Question 1

Which of the following statements is true about monopolistically competitive firms?

Accepted Answer

A) Unlike perfectly competitive firms,monopolistically competitive firms are able to raise their prices without losing all of their customers. 
B) Like perfectly competitive firms,monopolistically competitive firms are not able to raise prices without losing all of their customers because they face competition from firms selling similar products. 
C) Like perfectly competitive firms,monopolistically competitive firms maximize their profits by setting price equal to marginal cost. 
D) Unlike perfectly competitive firms,monopolistically competitive face perfectly inelastic demand curves. 
A) Unlike perfectly competitive firms,monopolistically competitive firms are able to raise their prices without losing all of their customers. 
B) Like perfectly competitive firms,monopolistically competitive firms are not able to raise prices without losing all of their customers because they face competition from firms selling similar products. 
C) Like perfectly competitive firms,monopolistically competitive firms maximize their profits by setting price equal to marginal cost. 
D) Unlike perfectly competitive firms,monopolistically competitive face perfectly inelastic demand curves.

Question 2

Which of the following statements is true?

Accepted Answer

A) Input prices are one of the success factors that firms can control. 
B) Consumers will buy a product only if its price is below that of its competitors. 
C) Consumers will buy a product only if it meets a need not met by competing products. 
D) Sheer chance often plays a significant role in the success or failure of a business. 
A) Input prices are one of the success factors that firms can control. 
B) Consumers will buy a product only if its price is below that of its competitors. 
C) Consumers will buy a product only if it meets a need not met by competing products. 
D) Sheer chance often plays a significant role in the success or failure of a business.

Question 3

One of your classmates asserts that advertising,marketing research,and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying.Which of the following is not a response you might offer her?

Accepted Answer

A) Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences. 
B) Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations. 
C) Marketing research could allow a firm to identify new market opportunities and at least,in the short run,a firm can make a profit supplying products to this market segment. 
D) If a firm successfully manages its brand,customers become less price sensitive as they perceive fewer substitutes for the firm's brand. 
A) Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences. 
B) Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations. 
C) Marketing research could allow a firm to identify new market opportunities and at least,in the short run,a firm can make a profit supplying products to this market segment. 
D) If a firm successfully manages its brand,customers become less price sensitive as they perceive fewer substitutes for the firm's brand.

Question 4

$$\begin{array} { | c | c | c | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { Sold }
\end{array} & \text { Price } & \begin{array} { c } 
\text { Total } \
\text { Revenue }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Revenue }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} & \text { Profit } \
\hline 0 & \$ 10 & \$ 0 & - - - - & \$ 2 & - - - - & - \$ 2 \
\hline 1 & 9 & 9 & & 8 & & \
\hline 2 & 8 & 16 & & 13 & & \
\hline 3 & 7 & 21 & & 17 & & \
\hline 4 & 6 & 24 & & 20 & & \
\hline 5 & 5 & 25 & & 22 & & \
\hline 6 & 4 & 24 & & 26 & & \
\hline
\end{array}$$ Table 13-4 lists estimated revenues and costs (per week)for plastic vials (100 vials per box)for the Victoria Biological Supplies Company.Victoria sells plastic vials to university and private research laboratories.
-Refer to Table 13-4.Victoria's profit-maximizing output is where

Accepted Answer

A) total profit equals $3. 
B) marginal revenue and marginal cost both equal $4. 
C) marginal revenue and marginal cost both equal $3. 
D) marginal cost is at its minimum value. 
A) total profit equals $3. 
B) marginal revenue and marginal cost both equal $4. 
C) marginal revenue and marginal cost both equal $3. 
D) marginal cost is at its minimum value.

Question 5

A monopolistically competitive firm will

Accepted Answer

A) charge the same price as its competitors do. 
B) always produce at the minimum efficient scale of production. 
C) have some control over its price because its product is differentiated. 
D) produce an output level that is productively and allocatively efficient. 
A) charge the same price as its competitors do. 
B) always produce at the minimum efficient scale of production. 
C) have some control over its price because its product is differentiated. 
D) produce an output level that is productively and allocatively efficient.

Question 6

Figure 13-17  
-Refer to Figure 13-17.In the long run,why will the firm produce Qf units and not Qg units,which has a lower its average cost of production?

Accepted Answer

A) Although its average cost of production is lower when the firm produces Qg units,to be able to sell its output the firm will have to charge a price below average cost,resulting in a loss. 
B) At Qg,average cost exceeds marginal cost so the firm will actually make a loss. 
C) At Qg,marginal revenue is less than average revenue which will result in a loss for the firm. 
D) The firm's goal is to charge a high price and make a small profit rather than a low price and no profit. 
A) Although its average cost of production is lower when the firm produces Qg units,to be able to sell its output the firm will have to charge a price below average cost,resulting in a loss. 
B) At Qg,average cost exceeds marginal cost so the firm will actually make a loss. 
C) At Qg,marginal revenue is less than average revenue which will result in a loss for the firm. 
D) The firm's goal is to charge a high price and make a small profit rather than a low price and no profit.

Question 7

Assume 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 $23 and marginal cost is $19,then to maximize profits the firm should

Accepted Answer

A) continue to produce the same quantity. 
B) increase output. 
C) decrease output. 
D) shut down. 
A) continue to produce the same quantity. 
B) increase output. 
C) decrease output. 
D) shut down.

Question 8

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 revenue made by the firm?

Accepted Answer

A) 0P0aQa 
B) 0P1bQa 
C) 0P2cQa 
D) 0P3dQa 
A) 0P0aQa 
B) 0P1bQa 
C) 0P2cQa 
D) 0P3dQa

Question 9

Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?

Accepted Answer

A) Selling price equals average total cost. 
B) Production is at minimum average total cost. 
C) Marginal revenue equals marginal cost. 
D) Selling price is greater than marginal cost. 
A) Selling price equals average total cost. 
B) Production is at minimum average total cost. 
C) Marginal revenue equals marginal cost. 
D) Selling price is greater than marginal cost.

Question 10

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 benefit consumers despite any loss of well-being?

Accepted Answer

A) Although consumers may pay a price greater than marginal cost for a product,the product is produced at the minimum average total cost. 
B) Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost,they benefit from being able to buy a differentiated product more closely suited to their tastes. 
C) Consumers pay a price equal to the marginal cost of producing a product,even though it is not produced at the minimum average total cost. 
D) Consumers are better off choosing from a variety of differentiated products,even though product differentiation causes barriers that restrict entry into monopolistically competitive markets. 
A) Although consumers may pay a price greater than marginal cost for a product,the product is produced at the minimum average total cost. 
B) Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost,they benefit from being able to buy a differentiated product more closely suited to their tastes. 
C) Consumers pay a price equal to the marginal cost of producing a product,even though it is not produced at the minimum average total cost. 
D) Consumers are better off choosing from a variety of differentiated products,even though product differentiation causes barriers that restrict entry into monopolistically competitive markets.

Question 11

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

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

Question 12

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 loss made by the firm?

Accepted Answer

A) the area P0adP3 
B) the area P1bcP2 
C) the area P0acP2 
D) the area P2cdP3 
A) the area P0adP3 
B) the area P1bcP2 
C) the area P0acP2 
D) the area P2cdP3

Question 13

Consumers benefit from monopolistic competition by

Accepted Answer

A) being able to choose from products more closely suited to their tastes. 
B) paying the lowest possible price for the product. 
C) paying the same price as everyone else. 
D) being able to purchase high-quality products at low prices. 
A) being able to choose from products more closely suited to their tastes. 
B) paying the lowest possible price for the product. 
C) paying the same price as everyone else. 
D) being able to purchase high-quality products at low prices.

Question 14

Tony's Italian Ice is a monopolistically competitive firm.If Tony's earns a profit in the short run,which of the following is most likely to occur?

Accepted Answer

A) New firms that sell Italian ice will enter the market and Tony's cost curves will shift to the left. 
B) New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left. 
C) New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the right. 
D) New firms that sell Italian ice will enter the market and Tony's demand curve will become more inelastic. 
A) New firms that sell Italian ice will enter the market and Tony's cost curves will shift to the left. 
B) New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left. 
C) New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the right. 
D) New firms that sell Italian ice will enter the market and Tony's demand curve will become more inelastic.

Question 15

A monopolistically competitive firm maximizes profit in the short run by producing where

Accepted Answer

A) price is less than marginal cost. 
B) price is less than marginal revenue. 
C) price is less than average revenue. 
D) price is greater than marginal cost. 
A) price is less than marginal cost. 
B) price is less than marginal revenue. 
C) price is less than average revenue. 
D) price is greater than marginal cost.

Question 16

What is the difference between the terms "marketing" and "advertising"?

Accepted Answer

Marketing consists of all the activities

Question 17

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?

Accepted Answer

A) The perfectly competitive firm's marginal revenue and demand curves are the same;the marginal revenue curve of a monopolistically competitive firm lies above its demand curve. 
B) The perfectly competitive firm's marginal revenue and demand curves are the same;the marginal revenue curve of a monopolistically competitive firm lies below its demand curve. 
C) The monopolistically competitive firm's marginal revenue and demand curves are the same;the marginal revenue curve of a perfectly competitive firm lies below its demand curve. 
D) The marginal revenue curve of a monopolistically competitive firm lies below its demand curve;the marginal revenue curve of a perfectly competitive firm lies above its demand curve. 
A) The perfectly competitive firm's marginal revenue and demand curves are the same;the marginal revenue curve of a monopolistically competitive firm lies above its demand curve. 
B) The perfectly competitive firm's marginal revenue and demand curves are the same;the marginal revenue curve of a monopolistically competitive firm lies below its demand curve. 
C) The monopolistically competitive firm's marginal revenue and demand curves are the same;the marginal revenue curve of a perfectly competitive firm lies below its demand curve. 
D) The marginal revenue curve of a monopolistically competitive firm lies below its demand curve;the marginal revenue curve of a perfectly competitive firm lies above its demand curve.

Question 18

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 19

When a monopolistically competitive firm breaks even in the long run,this is equivalent to earning a zero accounting profit.

Accepted Answer

A) True 
 B)False

Question 20

If some monopolistically competitive firms exit their market after suffering short-run losses,the demand curves of remaining firms will shift to the right.

Accepted Answer

A) True 
 B)False

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

Which of the following statements is true about monopolistically competitive firms?

Which of the following statements is true?

One of your classmates asserts that advertising,marketing research,and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying.Which of the following is not a response you might offer her?

A monopolistically competitive firm will

Figure 13-17 -Refer to Figure 13-17.In the long run,why will the firm produce Qf units and not Qg units,which has a lower its average cost of production?

Assume 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 $23 and marginal cost is $19,then to maximize profits the firm should

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 revenue made by the firm?

Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

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 loss made by the firm?

Consumers benefit from monopolistic competition by

Tony's Italian Ice is a monopolistically competitive firm.If Tony's earns a profit in the short run,which of the following is most likely to occur?

A monopolistically competitive firm maximizes profit in the short run by producing where

What is the difference between the terms "marketing" and "advertising"?

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?

Is a monopolistically competitive firm productively efficient?

When a monopolistically competitive firm breaks even in the long run,this is equivalent to earning a zero accounting profit.

If some monopolistically competitive firms exit their market after suffering short-run losses,the demand curves of remaining firms will shift to the right.

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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