Question 1

Use the following to answer questions:
Figure: The Market for Gas Stations 
-(Figure: The Market for Gas Stations) The figure The Market for Gas Stations shows curves facing a typical gas station in a large town. The market is characterized by many firms, differentiated products, easy entry, and easy exit. If the gas station here is typical, prices charged by firms in the market are likely to:

Accepted Answer

A)  fall in the long run. 
B)  rise in the long run. 
C)  remain unchanged. 
D)  rise dramatically in the long run.

Question 2

If a firm operating in monopolistic competition is producing a quantity that generates MC > MR, then the marginal decision rule tells us that profit:

Accepted Answer

A)  can be increased by increasing production. 
B)  can be increased by decreasing production. 
C)  can be increased by decreasing the price. 
D)  is maximized only if MC = P.

Question 3

The model of monopolistic competition characterizes the market for plumbing services in a city. Suppose that the market is in long-run equilibrium. For a typical plumbing firm, price:

Accepted Answer

A)  equals average total cost. 
B)  exceeds average total cost. 
C)  is less than average total cost. 
D)  is greater than the average for all other firms in the market.

Question 4

The restaurant industry is characterized by excess capacity. This means that:

Accepted Answer

A)  restaurants are producing more than their profit-maximizing level. 
B)  the profit-maximizing level is less than the level that minimizes average total costs. 
C)  restaurants are producing less than their profit-maximizing level. 
D)  the quantity of restaurant meals supplied exceeds the quantity of restaurant meals demanded.

Question 5

Use the following to answer questions:
Figure: Comparing Long-Run Equilibriums 
-(Figure: Comparing Long-Run Equilibriums) In the figure Comparing Long-Run Equilibriums, which of the following statements is FALSE?

Accepted Answer

A)  The firm in panel (a) produces where price equals marginal cost and average total cost. 
B)  The firm in panel (b) produces where price equals marginal cost. 
C)  The firm in panel (b) produces where price equals average cost. 
D)  The firm in panel (a) produces where price equals average cost.

Question 6

Use the following to answer questions:
Scenario: Monopolistically Competitive Firm
For a monopolistically competitive firm, Q = 160 - P; MC = 20 + 2Q; and TC = 20Q + QS1U1P12 S1S1P0+ 20.
-(Scenario: Monopolistically Competitive Firm) Given the information in the scenario Monopolistically Competitive Firm, in the long run, this firm can expect that:

Accepted Answer

A)  its demand curve will become more elastic as it dominates the market more. 
B)  its economic profits will decrease to zero. 
C)  its losses will fall and eventually become a positive economic profit. 
D)  other firms will not enter or exit the industry.

Question 7

The excess capacity in monopolistic competition may be viewed as:

Accepted Answer

A)  the cost of product diversity. 
B)  efficient. 
C)  the reason P = MR = MC in monopolistic competition. 
D)  the advantage of monopolistic competition over monopoly.

Question 8

Monopolistic competition describes an industry characterized by a _____ number of firms producing _____ products with _____ entry.

Accepted Answer

A)  small; identical; barriers to 
B)  small; similar; relatively easy 
C)  large; similar; relatively easy 
D)  large; identical; relatively easy

Question 9

If a monopolistically competitive firm is in long-run equilibrium, price:

Accepted Answer

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

Question 10

The best way for firms in monopolistic competition to gain market power is to engage in tacit collusion.

Accepted Answer

A) True 
 B)False

Question 11

The fact that firms in a monopolistically competitive industry are competing for a limited market is called competition among sellers.

Accepted Answer

A) True 
 B)False

Question 12

Use the following to answer questions:
Figure: Comparing Long-Run Equilibriums 
-(Figure: Comparing Long-Run Equilibriums) Look at the figure Comparing Long-Run Equilibriums. Which of the following statements is FALSE?

Accepted Answer

A)  Firms in panel (
A)  cannot have excess profits in the long run, but those in panel (
B)  can. 
B)  Both panels show markets in which firms are covering all of their implicit and explicit costs. 
C)  Firms in the market shown in panel (
A)  produce identical products, whereas those in panel (
B)  produce similar but differentiated products. 
D)  Both firms show markets that have many firms.

Question 13

Use the following to answer questions:
Figure: Monopolistic Competition II 
-(Figure: Monopolistic Competition II) Which of the panels in the figure Monopolistic Competition II shows a monopolistic competitor earning a profit in the short run?

Accepted Answer

A)  panel (a) 
B)  panel (b) 
C)  panel (c) 
D)  panels (a) and (c)

Question 14

Use the following to answer question:
Figure: Monopolistic Competition 
-(Figure: Monopolistic Competition) The firm in the figure Monopolistic Competition is producing at the output level that maximizes profits (minimizes losses). The shaded rectangle depicts the level of:

Accepted Answer

A)  profit. 
B)  loss. 
C)  fixed cost. 
D)  variable cost.

Question 15

Consider the demand curve for a firm in perfect competition, a firm in monopolistic competition, and a monopolist. Which is likely to be the least elastic and which is likely to be the most elastic? Explain.

Accepted Answer

The answer of Consider the demand curve for a firm...

Question 16

Gas stations are not monopolistically competitive, because everyone knows the gasoline is the same regardless of where it is purchased.

Accepted Answer

A) True 
 B)False

Question 17

Use the following to answer questions:
Figure: Firms in Monopolistic Competition 
-(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. There will be a negative economic profit (or an economic loss) earned at the profit-maximizing price _____ in panel _____.

Accepted Answer

A)  G; (
A)  
B)  H; (
B)  
C)  I; (
C)  
D)  J; (
C)

Question 18

A firm in monopolistic competition maximizes its profit by producing so that:

Accepted Answer

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

Question 19

Which industry type, perfect competition or monopolistic competition, produces less deadweight loss? Which industry type is preferred by society? Explain.

Accepted Answer

The answer of Which industry type, perfect competition or monopolistic...

Question 20

If the Boston doughnut market is monopolistically competitive and the firms are earning short-run profits, consumers in Boston will see less diversity in the doughnuts offered over time.

Accepted Answer

A) True 
 B)False

Exam 15: Monopolistic Competition and Product Differentiation

If a firm operating in monopolistic competition is producing a quantity that generates MC > MR, then the marginal decision rule tells us that profit:

The model of monopolistic competition characterizes the market for plumbing services in a city. Suppose that the market is in long-run equilibrium. For a typical plumbing firm, price:

The restaurant industry is characterized by excess capacity. This means that:

Use the following to answer questions: Figure: Comparing Long-Run Equilibriums -(Figure: Comparing Long-Run Equilibriums) In the figure Comparing Long-Run Equilibriums, which of the following statements is FALSE?

The excess capacity in monopolistic competition may be viewed as:

Monopolistic competition describes an industry characterized by a ___ number of firms producing _ products with ___ entry.

If a monopolistically competitive firm is in long-run equilibrium, price:

The best way for firms in monopolistic competition to gain market power is to engage in tacit collusion.

The fact that firms in a monopolistically competitive industry are competing for a limited market is called competition among sellers.

Use the following to answer questions: Figure: Comparing Long-Run Equilibriums -(Figure: Comparing Long-Run Equilibriums) Look at the figure Comparing Long-Run Equilibriums. Which of the following statements is FALSE?

Use the following to answer questions: Figure: Monopolistic Competition II -(Figure: Monopolistic Competition II) Which of the panels in the figure Monopolistic Competition II shows a monopolistic competitor earning a profit in the short run?

Use the following to answer question: Figure: Monopolistic Competition -(Figure: Monopolistic Competition) The firm in the figure Monopolistic Competition is producing at the output level that maximizes profits (minimizes losses) . The shaded rectangle depicts the level of:

Consider the demand curve for a firm in perfect competition, a firm in monopolistic competition, and a monopolist. Which is likely to be the least elastic and which is likely to be the most elastic? Explain.

Gas stations are not monopolistically competitive, because everyone knows the gasoline is the same regardless of where it is purchased.

Use the following to answer questions: Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. There will be a negative economic profit (or an economic loss) earned at the profit-maximizing price _ in panel _.

A firm in monopolistic competition maximizes its profit by producing so that:

Which industry type, perfect competition or monopolistic competition, produces less deadweight loss? Which industry type is preferred by society? Explain.

If the Boston doughnut market is monopolistically competitive and the firms are earning short-run profits, consumers in Boston will see less diversity in the doughnuts offered over time.