Question 1

Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that

Accepted Answer

A)  firms produce at the minimum point of their average cost curves. 
B)  price equals marginal cost. 
C)  firms earn normal profits. 
D)  price equals marginal revenue. 
A)  firms produce at the minimum point of their average cost curves. 
B)  price equals marginal cost. 
C)  firms earn normal profits. 
D)  price equals marginal revenue.

Question 2

Tony's Italian Ice is a monopolistically competitive firm. If Tony's earns a profit in the short run, which of the following is most likely to occur?

Accepted Answer

A)  New firms that sell Italian ice will enter the market and Tony's cost curves will shift to the left. 
B)  New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left. 
C)  New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the right. 
D)  New firms that sell Italian ice will enter the market and Tony's demand curve will become more inelastic. 
A)  New firms that sell Italian ice will enter the market and Tony's cost curves will shift to the left. 
B)  New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left. 
C)  New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the right. 
D)  New firms that sell Italian ice will enter the market and Tony's demand curve will become more inelastic.

Question 3

The key characteristics of a monopolistically competitive market structure include

Accepted Answer

A)  few sellers. 
B)  sellers selling similar but differentiated products. 
C)  high barriers to entry. 
D)  sellers acting to maximise revenue. 
A)  few sellers. 
B)  sellers selling similar but differentiated products. 
C)  high barriers to entry. 
D)  sellers acting to maximise revenue.

Question 4

To maximise their profits and defend those profits from competitors, monopolistically competitive firms must

Accepted Answer

A)  lobby government to erect barriers to entry in their industries. 
B)  limit foreign competition in their markets by encouraging the government to impose tariffs and other trade restrictions. 
C)  differentiate their products. 
D)  achieve economies of scale. 
A)  lobby government to erect barriers to entry in their industries. 
B)  limit foreign competition in their markets by encouraging the government to impose tariffs and other trade restrictions. 
C)  differentiate their products. 
D)  achieve economies of scale.

Question 5

Suppose that if a local McDonald's restaurant reduces the price of a Big Mac from $4.00 to $3.25, the number of Big Macs it sells per day will increase from 4 to 5. Explain the output effect and the price effect resulting from this change. Using a graph, illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac. What is the total change in revenue received which results from this price decrease?

Accepted Answer

The 1 extra Big Mac sold is the output e

Question 6

In both monopolistically competitive and perfectly competitive industries,

Accepted Answer

A)  firms produce products for which there are no close substitutes. 
B)  there are high barriers to entry. 
C)  there are many buyers and sellers. 
D)  firms are price takers. 
A)  firms produce products for which there are no close substitutes. 
B)  there are high barriers to entry. 
C)  there are many buyers and sellers. 
D)  firms are price takers.

Question 7

A monopolistically competitive firm faces a downward-sloping demand curve because

Accepted Answer

A)  it is able to control price and quantity demanded. 
B)  there are few substitutes for its product. 
C)  of product differentiation. 
D)  its market decisions are affected by the decisions of its rivals. 
A)  it is able to control price and quantity demanded. 
B)  there are few substitutes for its product. 
C)  of product differentiation. 
D)  its market decisions are affected by the decisions of its rivals.

Question 8

Firms in monopolistic competition compete by selling similar, but not identical products.

Accepted Answer

A) True 
 B)False

Question 9

-Refer to Figure 10-4. What is the area that represents the total revenue made by the firm?

Accepted Answer

A)  0P0aQa 
B)  0P1bQa 
C)  0P2cQa 
D)  0P3dQa 
A)  0P0aQa 
B)  0P1bQa 
C)  0P2cQa 
D)  0P3dQa

Question 10

________ describes the actions a firm takes to maintain the differentiation of its product over time.

Accepted Answer

A)  Product differentiation 
B)  Brand management 
C)  Aggressive marketing 
D)  Advertising 
A)  Product differentiation 
B)  Brand management 
C)  Aggressive marketing 
D)  Advertising

Question 11

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 are less efficient than perfectly competitive markets?

Accepted Answer

A)  In contrast to perfectly competitive markets, neither allocative efficiency nor productive efficiency are achieved in monopolistically competitive markets. 
B)  In contrast to perfectly competitive markets, firms in monopolistically competitive markets earn economic profits in long-run equilibrium. 
C)  In contrast to perfectly competitive markets, firms in monopolistically competitive markets do not produce where price equals average total cost in long-run equilibrium. 
D)  In contrast to perfectly competitive markets, firms in monopolistically competitive markets can charge a price greater than average total cost in the short run. 
A)  In contrast to perfectly competitive markets, neither allocative efficiency nor productive efficiency are achieved in monopolistically competitive markets. 
B)  In contrast to perfectly competitive markets, firms in monopolistically competitive markets earn economic profits in long-run equilibrium. 
C)  In contrast to perfectly competitive markets, firms in monopolistically competitive markets do not produce where price equals average total cost in long-run equilibrium. 
D)  In contrast to perfectly competitive markets, firms in monopolistically competitive markets can charge a price greater than average total cost in the short run.

Question 12

Firms use two marketing tools to differentiate their products. What are these two tools?

Accepted Answer

A)  lobbying and word of mouth 
B)  market research and demand estimation 
C)  brand management and advertising 
D)  consumer surveys and market experiments 
A)  lobbying and word of mouth 
B)  market research and demand estimation 
C)  brand management and advertising 
D)  consumer surveys and market experiments

Question 13

-Refer to Table 10-5. What are the firm's profit-maximising or loss-minimising price and quantity?

Accepted Answer

A)  price = $10; quantity = 5. 
B)  price = $12; quantity = 4. 
C)  The firm should shut down temporarily. 
D)  This cannot be determined from the information given. 
A)  price = $10; quantity = 5. 
B)  price = $12; quantity = 4. 
C)  The firm should shut down temporarily. 
D)  This cannot be determined from the information given.

Question 14

Only one of the following statements is correct. The statements compare perfectly competitive (PC) markets and monopolistically competitive (MC) markets. Which statement is correct?

Accepted Answer

A)  Productive efficiency is achieved in both PC and MC markets. Allocative efficiency is achieved only in MC markets. 
B)  Allocative efficiency is achieved in both PC and MC markets. Productive efficiency is achieved only in PC markets. 
C)  Productive efficiency and allocative efficiency are both achieved in PC markets. Neither is achieved in MC markets. 
D)  Allocative efficiency is achieved only in PC markets. Productive efficiency is achieved only in MC markets. 
A)  Productive efficiency is achieved in both PC and MC markets. Allocative efficiency is achieved only in MC markets. 
B)  Allocative efficiency is achieved in both PC and MC markets. Productive efficiency is achieved only in PC markets. 
C)  Productive efficiency and allocative efficiency are both achieved in PC markets. Neither is achieved in MC markets. 
D)  Allocative efficiency is achieved only in PC markets. Productive efficiency is achieved only in MC markets.

Question 15

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

A)  Marginal revenue is equal to marginal cost. 
B)  Price is equal to average revenue. 
C)  The firm has excess capacity. 
D)  Price is equal to marginal cost. 
A)  Marginal revenue is equal to marginal cost. 
B)  Price is equal to average revenue. 
C)  The firm has excess capacity. 
D)  Price is equal to marginal cost.

Question 16

Monopolistically competitive firms achieve allocative efficiency but not productive efficiency.

Accepted Answer

A) True 
 B)False

Question 17

A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except

Accepted Answer

A)  new rivals entering the market. 
B)  a decrease in demand for its product. 
C)  demand for the firm's product becomes more elastic. 
D)  a decrease in the number of rival products. 
A)  new rivals entering the market. 
B)  a decrease in demand for its product. 
C)  demand for the firm's product becomes more elastic. 
D)  a decrease in the number of rival products.

Question 18

-Refer to Table 10-4. At Victoria's profit-maximising output,

Accepted Answer

A)  profit equals $2. 
B)  total revenue equals $24 and total cost equals $20. 
C)  total revenue equals $25 and total cost equals $22. 
D)  total revenue equals $21 and total cost equals $17. 
A)  profit equals $2. 
B)  total revenue equals $24 and total cost equals $20. 
C)  total revenue equals $25 and total cost equals $22. 
D)  total revenue equals $21 and total cost equals $17.

Question 19

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Accepted Answer

A) True 
 B)False

Question 20

Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a perfectly competitive market in that in both markets, firms

Accepted Answer

A)  produce at the minimum point of their average total cost curves. 
B)  produce where price equals marginal cost. 
C)  break even. 
D)  produce where price equals marginal revenue. 
A)  produce at the minimum point of their average total cost curves. 
B)  produce where price equals marginal cost. 
C)  break even. 
D)  produce where price equals marginal revenue.

Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that

Tony's Italian Ice is a monopolistically competitive firm. If Tony's earns a profit in the short run, which of the following is most likely to occur?

The key characteristics of a monopolistically competitive market structure include

To maximise their profits and defend those profits from competitors, monopolistically competitive firms must

In both monopolistically competitive and perfectly competitive industries,

A monopolistically competitive firm faces a downward-sloping demand curve because

Firms in monopolistic competition compete by selling similar, but not identical products.

-Refer to Figure 10-4. What is the area that represents the total revenue made by the firm?

________ describes the actions a firm takes to maintain the differentiation of its product over time.

Firms use two marketing tools to differentiate their products. What are these two tools?

-Refer to Table 10-5. What are the firm's profit-maximising or loss-minimising price and quantity?

Only one of the following statements is correct. The statements compare perfectly competitive (PC) markets and monopolistically competitive (MC) markets. Which statement is correct?

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?

Monopolistically competitive firms achieve allocative efficiency but not productive efficiency.

A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except

-Refer to Table 10-4. At Victoria's profit-maximising output,

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a perfectly competitive market in that in both markets, firms

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

Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that

Tony's Italian Ice is a monopolistically competitive firm. If Tony's earns a profit in the short run, which of the following is most likely to occur?

The key characteristics of a monopolistically competitive market structure include

To maximise their profits and defend those profits from competitors, monopolistically competitive firms must

In both monopolistically competitive and perfectly competitive industries,

A monopolistically competitive firm faces a downward-sloping demand curve because

Firms in monopolistic competition compete by selling similar, but not identical products.

-Refer to Figure 10-4. What is the area that represents the total revenue made by the firm?

________ describes the actions a firm takes to maintain the differentiation of its product over time.

Firms use two marketing tools to differentiate their products. What are these two tools?

-Refer to Table 10-5. What are the firm's profit-maximising or loss-minimising price and quantity?

Only one of the following statements is correct. The statements compare perfectly competitive (PC) markets and monopolistically competitive (MC) markets. Which statement is correct?

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?

Monopolistically competitive firms achieve allocative efficiency but not productive efficiency.

A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except

-Refer to Table 10-4. At Victoria's profit-maximising output,

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a perfectly competitive market in that in both markets, firms

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