Question 1

Figure 13-6  
-Refer to Figure 13-6.What is the productively efficient output for the firm represented in the diagram?

Accepted Answer

A)  Q1 units 
B)  Q2 units 
C)  Q3 units 
D)  Q4 units 
A)  Q1 units 
B)  Q2 units 
C)  Q3 units 
D)  Q4 units

Question 2

A monopolistically competitive firm maximizes profit where

Accepted Answer

A)  price = marginal revenue. 
B)  price > marginal cost. 
C)  marginal revenue > average revenue. 
D)  total revenue > marginal cost. 
A)  price = marginal revenue. 
B)  price > marginal cost. 
C)  marginal revenue > average revenue. 
D)  total revenue > marginal cost.

Question 3

Why do most firms in monopolistic competition typically make zero profit in the long run?

Accepted Answer

A)  because firms produce differentiated products 
B)  because the lack of entry barriers would compete away profits 
C)  because firms do not produce at their minimum efficient scale 
D)  because the total market is not large enough to accommodate so many firms 
A)  because firms produce differentiated products 
B)  because the lack of entry barriers would compete away profits 
C)  because firms do not produce at their minimum efficient scale 
D)  because the total market is not large enough to accommodate so many firms

Question 4

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

Accepted Answer

A)  the original firm is driven into bankruptcy. 
B)  the firm's demand curve is perfectly elastic. 
C)  the firm's demand curve is tangent to its average total cost curve. 
D)  the firm exits the market. 
A)  the original firm is driven into bankruptcy. 
B)  the firm's demand curve is perfectly elastic. 
C)  the firm's demand curve is tangent to its average total cost curve. 
D)  the firm exits the market.

Question 5

Figure 13-6  
-Refer to Figure 13-6.What is the amount of excess capacity?

Accepted Answer

A)  Q4 - Q3 units 
B)  Q4 - Q2 units 
C)  Q3 - Q2 units 
D)  Q3 - Q1 units 
A)  Q4 - Q3 units 
B)  Q4 - Q2 units 
C)  Q3 - Q2 units 
D)  Q3 - Q1 units

Question 6

Figure 13-13  
-Refer to Figure 13-13.Assume Starbucks is successful with its new health and wellness stores,and as a result it is able to earn economic profits.Which of the graphs in the figure above reflects this?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  either Panel A or Panel B 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  either Panel A or Panel B

Question 7

For a monopolistically competitive firm,marginal revenue

Accepted Answer

A)  equals the price. 
B)  is greater than the price. 
C)  is less than the price. 
D)  and price are unrelated. 
A)  equals the price. 
B)  is greater than the price. 
C)  is less than the price. 
D)  and price are unrelated.

Question 8

Figure 13-12  
-Refer to Figure 13-12 to answer the following questions.
a.What is the productively efficient output?
b.What is the allocatively efficient output?
c.What is the amount of excess capacity?
d.Suppose the firm is currently producing 14 units.What happens if it increases output to 17 units?

Accepted Answer

a.The productively efficient output is 2

Question 9

For a profit-maximizing 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

Question 10

A successful trademark is one that becomes a generic name for a product,for example,"Kleenex" has become a generic term for tissues.

Accepted Answer

A) True 
 B)False

Question 11

Recent research has shown that the first firm to enter a market often does not have a long-term advantage over later entrants into the market.An example that has been used to illustrate this is

Accepted Answer

A)  McDonald's entry into the high-end coffee market. 
B)  Xerox, which became a generic term for making photocopies. 
C)  Abercrombie and Fitch, which was the first clothing company to market to young men. 
D)  the introduction of the first ballpoint pen in 1945. 
A)  McDonald's entry into the high-end coffee market. 
B)  Xerox, which became a generic term for making photocopies. 
C)  Abercrombie and Fitch, which was the first clothing company to market to young men. 
D)  the introduction of the first ballpoint pen in 1945.

Question 12

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 13

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Accepted Answer

A) True 
 B)False

Question 14

Assume that price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118,then to maximize profits the firm should increase its output.

Accepted Answer

A) True 
 B)False

Question 15

As customers switch from renting DVDs to downloading or streaming movies from the Internet,Netflix will likely find it ________ to remain profitable as they face ________ competition with streaming movies than with mail order DVD rental.

Accepted Answer

A)  harder; more 
B)  harder; less 
C)  easier; more 
D)  easier; less 
A)  harder; more 
B)  harder; less 
C)  easier; more 
D)  easier; less

Question 16

Is a monopolistically competitive firm productively efficient?

Accepted Answer

A)  No, because it does not produce at minimum average total cost. 
B)  Yes, because it produces where marginal cost equals marginal revenue. 
C)  No, because price is greater than marginal cost. 
D)  Yes, because price equals average total cost. 
A)  No, because it does not produce at minimum average total cost. 
B)  Yes, because it produces where marginal cost equals marginal revenue. 
C)  No, because price is greater than marginal cost. 
D)  Yes, because price equals average total cost.

Question 17

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 18

Consumers in monopolistically competitive markets face a tradeoff between paying prices greater than marginal costs and purchasing products that are more closely suited to their tastes.

Accepted Answer

A) True 
 B)False

Question 19

In theory,in the long run,monopolistically competitive firms earns zero profits.However,in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

Accepted Answer

A)  gradually increase the mark up on the goods produced 
B)  lower the price of its products to expand its market share 
C)  identify new markets and develop products precisely for those markets 
D)  find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment 
A)  gradually increase the mark up on the goods produced 
B)  lower the price of its products to expand its market share 
C)  identify new markets and develop products precisely for those markets 
D)  find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment

Question 20

A monopolistically competitive industry that earns economic profits in the short run will be able to expand its market share even if the market size remains constant.

Accepted Answer

A) True 
 B)False

Exam 13: Monopolistic Competition: The Competitive Model in a More Realistic Setting

Figure 13-6 -Refer to Figure 13-6.What is the productively efficient output for the firm represented in the diagram?

A monopolistically competitive firm maximizes profit where

Why do most firms in monopolistic competition typically make zero profit in the long run?

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

Figure 13-6 -Refer to Figure 13-6.What is the amount of excess capacity?

Figure 13-13 -Refer to Figure 13-13.Assume Starbucks is successful with its new health and wellness stores,and as a result it is able to earn economic profits.Which of the graphs in the figure above reflects this?

For a monopolistically competitive firm,marginal revenue

For a profit-maximizing 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.

A successful trademark is one that becomes a generic name for a product,for example,"Kleenex" has become a generic term for tissues.

Recent research has shown that the first firm to enter a market often does not have a long-term advantage over later entrants into the market.An example that has been used to illustrate this is

If a monopolistically competitive firm breaks even,the firm

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Assume that price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118,then to maximize profits the firm should increase its output.

As customers switch from renting DVDs to downloading or streaming movies from the Internet,Netflix will likely find it ________ to remain profitable as they face ________ competition with streaming movies than with mail order DVD rental.

Is a monopolistically competitive firm productively efficient?

One reason why the coffeehouse market is competitive is that

Consumers in monopolistically competitive markets face a tradeoff between paying prices greater than marginal costs and purchasing products that are more closely suited to their tastes.

In theory,in the long run,monopolistically competitive firms earns zero profits.However,in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

A monopolistically competitive industry that earns economic profits in the short run will be able to expand its market share even if the market size remains constant.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: The Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

As customers switch from renting DVDs to downloading or streaming movies from the Internet,Netflix will likely find it to remain profitable as they face competition with streaming movies than with mail order DVD rental.