y represents the gain (output effect) and X the loss (price effect). 
D)  X represents the loss (price effect) and Y + Z the gain (output effect).

Question 7

In contrast with perfect competition, excess capacity characterises monopolistic competition. Excess capacity is due to which of the following?

Accepted Answer

A)  Monopolistically competitive firms produce at the minimum point on their average total cost curves. 
B)  Monopolistically competitive firms face downward-sloping demand curves. In the long run, firms produce where their demand curves are tangent to their long-run average total cost curves. 
C)  Monopolistically competitive firms produce where marginal revenue is equal to marginal cost. 
D)  Monopolistically competitive markets have low barriers to entry. 
A)  Monopolistically competitive firms produce at the minimum point on their average total cost curves. 
B)  Monopolistically competitive firms face downward-sloping demand curves. In the long run, firms produce where their demand curves are tangent to their long-run average total cost curves. 
C)  Monopolistically competitive firms produce where marginal revenue is equal to marginal cost. 
D)  Monopolistically competitive markets have low barriers to entry.

Question 8

-Refer to Figure 10-14. What is the output price?

Accepted Answer

A)  P4 
B)  P3 
C)  P2 
D)  P1 
A)  P4 
B)  P3 
C)  P2 
D)  P1

Question 9

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

Accepted Answer

A)  The demand curve will shift to the left and became more elastic. 
B)  The demand curve will shift to the left and became less elastic. 
C)  The demand curve will shift to the right and became more elastic. 
D)  The demand curve will shift to the right and became less elastic. 
A)  The demand curve will shift to the left and became more elastic. 
B)  The demand curve will shift to the left and became less elastic. 
C)  The demand curve will shift to the right and became more elastic. 
D)  The demand curve will shift to the right and became less elastic.

Question 10

How might a monopolistically competitive firm continually earn economic profit greater than zero?

Accepted Answer

A monopolistically competitive

Question 11

How does the long run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

Accepted Answer

A)  A firm in monopolistic competition will earn economic profits, but a firm in perfect competition earns zero profit. 
B)  A firm in monopolistic competition will charge a price higher than the average cost of production, but a firm in perfect competition charges a price equal to the average cost of production. 
C)  A firm in monopolistic competition does not take full advantage of its economies of scale, but a firm in perfect competition produces at the lowest average cost possible. 
D)  A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level. 
A)  A firm in monopolistic competition will earn economic profits, but a firm in perfect competition earns zero profit. 
B)  A firm in monopolistic competition will charge a price higher than the average cost of production, but a firm in perfect competition charges a price equal to the average cost of production. 
C)  A firm in monopolistic competition does not take full advantage of its economies of scale, but a firm in perfect competition produces at the lowest average cost possible. 
D)  A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level.

Question 12

-Refer to Figure 10-14. If the diagram represents a typical firm in the market, what is likely to happen in the long run?

Accepted Answer

A)  Some firms will exit the market causing the demand to increase for firms remaining in the market. 
B)  New firms will enter the market causing the demand to decrease for existing firms. 
C)  Inefficient firms will exit the market and new cost-efficient firms will enter the market. 
D)  Competition will be intensified as firms strive to make long-run profits. 
A)  Some firms will exit the market causing the demand to increase for firms remaining in the market. 
B)  New firms will enter the market causing the demand to decrease for existing firms. 
C)  Inefficient firms will exit the market and new cost-efficient firms will enter the market. 
D)  Competition will be intensified as firms strive to make long-run profits.

Question 13

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because

Accepted Answer

A)  barriers to entry are very low. 
B)  there are many firms in the market. 
C)  products are differentiated. 
D)  entry into the market is blocked. 
A)  barriers to entry are very low. 
B)  there are many firms in the market. 
C)  products are differentiated. 
D)  entry into the market is blocked.

Question 14

-Refer to Figure 10-7. Which of the following is the area that represents the profit or loss experienced by the firm?

Accepted Answer

A)  A loss represented by the rectangle P2uvP1. 
B)  A loss represented by the rectangle P2uwP0. 
C)  A loss represented by the rectangle P1vwP0. 
D)  An accounting profit equal to P1vwP0. 
A)  A loss represented by the rectangle P2uvP1. 
B)  A loss represented by the rectangle P2uwP0. 
C)  A loss represented by the rectangle P1vwP0. 
D)  An accounting profit equal to P1vwP0.

Question 15

In the long run, if price is less than average cost

Accepted Answer

A)  there is an incentive for firms to exit the market. 
B)  there is profit incentive for firms to enter the market. 
C)  the market must be in long-run equilibrium. 
D)  there is no incentive for the number of firms in the market to change. 
A)  there is an incentive for firms to exit the market. 
B)  there is profit incentive for firms to enter the market. 
C)  the market must be in long-run equilibrium. 
D)  there is no incentive for the number of firms in the market to change.

Question 16

Which of the following can a firm use to defend a successful product's brand name?

Accepted Answer

A)  The firm can obtain a patent on the brand name. 
B)  The firm can apply for a trademark to ban other firm's from using the product's name. 
C)  The firm can increase the amount it spends on advertising for the product. 
D)  The firm can attempt to copyright the brand name. 
A)  The firm can obtain a patent on the brand name. 
B)  The firm can apply for a trademark to ban other firm's from using the product's name. 
C)  The firm can increase the amount it spends on advertising for the product. 
D)  The firm can attempt to copyright the brand name.

Question 17

Monopolistically competitive firms have downward-sloping demand curves. In the long run, monopolistically competitive firms earn zero economic profits. These two characteristics imply that in the long run

Accepted Answer

A)  monopolistically competitive markets achieve productive efficiency. 
B)  monopolistically competitive markets achieve allocative efficiency. 
C)  monopolistically competitive firms earn economic profits. 
D)  monopolistically competitive firms have excess capacity. 
A)  monopolistically competitive markets achieve productive efficiency. 
B)  monopolistically competitive markets achieve allocative efficiency. 
C)  monopolistically competitive firms earn economic profits. 
D)  monopolistically competitive firms have excess capacity.

Question 18

-Refer to Figure 10-17. What is the allocatively efficient output for the firm represented in the diagram?

Accepted Answer

A)  Qf units 
B)  Qg units 
C)  Qh units 
D)  Qj units 
A)  Qf units 
B)  Qg units 
C)  Qh units 
D)  Qj units

Question 19

-Refer to Figure 10-2. The marginal revenue from selling the additional unit Qb instead of Qa equals

Accepted Answer

A)  the area (G + H). 
B)  the area (H -
E) . 
C)  the area (E + F) - (G + H). 
D)  the area G. 
A)  the area (G + H). 
B)  the area (H -
E) . 
C)  the area (E + F) - (G + H). 
D)  the area G.

Question 20

The most important of the factors that make a firm successful and that can be controlled by the firm's owners and managers are

Accepted Answer

A)  the establishment of trademarks for its products and the aggressive defense of those trademarks. 
B)  lobbying government to erect or enforce entry barriers in its markets and the marketing of its products as widely as possible. 
C)  the differentiation of its products and the production of products at a lower average cost than competing firms. 
D)  the selection of the prices of its products and the selection of the most productive and loyal employees. 
A)  the establishment of trademarks for its products and the aggressive defense of those trademarks. 
B)  lobbying government to erect or enforce entry barriers in its markets and the marketing of its products as widely as possible. 
C)  the differentiation of its products and the production of products at a lower average cost than competing firms. 
D)  the selection of the prices of its products and the selection of the most productive and loyal employees.

In the short run, a profit-maximising firm's decision to produce should be guided by whether

Monopolistically competitive firms face a perfectly elastic demand curve.

-Refer to Figure 10-12. The firm represented in the diagram

Consumers in a monopolistically competitive market do not receive any consumer surplus because the price paid for the product exceeds the marginal cost of production.

Refer to Table 10-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

-Refer to Figure 10-3. The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit. Based on the diagram in the figure,

In contrast with perfect competition, excess capacity characterises monopolistic competition. Excess capacity is due to which of the following?

-Refer to Figure 10-14. What is the output price?

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

How might a monopolistically competitive firm continually earn economic profit greater than zero?

How does the long run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

-Refer to Figure 10-14. If the diagram represents a typical firm in the market, what is likely to happen in the long run?

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because

-Refer to Figure 10-7. Which of the following is the area that represents the profit or loss experienced by the firm?

In the long run, if price is less than average cost

Which of the following can a firm use to defend a successful product's brand name?

Monopolistically competitive firms have downward-sloping demand curves. In the long run, monopolistically competitive firms earn zero economic profits. These two characteristics imply that in the long run

-Refer to Figure 10-17. What is the allocatively efficient output for the firm represented in the diagram?

-Refer to Figure 10-2. The marginal revenue from selling the additional unit Q_b instead of Q_a equals

The most important of the factors that make a firm successful and that can be controlled by the firm's owners and managers are

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

In the short run, a profit-maximising firm's decision to produce should be guided by whether

Monopolistically competitive firms face a perfectly elastic demand curve.

-Refer to Figure 10-12. The firm represented in the diagram

Consumers in a monopolistically competitive market do not receive any consumer surplus because the price paid for the product exceeds the marginal cost of production.

Refer to Table 10-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

-Refer to Figure 10-3. The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit. Based on the diagram in the figure,

In contrast with perfect competition, excess capacity characterises monopolistic competition. Excess capacity is due to which of the following?

-Refer to Figure 10-14. What is the output price?

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

How might a monopolistically competitive firm continually earn economic profit greater than zero?

How does the long run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

-Refer to Figure 10-14. If the diagram represents a typical firm in the market, what is likely to happen in the long run?

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because

-Refer to Figure 10-7. Which of the following is the area that represents the profit or loss experienced by the firm?

In the long run, if price is less than average cost

Which of the following can a firm use to defend a successful product's brand name?

Monopolistically competitive firms have downward-sloping demand curves. In the long run, monopolistically competitive firms earn zero economic profits. These two characteristics imply that in the long run

-Refer to Figure 10-17. What is the allocatively efficient output for the firm represented in the diagram?

-Refer to Figure 10-2. The marginal revenue from selling the additional unit Qb instead of Qa equals

The most important of the factors that make a firm successful and that can be controlled by the firm's owners and managers are

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

-Refer to Figure 10-2. The marginal revenue from selling the additional unit Q_b instead of Q_a equals