Question 1

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 2

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

Accepted Answer

A) Selling price equals average total cost. 
B) Production is at minimum average total cost. 
C) Marginal revenue equals marginal cost. 
D) Selling price is greater than marginal cost. 
A) Selling price equals average total cost. 
B) Production is at minimum average total cost. 
C) Marginal revenue equals marginal cost. 
D) Selling price is greater than marginal cost.

Question 3

In a monopolistically competitive market,a successful new restaurant

Accepted Answer

A) can earn economic profits in the long run if it uses barriers to restrict entry by new restaurants. 
B) will earn zero economic profit in the long run because of free entry,but competition will lead restaurants to offer different versions of the same product. 
C) will face high entry barriers because of health and safety regulations to which all restaurants are subject. 
D) must obtain a trademark to ensure that it will break even in the long run. 
A) can earn economic profits in the long run if it uses barriers to restrict entry by new restaurants. 
B) will earn zero economic profit in the long run because of free entry,but competition will lead restaurants to offer different versions of the same product. 
C) will face high entry barriers because of health and safety regulations to which all restaurants are subject. 
D) must obtain a trademark to ensure that it will break even in the long run.

Question 4

Table 10-5
   Table 10-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-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 5

If a monopolistically competitive firm breaks even,the firm

Accepted Answer

A) is earning an accounting profit and will have to pay taxes on that profit. 
B) is earning zero accounting and zero economic profit. 
C) should advertise its product to stimulate demand. 
D) should expand production. 
A) is earning an accounting profit and will have to pay taxes on that profit. 
B) is earning zero accounting and zero economic profit. 
C) should advertise its product to stimulate demand. 
D) should expand production.

Question 6

Which of the following statements is true about marginal revenue?

Accepted Answer

A) If marginal revenue is zero,it means that quantity demanded falls to zero when a firm changes its price. 
B) If marginal revenue is negative,the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. 
C) If marginal revenue is positive,the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. 
D) Marginal revenue increases as price falls and quantity sold increases. 
A) If marginal revenue is zero,it means that quantity demanded falls to zero when a firm changes its price. 
B) If marginal revenue is negative,the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. 
C) If marginal revenue is positive,the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. 
D) Marginal revenue increases as price falls and quantity sold increases.

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

If buyers of a monopolistically competitive product feel the products of different sellers have few differences between them,then the demand for each seller's product is relatively elastic.

Accepted Answer

A) True 
 B)False

Question 9

In the long-run equilibrium,a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.

Accepted Answer

A) True 
 B)False

Question 10

Figure 10-3  
-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 11

One reason why the coffeehouse market is competitive is that

Accepted Answer

A) demand for specialty coffee is very high. 
B) it is trendy and therefore is likely to have a customer following. 
C) barriers to entry are low. 
D) consumption takes place in public. 
A) demand for specialty coffee is very high. 
B) it is trendy and therefore is likely to have a customer following. 
C) barriers to entry are low. 
D) consumption takes place in public.

Question 12

A franchise is

Accepted Answer

A) a firm that buys and operates a brand name business in a new market. 
B) a firm with the legal right to sell a good or service in a particular area. 
C) a firm with no competitors. 
D) a branch of a national company. 
A) a firm that buys and operates a brand name business in a new market. 
B) a firm with the legal right to sell a good or service in a particular area. 
C) a firm with no competitors. 
D) a branch of a national company.

Question 13

The key characteristics of a monopolistically competitive market structure include

Accepted Answer

A) many small (relative to the total market)sellers acting independently. 
B) all sellers sell a homogeneous product. 
C) barriers to entry are strong. 
D) sellers have no incentive to advertise their products. 
A) many small (relative to the total market)sellers acting independently. 
B) all sellers sell a homogeneous product. 
C) barriers to entry are strong. 
D) sellers have no incentive to advertise their products.

Question 14

For a monopolistically competitive firm,price equals average revenue.

Accepted Answer

A) True 
 B)False

Question 15

Figure 10-18  
-Refer to Figure 10-18.The diagram demonstrates that

Accepted Answer

A) in the short run,the monopolistic competitor produces an output Qb,but in the long run after it adjusts its capacity,it will produce the allocatively efficient output,Qa. 
B) it is not possible for a monopolistic competitor to produce the productively efficient output level,Qa, because of product differentiation. 
C) it is possible for a monopolistic competitor to produce the productively efficient output level,Qa, if it is willing to lower its price from Pb to Pa. 
D) in the long run,the monopolistic competitor produces the minimum-cost output level,Qa, but in the short run its output of Qb is not cost minimising. 
A) in the short run,the monopolistic competitor produces an output Qb,but in the long run after it adjusts its capacity,it will produce the allocatively efficient output,Qa. 
B) it is not possible for a monopolistic competitor to produce the productively efficient output level,Qa, because of product differentiation. 
C) it is possible for a monopolistic competitor to produce the productively efficient output level,Qa, if it is willing to lower its price from Pb to Pa. 
D) in the long run,the monopolistic competitor produces the minimum-cost output level,Qa, but in the short run its output of Qb is not cost minimising.

Question 16

Figure 10-8   Figure 10-8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 10-8.What is the firm's profit-maximising price?

Accepted Answer

A) $12 
B) $13 
C) $14 
D) $16 
A) $12 
B) $13 
C) $14 
D) $16

Question 17

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 18

Unlike a perfectly competitive firm,a monopolistic competitor does not have a short-run shut-down point.

Accepted Answer

A) True 
 B)False

Question 19

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 20

For a profit-maximising monopolistically competitive firm,for the last unit sold,the marginal cost of production is less than the marginal benefit received by a customer from the purchase of that unit.

Accepted Answer

A) True 
 B)False

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.

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

In a monopolistically competitive market,a successful new restaurant

Table 10-5 Table 10-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags. -Refer to Table 10-5.What are the firm's profit-maximising or loss-minimising price and quantity?

If a monopolistically competitive firm breaks even,the firm

Which of the following statements is true about marginal revenue?

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

If buyers of a monopolistically competitive product feel the products of different sellers have few differences between them,then the demand for each seller's product is relatively elastic.

In the long-run equilibrium,a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.

Figure 10-3 -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,

One reason why the coffeehouse market is competitive is that

A franchise is

The key characteristics of a monopolistically competitive market structure include

For a monopolistically competitive firm,price equals average revenue.

Figure 10-18 -Refer to Figure 10-18.The diagram demonstrates that

Figure 10-8 Figure 10-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 10-8.What is the firm's profit-maximising price?

Economists agree that a monopolistically competitive market structure

Unlike a perfectly competitive firm,a monopolistic competitor does not have a short-run shut-down point.

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

For a profit-maximising monopolistically competitive firm,for the last unit sold,the marginal cost of production is less than the marginal benefit received by a customer from the purchase of that unit.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Oligopoly: Firms in Less Competitive Markets

The Markets 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

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Exam 10: Monopolistic Competition

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.

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

In a monopolistically competitive market,a successful new restaurant

Table 10-5 Table 10-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags. -Refer to Table 10-5.What are the firm's profit-maximising or loss-minimising price and quantity?

If a monopolistically competitive firm breaks even,the firm

Which of the following statements is true about marginal revenue?

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

If buyers of a monopolistically competitive product feel the products of different sellers have few differences between them,then the demand for each seller's product is relatively elastic.

In the long-run equilibrium,a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.

Figure 10-3 -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,

One reason why the coffeehouse market is competitive is that

A franchise is

The key characteristics of a monopolistically competitive market structure include

For a monopolistically competitive firm,price equals average revenue.

Figure 10-18 -Refer to Figure 10-18.The diagram demonstrates that

Figure 10-8 Figure 10-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 10-8.What is the firm's profit-maximising price?

Economists agree that a monopolistically competitive market structure

Unlike a perfectly competitive firm,a monopolistic competitor does not have a short-run shut-down point.

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

For a profit-maximising monopolistically competitive firm,for the last unit sold,the marginal cost of production is less than the marginal benefit received by a customer from the purchase of that unit.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Oligopoly: Firms in Less Competitive Markets

The Markets 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