Question 1

When initially a monopolistically competitive industry earns economic profit, the result of competition among sellers is usually that:

Accepted Answer

A)  the price of the product increases to monopoly level. 
B)  the price of the product quickly reaches the perfectly competitive level. 
C)  firms in the industry gain market share. 
D)  firms in the industry lose market share. 
A)  the price of the product increases to monopoly level. 
B)  the price of the product quickly reaches the perfectly competitive level. 
C)  firms in the industry gain market share. 
D)  firms in the industry lose market share.

Question 2

A firm in monopolistic competition maximizes its profit by producing so that:

Accepted Answer

A)  MC = ATC. 
B)  MC = AR. 
C)  MC = MR. 
D)  MC = P. 
A)  MC = ATC. 
B)  MC = AR. 
C)  MC = MR. 
D)  MC = P.

Question 3

A monopolistically competitive industry is characterized by a _____ number of firms producing _____ products; it has _____ entry.

Accepted Answer

A)  small; identical; barriers to 
B)  small; similar; relatively easy 
C)  large; similar; relatively easy 
D)  large; identical; relatively easy 
A)  small; identical; barriers to 
B)  small; similar; relatively easy 
C)  large; similar; relatively easy 
D)  large; identical; relatively easy

Question 4

In large shopping malls, the retail clothing market is most illustrative of:

Accepted Answer

A)  monopolistic competition. 
B)  monopoly. 
C)  perfect competition. 
D)  perfect oligopoly. 
A)  monopolistic competition. 
B)  monopoly. 
C)  perfect competition. 
D)  perfect oligopoly.

Question 5

In the long run, monopolistically competitive firms tend to have:

Accepted Answer

A)  high economic profits. 
B)  zero economic profits. 
C)  negative economic profits. 
D)  substantial economic losses. 
A)  high economic profits. 
B)  zero economic profits. 
C)  negative economic profits. 
D)  substantial economic losses.

Question 6

Use the following to answer questions 
Figure: Firms in Monopolistic Competition  
-(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is _____ in panel _____.

Accepted Answer

A)  F; (
A)  
B)  G; (
A)  
C)  H; (
B)  
D)  I; (
C)  
A)  F; (
A)  
B)  G; (
A)  
C)  H; (
B)  
D)  I; (
C)

Question 7

The profit-maximizing rule MC = MR is followed by firms operating in:

Accepted Answer

A)  monopolistic competition but not perfect competition. 
B)  perfect competition but not monopolistic competition. 
C)  either monopolistic competition or perfect competition, depending on the costs of production. 
D)  both monopolistic competition and perfect competition. 
A)  monopolistic competition but not perfect competition. 
B)  perfect competition but not monopolistic competition. 
C)  either monopolistic competition or perfect competition, depending on the costs of production. 
D)  both monopolistic competition and perfect competition.

Question 8

Use the following to answer questions 
Figure: The Restaurant Market  
-The model of monopolistic competition characterizes a city's market for plumbing services. Suppose that the market is initially in long-run equilibrium, and then demand for plumbing services increases. In the short run, plumbing services' price will _____ and output will _____.

Accepted Answer

A)  fall; fall 
B)  not change; not change 
C)  rise; rise 
D)  rise; fall 
A)  fall; fall 
B)  not change; not change 
C)  rise; rise 
D)  rise; fall

Question 9

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which of the following must be TRUE for this firm?

Accepted Answer

A)  MR = MC and P = ATC. 
B)  MR = MC and P > ATC. 
C)  MR > MC and P = ATC. 
D)  P = MR = MC > ATC. 
A)  MR = MC and P = ATC. 
B)  MR = MC and P > ATC. 
C)  MR > MC and P = ATC. 
D)  P = MR = MC > ATC.

Question 10

Use the following to answer questions 
Figure: Profits in Monopolistic Competition  
-(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A positive economic profit is earned if the profit-maximizing price is _____ in panel _____.

Accepted Answer

A)  E; (
B)  
B)  B; (
A)  
C)  A; (
A)  
D)  N; (
C)  
A)  E; (
B)  
B)  B; (
A)  
C)  A; (
A)  
D)  N; (
C)

Question 11

Use the following to answer questions 
Figure: Profits in Monopolistic Competition  
-(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A long-run equilibrium is illustrated at the profit-maximizing price _____ in panel _____.

Accepted Answer

A)  A; (
A)  
B)  E; (
B)  
C)  B; (
A)  
D)  N; (
C)  
A)  A; (
A)  
B)  E; (
B)  
C)  B; (
A)  
D)  N; (
C)

Question 12

Use the following to answer questions 
Figure: Firms in Monopolistic Competition  
-(Figure: Firms in Monopolistic Competition) In panel (A) of the figure Firms in Monopolistic Competition, economic profit per unit is:

Accepted Answer

A)  KL. 
B)  LO. 
C)  MN. 
D)  NO. 
A)  KL. 
B)  LO. 
C)  MN. 
D)  NO.

Question 13

Use the following to answer questions 
Figure: The Restaurant Market  
-(Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the restaurant market. For the restaurant shown here, the profit-maximizing price is:

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  Not enough information is given to answer the question. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  Not enough information is given to answer the question.

Question 14

Monopolistic competition is an industry structure characterized by:

Accepted Answer

A)  a product with no close substitutes. 
B)  a horizontal demand curve. 
C)  a large number of firms. 
D)  barriers to entry and exit. 
A)  a product with no close substitutes. 
B)  a horizontal demand curve. 
C)  a large number of firms. 
D)  barriers to entry and exit.

Question 15

Use the following to answer questions 
Figure: Firms in Monopolistic Competition  
-(Figure: Firms in Monopolistic Competition) In panel (C) of the figure Firms in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:

Accepted Answer

A)  U. 
B)  V. 
C)  W. 
D)  X. 
A)  U. 
B)  V. 
C)  W. 
D)  X.

Question 16

If a firm operating in monopolistic competition is producing a quantity that generates MC > MR, then the marginal decision rule tells us that profit:

Accepted Answer

A)  can be increased by increasing production. 
B)  can be increased by decreasing production. 
C)  can be increased by decreasing the price. 
D)  is maximized only if MC = P. 
A)  can be increased by increasing production. 
B)  can be increased by decreasing production. 
C)  can be increased by decreasing the price. 
D)  is maximized only if MC = P.

Question 17

Product differentiation under monopolistic competition means that each firm:

Accepted Answer

A)  charges a slightly different price. 
B)  has a pure monopoly. 
C)  maximizes profit where MC = P. 
D)  faces a horizontal demand curve. 
A)  charges a slightly different price. 
B)  has a pure monopoly. 
C)  maximizes profit where MC = P. 
D)  faces a horizontal demand curve.

Question 18

An industry characterized by many firms producing similar but differentiated products in a market with easy entry and exit is called:

Accepted Answer

A)  perfectly competitive. 
B)  monopolistic. 
C)  monopolistically competitive. 
D)  oligopolistic. 
A)  perfectly competitive. 
B)  monopolistic. 
C)  monopolistically competitive. 
D)  oligopolistic.

Question 19

The model of monopolistic competition characterizes the market for plumbing services. This market is initially in long-run equilibrium, but then there is an increase in the market demand for plumbing services. We expect that in the long run, the economic profits of typical firms will be:

Accepted Answer

A)  typical of those earned by monopoly firms. 
B)  negative. 
C)  zero. 
D)  positive but less than the level typically earned by monopoly firms. 
A)  typical of those earned by monopoly firms. 
B)  negative. 
C)  zero. 
D)  positive but less than the level typically earned by monopoly firms.

Question 20

Use the following to answer questions 
Figure: Firms in Monopolistic Competition  
-(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. There will be a negative economic profit (or an economic loss) earned at the profit-maximizing price _____ in panel _____.

Accepted Answer

A)  G; (
A)  
B)  H; (
B)  
C)  I; (
C)  
D)  J; (
C)  
A)  G; (
A)  
B)  H; (
B)  
C)  I; (
C)  
D)  J; (
C)

Exam 14: Monopolistic Competition and Product Differentiation

When initially a monopolistically competitive industry earns economic profit, the result of competition among sellers is usually that:

A firm in monopolistic competition maximizes its profit by producing so that:

A monopolistically competitive industry is characterized by a _____ number of firms producing _____ products; it has _____ entry.

In large shopping malls, the retail clothing market is most illustrative of:

In the long run, monopolistically competitive firms tend to have:

Use the following to answer questions Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is _____ in panel _____.

The profit-maximizing rule MC = MR is followed by firms operating in:

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which of the following must be TRUE for this firm?

Use the following to answer questions Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A positive economic profit is earned if the profit-maximizing price is _____ in panel _____.

Use the following to answer questions Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A long-run equilibrium is illustrated at the profit-maximizing price _____ in panel _____.

Use the following to answer questions Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) In panel (A) of the figure Firms in Monopolistic Competition, economic profit per unit is:

Monopolistic competition is an industry structure characterized by:

Use the following to answer questions Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) In panel (C) of the figure Firms in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:

If a firm operating in monopolistic competition is producing a quantity that generates MC > MR, then the marginal decision rule tells us that profit:

Product differentiation under monopolistic competition means that each firm:

An industry characterized by many firms producing similar but differentiated products in a market with easy entry and exit is called:

The model of monopolistic competition characterizes the market for plumbing services. This market is initially in long-run equilibrium, but then there is an increase in the market demand for plumbing services. We expect that in the long run, the economic profits of typical firms will be:

First Principles

Economic Models- Trade-Offs and Trade

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas- Meddling With Markets

Elasticity

Taxes

The Rational Consumer

International Trade

Decision Making by Individuals and Firms

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Macroeconomics- the Big Picture

Gdp and the Consumer Price Index

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Macroeconomics- Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

Toward a Fuller Understanding

Consumer Preferences and Consumer Choice

Indifference Curve Analysis of Labor Supply

Filters

A monopolistically competitive industry is characterized by a ___ number of firms producing _ products; it has ___ entry.

Use the following to answer questions Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is _ in panel _.

Use the following to answer questions Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A positive economic profit is earned if the profit-maximizing price is _ in panel _.

Use the following to answer questions Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A long-run equilibrium is illustrated at the profit-maximizing price _ in panel _.