Question 1

For allocative efficiency to hold

Accepted Answer

A) price must equal marginal revenue of the last unit sold. 
B) price must equal the marginal cost of the last unit produced. 
C) average variable cost is minimized in production. 
D) average total cost is minimized in production. 
A) price must equal marginal revenue of the last unit sold. 
B) price must equal the marginal cost of the last unit produced. 
C) average variable cost is minimized in production. 
D) average total cost is minimized in production.

Question 2

For productive efficiency to hold

Accepted Answer

A) price must equal the marginal cost of the last unit produced. 
B) price must equal marginal revenue of the last unit sold. 
C) average variable cost is minimized in production. 
D) average total cost is minimized in production. 
A) price must equal the marginal cost of the last unit produced. 
B) price must equal marginal revenue of the last unit sold. 
C) average variable cost is minimized in production. 
D) average total cost is minimized in production.

Question 3

You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants.Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce.What is likely to happen to your business in the long run?

Accepted Answer

A) Your competitors are likely to change their menus to make their products more similar to yours. 
B) Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero. 
C) If your success continues,you will be likely to establish a franchise and expand your market size. 
D) If you continue to maintain consistent quality,you will be able to earn profits indefinitely. 
A) Your competitors are likely to change their menus to make their products more similar to yours. 
B) Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero. 
C) If your success continues,you will be likely to establish a franchise and expand your market size. 
D) If you continue to maintain consistent quality,you will be able to earn profits indefinitely.

Question 4

Figure 13-11  
-Refer to Figure 13-11.The diagram depicts a firm

Accepted Answer

A) in a constant-cost industry. 
B) in an increasing-cost industry. 
C) in long-run equilibrium. 
D) that is making short-run losses. 
A) in a constant-cost industry. 
B) in an increasing-cost industry. 
C) in long-run equilibrium. 
D) that is making short-run losses.

Question 5

A monopolistically competitive firm that is earning profits will,in the long run,experience all of the following except

Accepted Answer

A) new rivals entering the market. 
B) a decrease in demand for its product. 
C) demand for the firm's product becomes more elastic. 
D) a decrease in the number of rival products. 
A) new rivals entering the market. 
B) a decrease in demand for its product. 
C) demand for the firm's product becomes more elastic. 
D) a decrease in the number of rival products.

Question 6

If a monopolistically competitive firm breaks even,the firm is earning as much in this industry as it could in any other comparable industry.

Accepted Answer

A) True 
 B)False

Question 7

Table 13-1
 $$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Total Revenue } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 7.50 & \$ 7.50 \
\hline 2 & 7.00 & 14.00 \
\hline 3 & 6.50 & 19.50 \
\hline 4 & 6.00 & 24.00 \
\hline 5 & 5.50 & 27.50 \
\hline 6 & 5.00 & 30.00 \
\hline
\end{array}$$
-Refer to Table 13-1.The Table shows

Accepted Answer

A) an elastic segment of the demand schedule. 
B) an inelastic segment of the demand schedule. 
C) a demand schedule with an elastic segment from $7.50 to $6.50 followed by an inelastic segment. 
D) a demand schedule with an inelastic segment from $7.50 to $6.50 followed by an elastic segment. 
A) an elastic segment of the demand schedule. 
B) an inelastic segment of the demand schedule. 
C) a demand schedule with an elastic segment from $7.50 to $6.50 followed by an inelastic segment. 
D) a demand schedule with an inelastic segment from $7.50 to $6.50 followed by an elastic segment.

Question 8

When new firms are encouraged to enter a monopolistically competitive market

Accepted Answer

A) some existing firms must be earning economic profits. 
B) they do so because there is insufficient product differentiation. 
C) the demand curve facing an existing firm shifts to the right. 
D) the marginal cost curve facing an existing firm shifts downwards. 
A) some existing firms must be earning economic profits. 
B) they do so because there is insufficient product differentiation. 
C) the demand curve facing an existing firm shifts to the right. 
D) the marginal cost curve facing an existing firm shifts downwards.

Question 9

Most economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.

Accepted Answer

A) True 
 B)False

Question 10

A monopolistically competitive firm is producing an output level where marginal revenue is greater than marginal cost.What should this firm do to increase its profit or reduce its losses?

Accepted Answer

A) The firm should raise its price. 
B) The firm should decrease its fixed costs. 
C) The firm should increase its implicit costs. 
D) The firm should lower its price. 
A) The firm should raise its price. 
B) The firm should decrease its fixed costs. 
C) The firm should increase its implicit costs. 
D) The firm should lower its price.

Question 11

Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 13-4.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

In the short run,a profit-maximizing firm's decision to produce should be guided by whether

Accepted Answer

A) it makes a profit. 
B) its marginal profit is maximized. 
C) its total revenue exceeds its fixed cost. 
D) its total revenue covers its variable cost. 
A) it makes a profit. 
B) its marginal profit is maximized. 
C) its total revenue exceeds its fixed cost. 
D) its total revenue covers its variable cost.

Question 13

Explain the significance of brand management to a firm that has differentiated its product.Comment specifically on the importance of obtaining a trademark.

Accepted Answer

The owner or manager of a firm that has

Question 14

Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a perfectly competitive market in that in both markets,firms

Accepted Answer

A) produce at the minimum point of their average total cost curves. 
B) produce where price equals marginal cost. 
C) break even. 
D) produce where price equals marginal revenue. 
A) produce at the minimum point of their average total cost curves. 
B) produce where price equals marginal cost. 
C) break even. 
D) produce where price equals marginal revenue.

Question 15

A monopolistically competitive market is described as one in which there are

Accepted Answer

A) a few firms producing an identical product. 
B) a large number of firms selling similar,but not identical,products. 
C) a few firms producing differentiated products. 
D) one large firm and many small firms producing identical products. 
A) a few firms producing an identical product. 
B) a large number of firms selling similar,but not identical,products. 
C) a few firms producing differentiated products. 
D) one large firm and many small firms producing identical products.

Question 16

Which of the following can a firm use to defend a successful product's brand name?

Accepted Answer

A) The firm can obtain a patent on the brand name. 
B) The firm can apply for a trademark to ban other firms from using the product's name. 
C) The firm can increase the amount it spends on advertising for the product. 
D) The firm can attempt to copyright the brand name. 
A) The firm can obtain a patent on the brand name. 
B) The firm can apply for a trademark to ban other firms from using the product's name. 
C) The firm can increase the amount it spends on advertising for the product. 
D) The firm can attempt to copyright the brand name.

Question 17

If the demand curve for a firm is downward-sloping,its marginal revenue curve

Accepted Answer

A) will lie above the demand curve. 
B) will lie below the demand curve. 
C) is the same as the demand curve. 
D) is horizontal. 
A) will lie above the demand curve. 
B) will lie below the demand curve. 
C) is the same as the demand curve. 
D) is horizontal.

Question 18

Excess capacity is a characteristic of monopolistically competitive firms.What does excess capacity mean?

Accepted Answer

A) It means that firms do not produce the output level that corresponds to the minimum point on their average total cost curves. 
B) It means that firms hire more than the minimum number of workers needed to produce the profit-maximizing level of output. 
C) It means that firms produce with inefficient combinations of resources. 
D) It means that firms build plants that are not large enough to achieve minimum efficient scale. 
A) It means that firms do not produce the output level that corresponds to the minimum point on their average total cost curves. 
B) It means that firms hire more than the minimum number of workers needed to produce the profit-maximizing level of output. 
C) It means that firms produce with inefficient combinations of resources. 
D) It means that firms build plants that are not large enough to achieve minimum efficient scale.

Question 19

When a monopolistically competitive firm lowers its price,one good thing happens to the firm.What is this "one good thing" called?

Accepted Answer

A) the output effect 
B) the price effect 
C) the income effect 
D) the substitution effect 
A) the output effect 
B) the price effect 
C) the income effect 
D) the substitution effect

Question 20

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

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

For allocative efficiency to hold

For productive efficiency to hold

Figure 13-11 -Refer to Figure 13-11.The diagram depicts a firm

A monopolistically competitive firm that is earning profits will,in the long run,experience all of the following except

If a monopolistically competitive firm breaks even,the firm is earning as much in this industry as it could in any other comparable industry.

Table 13-1 Quantity Price (dollars) Total Revenue (dollars) 1 \ 7.50 \ 7.50 2 7.00 14.00 3 6.50 19.50 4 6.00 24.00 5 5.50 27.50 6 5.00 30.00 -Refer to Table 13-1.The Table shows

When new firms are encouraged to enter a monopolistically competitive market

Most economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.

A monopolistically competitive firm is producing an output level where marginal revenue is greater than marginal cost.What should this firm do to increase its profit or reduce its losses?

Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-4.What is the area that represents the total fixed cost of production?

In the short run,a profit-maximizing firm's decision to produce should be guided by whether

Explain the significance of brand management to a firm that has differentiated its product.Comment specifically on the importance of obtaining a trademark.

Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a perfectly competitive market in that in both markets,firms

A monopolistically competitive market is described as one in which there are

Which of the following can a firm use to defend a successful product's brand name?

If the demand curve for a firm is downward-sloping,its marginal revenue curve

Excess capacity is a characteristic of monopolistically competitive firms.What does excess capacity mean?

When a monopolistically competitive firm lowers its price,one good thing happens to the firm.What is this "one good thing" called?

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.

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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