Question 1

Use the following to answer questions:
Figure: Profits in Monopolistic Competition 
-(Figure: Profits in Monopolistic Competition) In panel (C) of the figure Profits in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:

Accepted Answer

A)  P. 
B)  S. 
C)  R. 
D)  Q.

Question 2

Which of the following is TRUE?

Accepted Answer

A)  Monopolistic competition and perfect competition are both inefficient. 
B)  Monopolistic competition is efficient because of product differentiation. 
C)  The inefficiency of monopolistic competition may be a small price to pay for the wide range of product choices it offers. 
D)  The inefficiency of monopolistic competition is a result of advertising expenses.

Question 3

Use the following to answer questions: 
-(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. If the industry were in perfect competition, the profit-maximizing price would be:

Accepted Answer

A)  $10.00. 
B)  $6.50. 
C)  $8.38 
D)  $8.29

Question 4

Toby operates a small deli in a monopolistically competitive restaurant industry. In long-run equilibrium, the profit-maximizing price of the three-meat sandwich is $3. Price also equals his average total cost. Toby's minimum average total cost is less than $3.

Accepted Answer

A) True 
 B)False

Question 5

For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is _____, and there are _____ producers of seafood.

Accepted Answer

A)  downward-sloping; few 
B)  upward-sloping; many 
C)  vertical; few 
D)  downward-sloping; many

Question 6

Use the following to answer questions:
Figure: The Restaurant Market 
-(Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the restaurant market. For the restaurant shown here, the profit-maximizing price is:

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  Not enough information is given to answer the question.

Question 7

Budweiser is a widely recognized brand name. During the Super Bowl each year, this beer company has many of the most successful ads. Which of the following is TRUE about advertising for Budweiser?

Accepted Answer

A)  It is designed to increase the demand for Budweiser. 
B)  It decreases the costs of supplying Budweiser. 
C)  It guarantees customers that Budweiser tastes better than other beers. 
D)  It is designed to increase excess capacity.

Question 8

Use the following to answer questions:
Figure: Firms in Monopolistic Competition 
-(Figure: Firms in Monopolistic Competition) In panel (B) of the figure Firms in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:

Accepted Answer

A)  Q. 
B)  R. 
C)  S. 
D)  T.

Question 9

The conditions for profit maximization and the analysis of short-run equilibrium are identical for monopoly and for a monopolistically competitive firm.

Accepted Answer

A) True 
 B)False

Question 10

A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning negative economic profits. Which of the following must be TRUE?

Accepted Answer

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

Question 11

Because most communities have a large number of similar but not identical substitutes, the market for florists is best considered:

Accepted Answer

A)  a monopoly. 
B)  an oligopoly. 
C)  monopolistically competitive. 
D)  perfectly competitive.

Question 12

In monopolistic competition:

Accepted Answer

A)  firms may advertise to increase demand for their product. 
B)  entry of new firms shifts the demand curve for existing firms to the right. 
C)  when some firms exit, the demand curve for the firms that remain in the industry shifts to the left. 
D)  firms earn large economic profits in the long run.

Question 13

Toby operates a small deli downtown. The deli industry is monopolistically competitive. Toby, along with every other deli in town, is producing the quantity that minimizes average total cost. Assuming the delis are maximizing profits, the:

Accepted Answer

A)  number of delis will eventually decrease. 
B)  number of delis will eventually increase. 
C)  delis' prices equal their average total costs. 
D)  delis have excess capacity.

Question 14

Consumers' differing tastes are one reason monopolistic:

Accepted Answer

A)  firms encounter large barriers to entry. 
B)  competitors earn a positive economic profit in the long run. 
C)  competitors set price at MC. 
D)  competitors are similar to monopolists.

Question 15

The profit-maximizing rule, expressed as _____, is adhered to by firms operating in a market that is _____.

Accepted Answer

A)  MC > MR; monopolistically competitive but not perfectly competitive 
B)  MC = MR; both monopolistically competitive and perfectly competitive 
C)  MC > MR; perfectly competitive but not monopolistically competitive 
D)  MC = MR; either monopolistically competitive or perfectly competitive, depending on the costs of production

Question 16

A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily because:

Accepted Answer

A)  there are no barriers to entry or exit in the long run. 
B)  there are many sellers in the industry. 
C)  its product is differentiated. 
D)  the price is greater than the marginal revenue.

Question 17

When initially a monopolistically competitive industry earns economic profit, the result of competition among sellers is usually that:

Accepted Answer

A)  the price of the product increases to monopoly level. 
B)  the price of the product quickly reaches the perfectly competitive level. 
C)  firms in the industry gain market share. 
D)  firms in the industry lose market share.

Question 18

Use the following to answer questions:
Figure: Monopolistic Competitor 
-(Figure: Monopolistic Competitor) The firm shown in the figure Monopolistic Competitor may engage in advertising because:

Accepted Answer

A)  it does not know any better. 
B)  its price is greater than its MC. 
C)  its profits are negative. 
D)  this will decrease its excess capacity levels.

Question 19

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, what is the fixed cost for this firm?

Accepted Answer

A)  There is none, since this is the long run. 
B)  Fixed costs equal $160. 
C)  Fixed costs equal $20. 
D)  Fixed costs equal $180.

Question 20

A monopolistically competitive firm is operating in the short run at the optimal level of output and earns negative economic profits. Describe how this industry will adjust in the long run.

Accepted Answer

The answer of A monopolistically competitive firm is operating in...

Exam 15: Monopolistic Competition and Product Differentiation

Use the following to answer questions: Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) In panel (C) of the figure Profits in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point: