Deck 15: Monopolistic Competition

Question 1

The above figure shows a firm in monopolistic competition. What price will the firm charge?

A) $12
B) $36
C) $24
D) None of the above answers is correct.

Answer 1

$36

Question 2

In the figure above, Gap maximises its profit if it charges _______ per jacket.

A) $75
B) $120
C) $100
D) $95

Answer 2

$100

Question 3

The BEST example of a good sold in a monopolistically competitive market is

A) pizza.
B) peaches.
C) sewage services.
D) the local newspaper.

Answer 3

pizza.

Question 4

The figure above shows the cost, marginal revenue and demand curves of Golden Chow, a producer of dog food. The market for dog food is monopolistic competition. In the short run, Golden Chow sells 400 cans of dog food per day and makes _______. Other firms have _______ incentive to enter the industry.

A) a normal profit of $200 a day; no
B) an economic profit of $200 a day; an
C) an economic profit of $400 a day; no
D) an economic profit of $400 a day; an

Question 5

A firm is said to have excess capacity when it produces the amount of output

A) such that marginal revenue is greater than marginal cost.
B) such that price is greater than marginal cost.
C) smaller than that which minimises average total cost.
D) larger than that which minimises average total cost.

Question 6

One difference between perfect competition and monopolistic competition is that

A) firms in monopolistic competition face a downward- sloping demand curve.
B) a perfectly competitive industry has fewer firms.
C) in perfect competition, firms produce slightly differentiated products.
D) monopolistic competition has barriers to entry.

Question 7

If all firms in a monopolistically competitive industry faced the same demand and cost curves pictured in the above figure,

A) new firms will enter the industry.
B) their economic profit would be zero.
C) some firms will exit the industry.
D) they would each produce 60 units.

Question 8

In monopolistic competition, profit is maximised when the amount produced is such that

A) marginal revenue is greater than marginal cost.
B) total revenue is maximised.
C) total revenue equals total cost.
D) marginal revenue equals marginal cost.

Question 9

Which one of the following statements is true for BOTH perfect competition and monopolistic competition?

A) Each type of firm faces a downward- sloping demand curve.
B) Each type of firm competes on product quality and price.
C) In the long run, firms in both industries make zero economic profit.
D) Each type of firm produces a homogeneous product.

Question 10

Which of the following BEST explains why monopolistically competitive firms face a downward- sloping demand curve while perfectly competitive firms do not?

A) Monopolistically competitive industries have only a few firms.
B) Only industries with free entry and exit have firms that face horizontal demand curves.
C) Monopolistically competitive firms have barriers to entry.
D) Monopolistically competitive firms sell a differentiated good.

Question 11

ACME, Inc. operates in a market structure in which there are many other firms that find it easy to enter or exit. ACME is operating in _______ market.

A) a monopolistically competitive
B) neither a perfectly competitive nor a monopolistically competitive
C) a perfectly competitive
D) either a perfectly competitive or a monopolistically competitive

Question 12

Monopolistic competition is a market structure in which

A) a very small number of firms compete.
B) there are barriers to entry.
C) each firm produces a differentiated product.
D) firms only compete on product price.

Question 13

Consider a monopolistically competitive industry which is in long- run equilibrium. Which of the following is true?

A) All firms charge a price equal to average total cost.
B) Demand, average total cost and marginal cost all intersect.
C) All firms charge a price equal to marginal cost.
D) All firms earn positive economic profit.

Question 14

In monopolistic competition, a firm has some ability to affect the price for its product because of

A) product differentiation.
B) economic profits.
C) many competitors.
D) easy entry and exit.

Question 15

In monopolistically competitive markets, products are _______ and there _______ barriers to entry.

A) differentiated; are no
B) identical; are no
C) differentiated; are
D) identical; are

Question 16

In long- run equilibrium, a firm in monopolistic competition makes

A) an economic profit but the economic profit is less than it would be if the firm was a monopoly.
B) zero economic profit.
C) an economic profit that is higher than what it would be if the firm was a monopoly.
D) an economic profit that is the same amount as it would be if the firm was a monopoly.

Question 17

In a monopolistically competitive industry,

A) firms can earn an economic profit in the long run because of product differentiation.
B) if firms are earning an economic profit, new firms enter the industry.
C) firms can earn an economic profit in the long run because of barriers to entry.
D) the firms can never earn an economic profit.

Question 18

Monopolistic competition differs from monopoly because in monopolistic competition

A) there are many firms.
B) the firms compete only on price.
C) there are no close substitutes for each firm's product.
D) None of the above is a difference between monopoly and monopolistically competitive firms.

Question 19

When firms in monopolistic competition are making an economic profit, firms will

A) exit the industry, and demand will decrease for the firms that remain.
B) enter the industry, and demand will increase for the original firms.
C) enter the industry, and demand will decrease for the original firms.
D) exit the industry, and demand will increase for the firms that remain.

Question 20

The figure above shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. What is the firm's profit- maximising price?

A) $10
B) $4
C) $8
D) $12

Question 21

Which of the following is always true regarding a profit- maximising monopolistically competitive firm in short- run equilibrium?

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

Question 22

In monopolistic competition, in the long run firms produce

A) more output than that which minimises their ATC.
B) less output than that which minimises their ATC.
C) the amount of output that minimises their ATC and their AVC.
D) the amount of output that minimises their ATC but not their AVC.

Question 23

In a monopolistically competitive industry, the firms are currently making an economic profit. When this market moves to its long- run equilibrium, the firms' demand curves will have _______ and their economic profit will have _______.

A) shifted rightward; decreased to zero
B) shifted leftward; decreased to zero
C) shifted leftward; decreased but remain greater than zero
D) remained the same; decreased to zero

Question 24

Brand names are an example of

A) economies of scale.
B) oligopoly.
C) product differentiation.
D) illegal barriers to entry.

Question 25

Small pizza shops exist in just about every town. Anyone can open a pizza shop, and the pizzas from one shop typically have different tastes and sizes to pizzas from another shop. Thus, the pizza industry is an example of

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

Question 26

A monopolistically competitive firm will end up selling its output for a price such that

A) price is equal to marginal revenue.
B) price is equal to marginal cost.
C) price is equal to average total cost.
D) price is greater than marginal cost.

Question 27

In the figure above, Gap maximises its profit if it sells _______ jackets per day.

A) 133
B) 64
C) 129
D) 100

Question 28

In the above figure, the monopolistically competitive firm makes an economic profit of

A) greater than $100.01 per day.
B) between $0 and $50 per day.
C) $0.
D) between $50.01 and $100 per day.

Question 29

In the long run, a firm in monopolistic competition has its price equal to _______ and also has its price _______.

A) average total cost; less than its marginal cost
B) marginal cost; equal to its average total cost
C) average total cost; exceeding its marginal cost
D) marginal cost; exceeding its average total cost

Question 30

In monopolistically competitive industries,

A) firms' economic profits are protected by barriers to entry.
B) firms do not respond to changes in consumer demand.
C) non- price competition through product differentiation is actively pursued by firms.
D) product variety is the same as in perfectly competitive industries.

Question 31

The figure above shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. The firm's economic profit in the long run is

A) $2,400.
B) $900.
C) $600.
D) zero.

Question 32

The above figure shows the demand and cost curves for a firm in monopolistic competition. The firm earns total revenue of

A) $160.
B) $40.
C) $0.
D) $120.

Question 33

Monopolistic competition is defined as a type of market structure where

A) many firms produce the good.
B) firms can earn positive profit in the long run.
C) firms produce an homogeneous good.
D) there are barriers to entry.

Question 34

Selling costs, such as advertising, are likely to be a large share of total cost in an industry that is

A) a monopoly.
B) non- profit.
C) monopolistically competitive.
D) perfectly competitive.

Question 35

In the long run, a firm in monopolistic competition produces where the slope of the average total cost curve is

A) negative.
B) positive.
C) zero.
D) equal to the marginal cost.

Question 36

In the figure above, Nike maximises its profit if it sells _______ pairs of shoes per day.

A) 137
B) 150
C) 120
D) 87

Question 37

The above figure is for a firm in monopolistic competition. The diagram represents the short run rather than the long run because the

A) firm is making an economic profit.
B) MR curve and the D curve do not coincide.
C) firm is incurring an economic loss.
D) MR curve cuts the ATC curve from below.

Question 38

In the short run, a firm in monopolistic competition produces where

A) MR = MC.
B) the given market price is equal to MC.
C) MR = MC and economic profit is equal to zero.
D) the given market price is equal to MC and economic profit is equal to zero.

Question 39

At a monopolistically competitive firm's current level of product development, the marginal revenue of product development is greater than its marginal cost. The firm will _______.

A) increase product development only if the consumer benefits
B) sell only new products
C) increase product development
D) decrease product development

Question 40

The firm in the figure above is in monopolistic competition. It will set a price equal to

A) $1.
B) $2.
C) $3.
D) more than $3.

Question 41

Product development is efficient if the

A) average cost of the product development equals the average revenue generated.
B) new product actually brings great benefits to the consumer.
C) producer's marginal cost of product development equals the consumer's marginal benefit.
D) producer surplus from selling the product equals the consumer surplus.

Question 42

If a firm spends $600 on advertising, its goal is for the demand curve for its product to shift _______
And its marginal revenue curve to shift _______.

A) rightward; leftward
B) leftward; rightward
C) leftward; leftward
D) rightward, rightward

Question 43

Firms in monopolistic competition will always

A) make an economic profit.
B) set their price above their marginal cost.
C) set their price equal to their marginal cost.
D) produce at the minimum average total cost.

Question 44

In monopolistic competition, the presence of a large number of firms making a differentiated product means that

A) each firm must charge the same price.
B) the price is established by agreements among the different firms.
C) each firm has some ability to affect the price of its particular good or service.
D) each firm must produce the same quantity.

Question 45

In the figure above, the firm's economic

A) loss will be $30 or less per day.
B) profit will be between $0 and $30 per day.
C) loss will be greater than $30 per day.
D) profit will be greater than $30.01 per day.

Question 46

Graphically we can illustrate a firm with price- setting ability by drawing their demand curve as _______.

A) horizontal
B) upward- sloping
C) vertical
D) downward- sloping

Question 47

The above figure shows the demand and cost curves for a firm in_______ in the _______.

A) monopolistic competition; long run
B) perfect competition; long run
C) perfect competition; short run
D) monopolistic competition; short run

Question 48

A characteristic of monopolistic competition is that each firm

A) has a perfectly elastic supply.
B) has a perfectly inelastic supply.
C) faces a downward- sloping demand curve.
D) faces perfectly elastic demand.

Question 49

The efficient scale of a firm is defined as the point where

A) marginal revenue equals marginal cost.
B) marginal revenue equals zero.
C) average total cost is minimised.
D) price equals marginal cost.

Question 50

In monopolistic competition, in the short run a firm maximises its profit by selecting an output at which marginal cost equals

A) zero.
B) price.
C) marginal revenue.
D) average total cost.

Question 51

Advertising costs affect a firm in monopolistic competition by increasing the firm's

A) average variable cost.
B) marginal cost.
C) total variable cost.
D) total fixed cost.

Question 52

A monopolistically competitive firm will always choose to produce where

A) average total cost is minimised.
B) marginal revenue equals marginal cost.
C) marginal cost meets the demand curve.
D) average total cost meets the demand curve.

Question 53

In the above figure, if the firm is in monopolistic competition, it will produce

A) 100 units.
B) between 61 and 99 units.
C) 60 units.
D) 40 units.

Question 54

A product that is a close substitute but not a perfect substitute for the products of other firms is called

A) an efficient product.
B) a differentiated product.
C) an inelastic product.
D) a homogeneous product.

Question 55

Product differentiation is a defining characteristic of

A) perfect competition.
B) perfectly elastic demand.
C) oligopoly.
D) monopolistic competition.

Question 56

In the figure above, Gap maximises its profit if it sells _______ jackets per day.

A) 275
B) 200
C) 140
D) 240

Question 57

How is a monopolistically competitive firm similar to a perfectly competitive firm?

A) Both will observe entry into the industry if economic profit is positive.
B) Both produce a homogeneous good.
C) Both produce where average total cost equals marginal cost.
D) Both make a positive economic profit in the long run.

Question 58

Which of the following is NOT true of firms in monopolistic competition?

A) They practice product differentiation.
B) They are price takers.
C) They earn a normal profit in the long run.
D) They have excess capacity in the long run.

Question 59

Which of the following is part of the market structure for monopolistic competition?

A) A large number of firms compete.
B) Barriers to entry
C) Each firm produces a differentiated product.
D) Both answers B and C are correct.

Question 60

In monopolistic competition, advertising costs

A) shift the ATC curve upward.
B) are fixed costs.
C) can result in the firm producing an amount of output such that its average total costs are lower than if it did not advertise.
D) All of the above answers are correct.

Question 61

When new firms enter a monopolistically competitive industry, each existing firm's

A) marginal cost curve shifts leftward.
B) demand curve shifts leftward.
C) demand curve shifts rightward.
D) marginal cost curve shifts rightward.

Question 62

A monopolistically competitive firm is making a positive economic profit. In the long run, which of the following is most likely?

A) It will produce less output but keep price the same.
B) It will keep output the same but will charge a higher price.
C) It will produce less output and it will charge a lower price.
D) It will produce the same output and charge the same price.

Question 63

In the figure above, what is Gap's excess capacity?

A) 4 jackets per day
B) 132 jackets per day
C) Zero
D) 32 jackets per day

Question 64

In monopolistic competition, each firm's marginal revenue curve lies _______ its demand curve because of _______.

A) below; barriers to entry
B) above; barriers to entry
C) above; product differentiation
D) below; product differentiation

Question 65

Within a monopolistically competitive industry,

A) there are some barriers to entry and exit and economic profits are greater than zero in the long run.
B) firms can freely enter and exit and economic profits are greater than zero in the long run.
C) there are some barriers to entry and exit and economic profits are zero in the long run.
D) firms can freely enter and exit and economic profits are zero in the long run.

Question 66

In the figure above, Gap maximises its profit if it charges _______ per jacket.

A) $130
B) $100
C) $80
D) $115

Question 67

When comparing perfect competition and monopolistic competition, we find that

A) firms in monopolistic competition are price takers just as is the case for firms in perfect competition.
B) firms in monopolistic competition face barriers to entry, unlike firms in perfect competition.
C) advertising plays a large role in monopolistic competition, unlike in perfect competition.
D) firms in monopolistic competition produce identical products just as do firms in perfect competition.

Question 68

In the above figure of a monopolistically competitive firm, the area of economic profit is

A) P2AD P4.
B) ADB.
C) P2FEP5.
D) ABC.

Question 69

In a monopolistically competitive market there are

A) two firms.
B) one firm.
C) a very small number of firms.
D) many firms.

Question 70

In monopolistic competition, the demand curve for a firm's product is negatively- sloped because of

A) no barriers to entry.
B) barriers to entry.
C) product differentiation.
D) economies of scale.

Question 71

The key feature of monopolistic competition that distinguishes it from perfect competition is

A) product differentiation.
B) barriers to entry.
C) many sellers.
D) interdependency.

Question 72

In the short run, for a firm in monopolistic competition,

A) price exceeds marginal cost.
B) the firm's economic profit must equal zero.
C) marginal revenue exceeds marginal cost.
D) the firm is a price taker.

Question 73

If a monopolistically competitive firm's marginal cost curve shifts upward, then the amount of output it produces

A) decreases.
B) increases.
C) stays the same.
D) could increase, decrease, or stay the same but more information is needed.

Question 74

A positive markup is earned by a firm if

A) its price exceeds its marginal cost.
B) price equals marginal cost.
C) marginal revenue equals marginal cost.
D) price equals average total cost.

Question 75

In the above figure, the firm is a monopolistically competitive firm. In the long run, its economic profit will be

A) between zero and $50 per day.
B) zero.
C) greater than $50 per day.
D) some amount that cannot be determined without more information.

Question 76

In monopolistically competitive industries,

A) there is no diversity of products.
B) firms do not respond to changes in demand.
C) firms produce where marginal cost equals the marginal benefit to the consumers.
D) entry and exit push economic profits toward zero.

Question 77

In monopolistic competition, firms can make an economic profit in

A) the long run but not in the short run.
B) the short run but not in the long run.
C) the short run and in the long run.
D) neither the long run nor the short run.

Question 78

In monopolistic competition

A) firms produce and sell an identical product.
B) firms face barriers to entry.
C) a large number of firms compete.
D) firms face perfectly elastic demand for their product.

Question 79

In the long run, monopolistically competitive firms make zero economic profit because of

A) government regulation.
B) excess capacity.
C) product variety.
D) easy entry and exit.

Question 80

Monopolistic competition is a market structure in which

A) a very small number of firms compete.
B) natural or legal barriers prevent the entry of new firms.
C) firms compete on product quality, price and marketing.
D) firms produce identical products.