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

Figure 13-13  
-Refer to Figure 13-13.What is the profit maximizing output level?

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 3

The profit-maximizing rule for a monopolistically competitive firm is to select the quantity at which

Accepted Answer

A) marginal revenue equals marginal cost. 
B) average revenue exceeds marginal cost by the greatest amount. 
C) price equals marginal cost. 
D) average revenue equals average total cost. 
A) marginal revenue equals marginal cost. 
B) average revenue exceeds marginal cost by the greatest amount. 
C) price equals marginal cost. 
D) average revenue equals average total cost.

Question 4

Figure 13-11  
-Refer to Figure 13-11.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 5

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 6

In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?

Accepted Answer

A) Firms in perfect competition achieve productive and allocative efficiency while firms in monopolistic competition achieve neither allocative nor productive efficiency. 
B) The only difference is that in a monopolistically competitive market there are many brands to choose from while in a perfectly competitive market there is one standard product. 
C) Firms in perfect competition achieve productive efficiency while firms in monopolistic competition achieve allocative efficiency. 
D) Firms in perfect competition achieve allocative efficiency while firms in monopolistic competition achieve brand efficiency. 
A) Firms in perfect competition achieve productive and allocative efficiency while firms in monopolistic competition achieve neither allocative nor productive efficiency. 
B) The only difference is that in a monopolistically competitive market there are many brands to choose from while in a perfectly competitive market there is one standard product. 
C) Firms in perfect competition achieve productive efficiency while firms in monopolistic competition achieve allocative efficiency. 
D) Firms in perfect competition achieve allocative efficiency while firms in monopolistic competition achieve brand efficiency.

Question 7

If a restaurant like Buffalo Wild Wings has higher costs than a comparable Hooters restaurant,the only way it can have higher profits is if

Accepted Answer

A) it has more locations than Hooters. 
B) its marginal revenue is lower than the marginal revenue of Hooters. 
C) the demand for its food is higher than the demand for food at Hooters. 
D) it sells the quantity associated with its minimum average total cost. 
A) it has more locations than Hooters. 
B) its marginal revenue is lower than the marginal revenue of Hooters. 
C) the demand for its food is higher than the demand for food at Hooters. 
D) it sells the quantity associated with its minimum average total cost.

Question 8

Figure 13-3  
-Refer to Figure 13-3.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 9

Monopolistically competitive firms have downward-sloping demand curves.In the long run,monopolistically competitive firms earn zero economic profits.These two characteristics imply that in the long run

Accepted Answer

A) monopolistically competitive markets achieve productive efficiency. 
B) monopolistically competitive markets achieve allocative efficiency. 
C) monopolistically competitive firms earn economic profits. 
D) monopolistically competitive firms have excess capacity. 
A) monopolistically competitive markets achieve productive efficiency. 
B) monopolistically competitive markets achieve allocative efficiency. 
C) monopolistically competitive firms earn economic profits. 
D) monopolistically competitive firms have excess capacity.

Question 10

Which of the following is not a characteristic of monopolistic competition?

Accepted Answer

A) There are many buyers and sellers. 
B) There are low barriers to entry. 
C) Average revenue is equal to price. 
D) The products sold by all firms are identical. 
A) There are many buyers and sellers. 
B) There are low barriers to entry. 
C) Average revenue is equal to price. 
D) The products sold by all firms are identical.

Question 11

Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 13-8.Based on the diagram,one can conclude that

Accepted Answer

A) some existing firms will exit the market. 
B) new firms will enter the market. 
C) the industry is in long-run equilibrium. 
D) firms achieve productive efficiency. 
A) some existing firms will exit the market. 
B) new firms will enter the market. 
C) the industry is in long-run equilibrium. 
D) firms achieve productive efficiency.

Question 12

When a firm has been granted a trademark,which grants legal protection against other firms using the name of the product that has been granted the trademark,the firm

Accepted Answer

A) still faces the possibility that the name will become widely used and no longer associated with a specific company. 
B) does not have to worry about legally enforcing the trademark;this is the responsibility of the legal system. 
C) still must apply for a copyright and a patent to ensure that no other firm will use the product's name. 
D) must spend an annual amount on advertising the product each year;the amount it must spend is negotiated by the firm and the government agency that grants the trademark. 
A) still faces the possibility that the name will become widely used and no longer associated with a specific company. 
B) does not have to worry about legally enforcing the trademark;this is the responsibility of the legal system. 
C) still must apply for a copyright and a patent to ensure that no other firm will use the product's name. 
D) must spend an annual amount on advertising the product each year;the amount it must spend is negotiated by the firm and the government agency that grants the trademark.

Question 13

Consumers in monopolistically competitive markets face a trade-off 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 14

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 15

$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array} { c } 
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 75 & \$ 75 & \$ 60 \
\hline 2 & 70 & 140 & 85 \
\hline 3 & 65 & 195 & 105 \
\hline 4 & 60 & 240 & 115 \
\hline 5 & 55 & 275 & 130 \
\hline 6 & 50 & 300 & 155 \
\hline 7 & 45 & 315 & 190 \
\hline 8 & 40 & 320 & 230 \
\hline 9 & 35 & 315 & 280 \
\hline
\end{array}$$ Eco Energy is a monopolistically competitive producer of a sports beverage called Power On.Table 13-2 shows the firm's demand and cost schedules.
-Refer to Table 13-2.What is the marginal profit from producing and selling the 5th case?

Accepted Answer

A) $275 
B) $145 
C) $35 
D) $20 
A) $275 
B) $145 
C) $35 
D) $20

Question 16

How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

Accepted Answer

A) A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit. 
B) A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production. 
C) A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible. 
D) A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level. 
A) A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit. 
B) A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production. 
C) A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible. 
D) A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level.

Question 17

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 18

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 19

Which of the following characterizes the market that Chipotle competes in?

Accepted Answer

A) All "fast-casual" restaurants face horizontal demand curves. 
B) "Fast-casual" restaurants sell identical products. 
C) Barriers to entry are low. 
D) There are a small number of firms. 
A) All "fast-casual" restaurants face horizontal demand curves. 
B) "Fast-casual" restaurants sell identical products. 
C) Barriers to entry are low. 
D) There are a small number of firms.

Question 20

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases then

Accepted Answer

A) the output effect of the price change was less than the price effect. 
B) the output effect of the price change was greater than the price effect. 
C) the firm's demand curve must have decreased. 
D) the substitution effect of the price change was greater than the income effect. 
A) the output effect of the price change was less than the price effect. 
B) the output effect of the price change was greater than the price effect. 
C) the firm's demand curve must have decreased. 
D) the substitution effect of the price change was greater than the income effect.

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

The key characteristics of a monopolistically competitive market structure include

Figure 13-13 -Refer to Figure 13-13.What is the profit maximizing output level?

The profit-maximizing rule for a monopolistically competitive firm is to select the quantity at which

Figure 13-11 -Refer to Figure 13-11.What is the productively efficient output for the firm represented in the diagram?

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.

In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?

If a restaurant like Buffalo Wild Wings has higher costs than a comparable Hooters restaurant,the only way it can have higher profits is if

Figure 13-3 -Refer to Figure 13-3.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

Monopolistically competitive firms have downward-sloping demand curves.In the long run,monopolistically competitive firms earn zero economic profits.These two characteristics imply that in the long run

Which of the following is not a characteristic of monopolistic competition?

Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 13-8.Based on the diagram,one can conclude that

When a firm has been granted a trademark,which grants legal protection against other firms using the name of the product that has been granted the trademark,the firm

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

How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

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

Which of the following statements is true about marginal revenue?

Which of the following characterizes the market that Chipotle competes in?

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases then

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