Question 1

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 2

Is a monopolistically competitive firm allocatively 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 3

Table 13-3
   
Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.
-Refer to Table 13-3.What are the profit-maximizing/loss-minimizing 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 4

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

Accepted Answer

A)  to produce a quantity that maximizes market share 
B)  to produce a quantity that maximizes 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 maximizes market share 
B)  to produce a quantity that maximizes 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 5

Figure 13-6  
-Refer to Figure 13-6.What is the monopolistic competitor's profit maximizing price?

Accepted Answer

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

Question 6

You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants.You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce.What is likely to happen in the restaurant market in your hometown after you open?

Accepted Answer

A)  Your competitors are likely to change their menus to make their products more similar to yours. 
B)  The demand curve facing each restaurant owner shifts to the right. 
C)  The demand curve facing each restaurant owner becomes more elastic. 
D)  While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic. 
A)  Your competitors are likely to change their menus to make their products more similar to yours. 
B)  The demand curve facing each restaurant owner shifts to the right. 
C)  The demand curve facing each restaurant owner becomes more elastic. 
D)  While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic.

Question 7

In the highly competitive fast-food restaurant market,brand name restaurants have a strong profit incentive to maintain high sanitary conditions and avoid any negative consequences.

Accepted Answer

A) True 
 B)False

Question 8

Figure 13-10  
-Refer to Figure 13-10.What is the amount of excess capacity?

Accepted Answer

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

Question 9

Some of the advantages Netflix had over companies like Blockbuster and Wal-Mart in successfully competing in the mail order DVD rental business include all of the following except

Accepted Answer

A)  a quick turnaround of mailing out the customer's next DVD once the previous one was returned. 
B)  an extensive system of storefront operations where customers could rent DVDs in person. 
C)  an efficient system of processing DVDs returned from customers. 
D)  a national system of warehouses allowing for quick customer delivery. 
A)  a quick turnaround of mailing out the customer's next DVD once the previous one was returned. 
B)  an extensive system of storefront operations where customers could rent DVDs in person. 
C)  an efficient system of processing DVDs returned from customers. 
D)  a national system of warehouses allowing for quick customer delivery.

Question 10

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 11

Figure 13-3   
Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 13-3.What is the area that represents the total fixed cost of production?

Accepted Answer

A)  0P1aQa 
B)  P0adP3 
C)  P1bdP3 
D)  That information cannot be determined from the graph. 
A)  0P1aQa 
B)  P0adP3 
C)  P1bdP3 
D)  That information cannot be determined from the graph.

Question 12

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 13

If marginal revenue is negative then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

Accepted Answer

A) True 
 B)False

Question 14

For a monopolistically competitive firm,price equals average revenue.

Accepted Answer

A) True 
 B)False

Question 15

Central Grocery in New Orleans is famous for its muffaletta,a large round sandwich filled with deli meats and topped with a tangy olive salad.Suppose the following table represents cost and revenue data for Central Grocery.
   Illustrate this data by graphing the demand,MR,MC,and ATC curves.Identify the profit-maximizing price and quantity,and show the area representing the total profit received by Central Grocery.

Accepted Answer

The answer of Central Grocery in New Orleans is famous...

Question 16

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 17

Figure 13-6  
-Refer to Figure 13-6.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 18

Figure 13-9  
-Refer to Figure 13-9.Figure 13-9 depicts a monopolistically competitive barber shop.Use the diagram to answer the following questions.
a.Suppose the average variable cost of production is $15 when output equals 110 haircuts and $15.25 when output equals 140 haircuts.If the firm wants to maximize its profit or minimize its losses,how many haircuts will it produce and what price should it charge? Explain your answer.
b.Calculate the firm's profit or loss.
c.What is likely to happen in this industry over time as it moves to its new long-run equilibrium?
d.Suppose the barber shop depicted in the diagram remains in the industry.Is this barber shop likely to produce this same quantity of haircuts as in part (a)in the long run?

Accepted Answer

a.Output = 110,Price = $21 where by MR=M

Question 19

Figure 13-5   
Figure 13-5 shows cost and demand curves for a monopolistically competitive producer of iced-tea.
-Refer to Figure 13-5.to answer the following questions.
a.What is the profit-maximizing output level?
b.What is the profit-maximizing price?
c.At the profit-maximizing output level,how much profit will be realized?
d.Does this graph most likely represent the long run or the short run? Why?

Accepted Answer

a.The profit-maximizing output

Question 20

How would a marketing campaign directed at single women improve the chances of success at a place like a cigar bar?

Accepted Answer

By marketing to single women,a cigar bar

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

The key characteristics of a monopolistically competitive market structure include

Is a monopolistically competitive firm allocatively efficient?

Table 13-3 Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 13-3.What are the profit-maximizing/loss-minimizing output level and price?

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

Figure 13-6 -Refer to Figure 13-6.What is the monopolistic competitor's profit maximizing price?

In the highly competitive fast-food restaurant market,brand name restaurants have a strong profit incentive to maintain high sanitary conditions and avoid any negative consequences.

Figure 13-10 -Refer to Figure 13-10.What is the amount of excess capacity?

Some of the advantages Netflix had over companies like Blockbuster and Wal-Mart in successfully competing in the mail order DVD rental business include all of the following except

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

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the total fixed cost of production?

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.

If marginal revenue is negative then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

For a monopolistically competitive firm,price equals average revenue.

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

Figure 13-6 -Refer to Figure 13-6.The firm represented in the diagram

How would a marketing campaign directed at single women improve the chances of success at a place like a cigar bar?

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

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