Deck 9: Monopolistic Competition and Oligopoly

Question 1

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the ______.

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

Answer 1

C

Question 2

Which is true if a firm faces a downward-sloping demand curve? AU: Edit ok?

A) The demand for its product must be inelastic.
B) It can control both price and quantity sold.
C) It must reduce its price to sell more units.
D) It will always make a profit.

Answer 2

C

Question 3

Which of the following is true for a firm with a downward-sloping demand curve for its product?

A) Price, average revenue, and marginal revenue are all equal.
B) Price, average revenue, and marginal revenue are all different.
C) Price equals average revenue but is greater than marginal revenue.
D) Price equals average revenue but is less than marginal revenue.

Answer 3

C

Question 4

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

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 5

The characteristic below that is not common to monopolistic competition and perfect competition is _____.

A) firms act to maximise profit
B) entry barriers into the industry are low
C) the market demand curve is downward sloping
D) firms take market prices as given

Question 6

A monopolistically competitive firm will _____.

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 7

Table 9.1
$$\begin{array} { | c | c | c | } \hline \text { Quantity } & \text { Price } & \text { Total Revenue } \\&\text { (dollars) } & \text { (dollars) } \\\hline 1 & 7.50 & 7.50 \\\hline 2 & 7.00 & 14.00 \\\hline 3 & 6.50 & 19.50 \\\hline 4 & 6.00 & 24.00 \\\hline 5 & 5.50 & 27.50 \\\hline 6 & 5.00 & 30.00 \\\hline\end{array}$$

-Refer to Table 9.1.The marginal revenue of the 3rd unit is ______.

A) $6.50
B) $5.50
C) $1.83
D) $0.50

Question 8

Which of the following is not an example of a monopolistically competitive market?

A) Automobile producers
B) Supermarkets
C) Video stores
D) Makers of women's clothing

Question 9

For a monopolistically competitive firm,marginal revenue _______.

A) equals the price
B) is greater than the price
C) is less than the price
D) and price are unrelated

Question 10

What is a major difference between monopolistic competition and perfect competition?

A) The number of sellers in the markets
B) The degree by which the market demand curves slope downwards
C) That products are not standardised in monopolistic competition, unlike in perfect competition
D) The barriers to entry in the two markets

Question 11

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because ______.

A) barriers to entry are very low
B) there are many firms in the market
C) products are differentiated
D) entry into the market is blocked

Question 12

Which of the following is true of a typical firm in a monopolistically competitive industry?

A) Product differentiation allows a successful firm to emerge as a market leader in the industry.
B) All firms have identical cost structures.
C) The more successful firms have an incentive to merge in order to exert greater market power.
D) Each firm acts independently.

Question 13

What is a key characteristic of a monopolistically competitive market structure?

A) Few sellers
B) Sellers selling similar but differentiated products
C) High barriers to entry
D) Sellers acting to maximise revenue

Question 14

One reason why the coffeehouse market is competitive is that _______.

A) demand for specialty coffee is very high
B) it is trendy and therefore is likely to have a customer following
C) barriers to entry are low
D) consumption takes place in public

Question 15

In monopolistic competition there is/are ______.

A) many sellers who each face a downward-sloping demand curve
B) a few sellers who each face a downward-sloping demand curve
C) only one seller who faces a downward-sloping demand curve
D) many sellers who each face a perfectly elastic demand curve

Question 16

A monopolistically competitive firm faces a downward-sloping demand curve because _____

A) it is able to control price and quantity demanded
B) there are few substitutes for its product
C) of product differentiation
D) its market decisions are affected by the decisions of its rivals

Question 17

Which of the following is a key characteristic of a monopolistically competitive market?

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 18

Table 9.1
$$\begin{array} { | c | c | c | } \hline \text { Quantity } & \text { Price } & \text { Total Revenue } \\&\text { (dollars) } & \text { (dollars) } \\\hline 1 & 7.50 & 7.50 \\\hline 2 & 7.00 & 14.00 \\\hline 3 & 6.50 & 19.50 \\\hline 4 & 6.00 & 24.00 \\\hline 5 & 5.50 & 27.50 \\\hline 6 & 5.00 & 30.00 \\\hline\end{array}$$

-Refer to Table 9.1.What does the table show?

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

Question 19

The characteristic below that is common to monopolistic competition and perfect competition is _____.

A) firms produce identical products
B) entry barriers into the industry are low
C) each firm faces a downward-sloping demand curve
D) firms take market prices as given

Question 20

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a gain in revenue due to the _______.

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

Question 21

Figure 9.3
Refer to Figure 9.3.The marginal revenue of the sixth unit of output is _____.

A) $4
B) $5
C) $9
D) $54

Question 22

The marginal revenue of a monopolistically competitive firm _______.

A) cannot be negative because the price the firm charges will always be greater than zero
B) can be negative if the firm charges a high price
C) can be negative if the firm charges a low price
D) will equal average revenue

Question 23

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

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 24

Table 9.1
$$\begin{array} { | c | c | c | } \hline \text { Quantity } & \text { Price } & \text { Total Revenue } \\&\text { (dollars) } & \text { (dollars) } \\\hline 1 & 7.50 & 7.50 \\\hline 2 & 7.00 & 14.00 \\\hline 3 & 6.50 & 19.50 \\\hline 4 & 6.00 & 24.00 \\\hline 5 & 5.50 & 27.50 \\\hline 6 & 5.00 & 30.00 \\\hline\end{array}$$

-Refer to Table 9.1.What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?

A) Output effect = $24.00; price effect = $19.50
B) Output effect = $6.50; price effect = $2.00
C) Output effect = -$0.50; price effect = $5.00
D) Output effect = $6.00; price effect = -$1.50

Question 25

What one good thing happens when a monopolistically competitive firm lowers it price?

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

Question 26

The statement that is true about marginal revenue is:

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 27

Which is true about the demand curve of a monopolistically competitive firm?

A) Is horizontal because the firm must cut its price to sell more
B) Is perfectly elastic
C) Is downward sloping because it sells an identical product
D) Is downward sloping because it must cut its price to sell more

Question 28

Figure 9.3
Refer to Figure 9.3.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,________.

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 29

For the monopolistically competitive firm,_______.

A) Price (P) = Marginal Revenue (MR) = Average Revenue (AR)
B) P = MR > AR
C) P = AR > MR
D) P > MR = AR

Question 30

When a firm faces a downward-sloping demand curve,marginal revenue __________.

A) must exceed price because the price effect outweighs the output effect
B) is less than price because a firm must lower its price to sell more
C) equals price because the firm sells a standardised product
D) must exceed price because the output effect outweighs the price effect

Question 31

The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair.It sells 8 pairs of jeans per day at a price of $90 per pair.What is the marginal revenue of the eighth pair of jeans?

A) $20
B) $90
C) $100
D) $700

Question 32

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

A) Firms are price takers.
B) There are many buyers and sellers.
C) Barriers to entry are low.
D) Firms sell similar, but not identical, products.

Question 33

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

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 34

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

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

Question 35

Table 9.1
$$\begin{array} { | c | c | c | } \hline \text { Quantity } & \text { Price } & \text { Total Revenue } \\&\text { (dollars) } & \text { (dollars) } \\\hline 1 & 7.50 & 7.50 \\\hline 2 & 7.00 & 14.00 \\\hline 3 & 6.50 & 19.50 \\\hline 4 & 6.00 & 24.00 \\\hline 5 & 5.50 & 27.50 \\\hline 6 & 5.00 & 30.00 \\\hline\end{array}$$

-Refer to Table 9.1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

A) Output effect = $3.00; price effect = $0.50
B) Output effect = $1.50; price effect = $2.00
C) Output effect = $5.50; price effect = -$2.00
D) Output effect = $4.00; price effect = -$0.50

Question 36

What one bad thing happens when a monopolistically competitive firm lowers its price?

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

Question 37

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

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 38

Every firm that has the ability to affect the price of the good or service it sells will _______.

A) have a perfectly elastic demand curve
B) have a marginal revenue curve that lies below its demand curve
C) earn a short-run profit but break even in the long run
D) shut down in the short run

Question 39

Because the monopolistically competitive firm faces a ________ demand curve for its product,it ________ the price of its output.

A) downward-sloping; cannot influence
B) horizontal; can influence
C) horizontal; cannot influence
D) downward-sloping; can influence

Question 40

Monopolistic competition is a market structure in which _______.

A) firms produce and sell products for which there are no close substitutes
B) the demand curve for a typical firm is horizontal
C) firms cannot influence the market price
D) barriers to entry are low

Question 41

The profit-maximising rule for a monopolistically competitive firm is ______.

A) to produce a quantity that maximises market share
B) to produce a quantity that maximises total revenue
C) to produce a quantity such that marginal revenue equals marginal cost
D) to produce a quantity such that price equals marginal cost

Question 42

If marginal revenue is negative,then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling 1 more unit of the good.

Question 43

One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?
__________________________________________________________________________________________________________________________________________________________________________________________

Question 44

Suppose a monopolistically competitive firm sells 25 units at a price of $10.What is its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9?

A) $270
B) $20
C) $4
D) $2.50

Question 45

For a downward-sloping demand curve,marginal revenue decreases as quantity sold increases.

Question 46

Complete the following table.
$\begin{array}{|c|c|c|c|c}\hline\text { Energy Drinks } && \text { Total } & \text { Average }\\\text { Consumed per } & \text { Price }(P) & \text { Revenue } & \text { Revenue } & \text { Marginal }\\\text { Week } & \text { (dollars) } & (T R) & (A R) & \text { Revenue }(M R)\\\hline 0 & 6.00 & & & \\\hline 1 & 5.50 & & & \\\hline 2 & 5.00 & & & \\\hline 3 & 4.50 & & & \\\hline 4 & 4.00 & & & \\\hline 5 & 3.50 & & & \\\hline 6 & 3.00 & & & \\\hline 7 & 2.50 & & & \\\hline 8 & 2.00 & & & \\\hline\end{array}$ __________________________________________________________________________________________________________________________________________________________________________________________

Question 47

Table 9.2
$$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (cases) }\end{array} & \begin{array} { c } \text { Price } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 1 & 75 & 75 & 60 \\\hline 2 & 70 & 140 & 85 \\\hline 3 & 65 & 195 & 105 \\\hline 4 & 60 & 240 & 115 \\\hline 5 & 55 & 275 & 130 \\\hline 6 & 50 & 300 & 155 \\\hline 7 & 45 & 315 & 190 \\\hline 8 & 40 & 320 & 230 \\\hline 9 & 35 & 315 & 280 \\\hline\end{array}$$ Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 9.2 shows the firm's demand and cost schedules.

-Refer to Table 9.2.What is the output (Q)that maximises profit,and what is the price (P)charged?

A) P = $55; Q = 5 cases
B) P = $50; Q = 6 cases
C) P = $45; Q = 7 cases
D) P = $40; Q = 8 cases

Question 48

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Question 49

Which of the following statements is true?

A) The marginal revenue of a monopolistically competitive firm will be positive at high prices and negative at low prices.
B) Because the demand curve for a monopolistically competitive firm is downward sloping, its marginal revenue will be negative.
C) The marginal revenue of a monopolistically competitive firm will be always be positive.
D) The marginal revenue of a monopolistically competitive firm will be positive at low prices and negative at high prices.

Question 50

A monopolistically competitive firm maximises profit where _____.

A) price = marginal revenue
B) price > marginal cost
C) marginal revenue > average revenue
D) total revenue > marginal cost

Question 51

Firms in monopolistic competition compete by selling similar,but not identical products.

Question 52

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Question 53

There are many cattle ranchers in the world,and there are also many McDonald's restaurants in the world.Why,then,does a McDonald's restaurant face a downward-sloping demand curve while a cattle rancher faces a horizontal demand curve?
__________________________________________________________________________________________________________________________________________________________________________________________

Question 54

Explain the differences between total revenue,average revenue,and marginal revenue.
__________________________________________________________________________________________________________________________________________________________________________________________

Question 55

What are the most important differences between perfectly competitive markets and monopolistically competitive markets?
__________________________________________________________________________________________________________________________________________________________________________________________

Question 56

Unlike a perfectly competitive firm,for a monopolistically competitive firm _______.

A) price ≠ marginal cost for all output levels
B) price ≠ marginal revenue for all output levels
C) price ≠ average revenue for all output levels
D) marginal revenue = marginal cost at the profit-maximising output

Question 57

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market,but by separate curves for a firm in a monopolistically competitive market?
__________________________________________________________________________________________________________________________________________________________________________________________

Question 58

Suppose that if a local McDonald's restaurant reduces the price of a Big Mac from $4.00 to $3.25,the number of Big Macs it sells per day will increase from 4 to 5.Explain the output effect and the price effect resulting from this change.Using a graph,illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac.What is the total change in revenue received which results from this price decrease?
__________________________________________________________________________________________________________________________________________________________________________________________

Question 59

Monopolistically competitive firms face a perfectly elastic demand curve.

Question 60

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Question 61

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

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

Question 62

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 maximise profits the firm should ______.

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

Question 63

If price exceeds average variable cost but is less than average total cost,a firm _____.

A) should further differentiate its product
B) should stay in business for a while longer until its fixed costs expire
C) is making some profit but less than maximum profit
D) should shut down

Question 64

Table 9.2
$$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (cases) }\end{array} & \begin{array} { c } \text { Price } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 1 & 75 & 75 & 60 \\\hline 2 & 70 & 140 & 85 \\\hline 3 & 65 & 195 & 105 \\\hline 4 & 60 & 240 & 115 \\\hline 5 & 55 & 275 & 130 \\\hline 6 & 50 & 300 & 155 \\\hline 7 & 45 & 315 & 190 \\\hline 8 & 40 & 320 & 230 \\\hline 9 & 35 & 315 & 280 \\\hline\end{array}$$ Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 9.2 shows the firm's demand and cost schedules.

-Refer to Table 9.2.The marginal profit from producing and selling the 5th case is _______.

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

Question 65

Table 9.3
$$\begin{array} { | c | c | c | c | c | } \hline \text { Quantity } & \begin{array} { c } \text { Price } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Variable } \\\text { Cost } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 0 & 21 & 0 & 0 & 50 \\\hline 1 & 20 & 20 & 16 & 66 \\\hline 2 & 19 & 38 & 31 & 81 \\\hline 3 & 18 & 54 & 45 & 95 \\\hline 4 & 17 & 68 & 59 & 109 \\\hline 5 & 16 & 80 & 75 & 125 \\\hline 6 & 15 & 90 & 93 & 143 \\\hline 7 & 14 & 98 & 112 & 162 \\\hline 8 & 13 & 104 & 140 & 190 \\\hline 9 & 12 & 108 & 180 & 230 \\\hline 10 & 11 & 110 & 230 & 280 \\\hline\end{array}$$ Table 9.3 shows the demand and cost schedules for a monopolistically competitive firm.

-Refer to Table 9.3.The profit-maximising/loss-minimising output level and price are ____.

A) Q = 0 (firm should not produce)
B) Q = 3; P = $18
C) Q = 4; P = $17
D) Q = 5; P = $16

Question 66

Figure 9.4 Figure 9.4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 9.4.The area that represents the total revenue made by the firm is ________.

A) 0P₀aQ_a
B) 0P₁bQ_a
C) 0P₂cQ_a
D) 0P₃dQ_a

Question 67

Suppose Jason owns a small pastry shop.Jason wants to maximise his profit,and thinking back to the university microeconomics class he took,he decides he needs to produce a quantity of pastries which will minimise his average total cost.Will Jason's strategy necessarily maximise profits for his pastry shop?

A) Yes; since Jason's pastry shop is in a perfectly competitive market, the only way to maximise profit is to produce the quantity where average total cost is minimised.
B) Not necessarily; this strategy will only maximise Jason's profit in the long run, but not in the short run.
C) No; in order to maximise profit, Jason would never want to produce the quantity where average total cost is minimised.
D) Not necessarily; depending on demand, Jason may maximise profit by producing a quantity other than that where average total cost is at a minimum.

Question 68

Figure 9.4 Figure 9.4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 9.4.The area that represents the loss made by the firm is ______.

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

Question 69

Table 9.3
$$\begin{array} { | c | c | c | c | c | } \hline \text { Quantity } & \begin{array} { c } \text { Price } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Variable } \\\text { Cost } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 0 & 21 & 0 & 0 & 50 \\\hline 1 & 20 & 20 & 16 & 66 \\\hline 2 & 19 & 38 & 31 & 81 \\\hline 3 & 18 & 54 & 45 & 95 \\\hline 4 & 17 & 68 & 59 & 109 \\\hline 5 & 16 & 80 & 75 & 125 \\\hline 6 & 15 & 90 & 93 & 143 \\\hline 7 & 14 & 98 & 112 & 162 \\\hline 8 & 13 & 104 & 140 & 190 \\\hline 9 & 12 & 108 & 180 & 230 \\\hline 10 & 11 & 110 & 230 & 280 \\\hline\end{array}$$ Table 9.3 shows the demand and cost schedules for a monopolistically competitive firm.

-Refer to Table 9.3.What is the best course of action for the firm in the short run?

A) It should shut down.
B) It should stay in business because it covers some of its fixed cost.
C) It should increase its sales by lowering its price.
D) It should not cut its price, but it should increase its sales by advertising.

Question 70

Table 9.3
$$\begin{array} { | c | c | c | c | c | } \hline \text { Quantity } & \begin{array} { c } \text { Price } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Variable } \\\text { Cost } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 0 & 21 & 0 & 0 & 50 \\\hline 1 & 20 & 20 & 16 & 66 \\\hline 2 & 19 & 38 & 31 & 81 \\\hline 3 & 18 & 54 & 45 & 95 \\\hline 4 & 17 & 68 & 59 & 109 \\\hline 5 & 16 & 80 & 75 & 125 \\\hline 6 & 15 & 90 & 93 & 143 \\\hline 7 & 14 & 98 & 112 & 162 \\\hline 8 & 13 & 104 & 140 & 190 \\\hline 9 & 12 & 108 & 180 & 230 \\\hline 10 & 11 & 110 & 230 & 280 \\\hline\end{array}$$ Table 9.3 shows the demand and cost schedules for a monopolistically competitive firm.

-Refer to Table 9.3.The amount of the firm's loss at its optimal output level is _____.

A) $0
B) $41
C) $45
D) $50

Question 71

Table 9.2
$$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (cases) }\end{array} & \begin{array} { c } \text { Price } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 1 & 75 & 75 & 60 \\\hline 2 & 70 & 140 & 85 \\\hline 3 & 65 & 195 & 105 \\\hline 4 & 60 & 240 & 115 \\\hline 5 & 55 & 275 & 130 \\\hline 6 & 50 & 300 & 155 \\\hline 7 & 45 & 315 & 190 \\\hline 8 & 40 & 320 & 230 \\\hline 9 & 35 & 315 & 280 \\\hline\end{array}$$ Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 9.2 shows the firm's demand and cost schedules.

-Refer to Table 9.2.Eco Energy's profit is ______.

A) $125
B) $140
C) $145
D) $150

Question 72

How do both monopolistically competitive firms and perfectly competitive firms maximise profit?

A) By producing where price equals average total cost
B) By producing where marginal revenue equals average revenue
C) By producing where marginal revenue is equal to marginal cost
D) By producing where price equals average variable cost

Question 73

Table 9.2
$$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (cases) }\end{array} & \begin{array} { c } \text { Price } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 1 & 75 & 75 & 60 \\\hline 2 & 70 & 140 & 85 \\\hline 3 & 65 & 195 & 105 \\\hline 4 & 60 & 240 & 115 \\\hline 5 & 55 & 275 & 130 \\\hline 6 & 50 & 300 & 155 \\\hline 7 & 45 & 315 & 190 \\\hline 8 & 40 & 320 & 230 \\\hline 9 & 35 & 315 & 280 \\\hline\end{array}$$ Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 9.2 shows the firm's demand and cost schedules.

-Refer to Table 9.2.What is likely to happen to the product's price in the long run?

A) It will fall.
B) It will increase.
C) It will remain constant.
D) This cannot be determined without information on its long-run demand curve.

Question 74

Table 9.3
$$\begin{array} { | c | c | c | c | c | } \hline \text { Quantity } & \begin{array} { c } \text { Price } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Variable } \\\text { Cost } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 0 & 21 & 0 & 0 & 50 \\\hline 1 & 20 & 20 & 16 & 66 \\\hline 2 & 19 & 38 & 31 & 81 \\\hline 3 & 18 & 54 & 45 & 95 \\\hline 4 & 17 & 68 & 59 & 109 \\\hline 5 & 16 & 80 & 75 & 125 \\\hline 6 & 15 & 90 & 93 & 143 \\\hline 7 & 14 & 98 & 112 & 162 \\\hline 8 & 13 & 104 & 140 & 190 \\\hline 9 & 12 & 108 & 180 & 230 \\\hline 10 & 11 & 110 & 230 & 280 \\\hline\end{array}$$ Table 9.3 shows the demand and cost schedules for a monopolistically competitive firm.

-Refer to Table 9.3.If this firm continues to produce,what is likely to happen to the product's price in the long run?

A) It will fall.
B) It will increase.
C) It will remain constant.
D) It cannot be determined without information on its long-run demand curve.

Question 75

Table 9.3
$$\begin{array} { | c | c | c | c | c | } \hline \text { Quantity } & \begin{array} { c } \text { Price } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Variable } \\\text { Cost } \\\text { (dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 0 & 21 & 0 & 0 & 50 \\\hline 1 & 20 & 20 & 16 & 66 \\\hline 2 & 19 & 38 & 31 & 81 \\\hline 3 & 18 & 54 & 45 & 95 \\\hline 4 & 17 & 68 & 59 & 109 \\\hline 5 & 16 & 80 & 75 & 125 \\\hline 6 & 15 & 90 & 93 & 143 \\\hline 7 & 14 & 98 & 112 & 162 \\\hline 8 & 13 & 104 & 140 & 190 \\\hline 9 & 12 & 108 & 180 & 230 \\\hline 10 & 11 & 110 & 230 & 280 \\\hline\end{array}$$ Table 9.3 shows the demand and cost schedules for a monopolistically competitive firm.

-Refer to Table 9.3.The average variable cost of production at its optimal output level is _____.

A) $0 (because its optimal output = 0)
B) $15
C) $14.75
D) $29

Question 76

Figure 9.4 Figure 9.4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 9.4.The area that represents the total variable cost of production is

A) 0P₀aQ_a
B) 0P₁bQ_a
C) P₀abP₁
D) P₁bdP₃

Question 77

Figure 9.4 Figure 9.4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 9.4.If the firm represented in the diagram is currently producing and selling Q_a units,what is the price charged?

A) P₀
B) P₁
C) P₂
D) P₃

Question 78

Figure 9.4 Figure 9.4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 9.4.The area that represents the total fixed cost of production is _____.

A) 0P₁aQ_a
B) P₀adP₃
C) P₁bdP₃
D) That information cannot be determined from the graph.

Question 79

Figure 9.5
Refer to Figure 9.5.The chocolate store represented in the diagram is currently selling Q_a units of candy at a price of P_a.Is this candy store maximising its profit and if it is not,what would you recommend to the firm?

A) Yes, it is maximising its profit by charging the highest price possible.
B) No, it is not; since its marginal cost is constant, it should produce and sell as much chocolate as it can. It should sell Q_d units at a price of P_d.
C) No, it is not; it should lower its price to P_c and sell Q_c units.
D) No, it is not; it should lower its price to P_b and sell Q_b units.

Question 80

Figure 9.4 Figure 9.4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 9.4.Should the firm represented in the diagram continue to stay in business despite its losses?

A) No, it should shut down.
B) Yes, its total revenue covers its variable cost.
C) No, it is not able to cover its fixed cost.
D) Yes, it should increase its revenue by raising its price.