Question 1

After selling 1,000 three-ring binders, Tony DiFulvio realizes that the marginal revenue from selling the last binder was less than the marginal cost.From this we can conclude that

Accepted Answer

A) Tony's business earns a short-run economic profit. 
B) Tony should shut down his business temporarily. 
C) Tony's profit fell after selling his 1,000th three-ring binder. 
D) Tony's profit would be greater if he sold an additional three-ring binder.

Question 2

Figure 13-18
 
-Refer to Figure 13-18.Which of the following statements is true?

Accepted Answer

A) Dₐ represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the demand curve in the short run. 
B) Dₐ represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the long-run demand curve in an increasing-cost industry. 
C) Dₐ represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor. 
D) Dₐ represents the long-run supply curve in a perfectly competitive, constant-cost industry while Db depicts the long-run demand curve facing a monopolistic competitor in a decreasing-cost industry.

Question 3

In theory, in the long run, monopolistically competitive firms earn zero profits.However, in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

Accepted Answer

A) gradually increase the mark-up on the goods produced 
B) lower the price of its products to expand its market share 
C) identify new markets and develop products precisely for those markets 
D) find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment

Question 4

Although advertising raises the price of a monopolistic competitor's product, it does confer a benefit to consumers.Which of the following is a benefit to consumers?

Accepted Answer

A) Advertising acts as a barrier to entry. 
B) Advertising engenders brand loyalty. 
C) Advertising could provide consumers with useful information about new products and enable them to comparison shop. 
D) Advertised products tend to be of higher quality so consumers feel special when they consume advertised products.

Question 5

A monopolistically competitive firm that earns economic profits in the short run will face a more elastic demand curve in the long run.

Accepted Answer

A) True 
 B)False

Question 6

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.

Question 7

Figure 13-11
 
-Refer to Figure 13-11.What is the monopolistic competitor's profit-maximizing price?

Accepted Answer

A) P₁ 
B) P₂ 
C) P₃ 
D) P₄

Question 8

Economists agree that a monopolistically competitive market structure

Accepted Answer

A) lowers consumer utility because consumers pay a price higher than the marginal cost of production. 
B) is detrimental to society because it leads to a waste of scarce resources. 
C) benefits consumers because firms produce products that appeal to a wide range of consumer tastes. 
D) can eliminate any excess capacity if all firms in the industry devote more funds to differentiating their products.

Question 9

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

Accepted Answer

The answer of What is the difference between the terms...

Question 10

If firms in a monopolistically competitive industry are making profits in the short run, then

Accepted Answer

A) barriers to entry will be erected to keep out rivals. 
B) some firms will ultimately exit the industry. 
C) they will resort to advertising wars to help sustain these profits. 
D) new firms will enter the market.

Question 11

Which of the following can a firm use to defend a successful product's brand name?

Accepted Answer

A) The firm can obtain a patent on the brand name. 
B) The firm can apply for a trademark to ban other firms from using the product's name. 
C) The firm can increase the amount it spends on advertising for the product. 
D) The firm can attempt to copyright the brand name.

Question 12

Which of the following statements is true about advertising by a monopolistically competitive firm?

Accepted Answer

A) Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products. 
B) Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand. 
C) Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product. 
D) Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry.

Question 13

A firm cannot control all of the factors that allow it to make economic profits.Which of the following is an example of an uncontrollable factor?

Accepted Answer

A) product differentiation 
B) input prices 
C) producing at a lower average total cost than competing firms 
D) hiring competent managers

Question 14

What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?

Accepted Answer

A) Consumers pay higher prices but receive better quality goods compared to the output of perfectly competitive firms. 
B) Consumers pay a price greater than marginal cost, but have the luxury of choices more suited to their tastes. 
C) Consumers pay higher prices but the products are produced by highly efficient firms. 
D) Consumers pay lower prices but have fewer choices.

Question 15

Table 13-4
  
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 universities and private research laboratories.
-Refer to Table 13-4.Based on the data in the table, which of the following statements is true?

Accepted Answer

A) The table summarizes Victoria's short-run, rather than long-run, market for plastic vials. 
B) Victoria could be either a monopolistically competitive or a perfectly competitive firm. 
C) Victoria should shut down temporarily. 
D) Victoria should advertise more in order to increase the demand for plastic vials.

Question 16

Table 13-3
  
Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.
-Refer to Table 13-3.If this firm continues to produce, what is likely to happen to the product's price in the long run?

Accepted Answer

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 17

In the United States, the average person mostly patronizes firms that operate in

Accepted Answer

A) perfectly competitive markets. 
B) monopolistically competitive markets. 
C) oligopolies. 
D) monopolies.

Question 18

A monopolistically competitive firm chooses

Accepted Answer

A) both the quantity of output to produce and the price at which it will sell its output. 
B) the price of the product it sells but market forces determine the quantity it will be able to sell. 
C) the quantity of output to produce but the price of the product it sells is determined collectively by all firms in the industry. 
D) the price of the product it sells but the quantity of output to produce is agreed upon by all firms in the industry.

Question 19

What effect does the entry of new firms in a monopolistically competitive market have on the economic profits of existing firms in the market? How might existing firms attempt to counteract this effect?

Accepted Answer

The answer of What effect does the entry of new...

Question 20

Figure 13-8
  
Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 13-8.Based on the diagram, one can conclude that

Accepted Answer

A) some existing firms will exit the market. 
B) new firms will enter the market. 
C) the industry is in long-run equilibrium. 
D) firms achieve productive efficiency.

Exam 13: Monopolistic Competition: the Competitive Model in a