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Product differentiation exists within an industry when


A) there are no substitutes for the product.
B) the firm can sell all it wants at the given price.
C) the market is a monopoly.
D) the market is perfectly competitive.
E) there are close but not perfect substitutes for the product.

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In long-run equilibrium,a firm in monopolistic competition


A) makes zero economic profit and operates with excess capacity.
B) makes zero economic profit and produces above capacity output.
C) makes a positive economic profit and operates with excess capacity.
D) makes a positive economic profit and produces above capacity output.
E) incurs an economic loss and exits the market.

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A firm in a monopolistically competitive market


A) faces an upward-sloping demand curve.
B) faces a downward-sloping demand curve.
C) practices product differentiation.
D) faces a horizontal demand curve.
E) B and C are correct.

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E

Dole Co.operates in a monopolistically competitive market.Which of the following characterizes Dole Co.'s market?


A) Dole Co.supplies a small portion of the market's output.
B) Dole Co.'s product is slightly different from its competitors.
C) Dole Co.faced no barrier to entry when it decided to enter its market.
D) Dole Co.is unable to collude with other firms in the market.
E) All of the above describe Dole Co.'s market.

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Use the information below to answer the following question. Fact 14.3.1 Suppose that at one of the Talbot's shops,marginal cost of a coat is constant at $150,and total fixed cost is $3,000 a day.The shop maximizes its profit by selling 15 coats a day at $500 per coat.Then the shops nearby increase their advertising.The Talbot shop responds by spending $1,500 a day more on advertising its coats.As a result,its profit-maximizing number of coats sold increases to 25 a day at $400 per coat. -Refer to Fact 14.3.1.As a result of increased advertising,Talbot's markup


A) decreases by $100.
B) increases by $50.
C) increases by $75.
D) decreases by $60.
E) decreases by an unknown amount.

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Markup


A) does not exist in monopoly.
B) does not exist in monopolistic competition.
C) exists in perfect competition.
D) is the difference between price and average total cost.
E) exists in both monopoly and monopolistic competition.

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The real-estate industry is monopolistically competitive,so in this industry


A) the market demand curve is a horizontal line.
B) the market demand curve is upward sloping.
C) there are few realtors in the market.
D) excess capacity exists.
E) excess capacity does not exist.

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Choose the correct statement about firms in monopolistic competition.


A) All firms make positive economic profit.
B) The price is set equal to marginal cost to achieve maximum economic profit.
C) Price is lower than in perfect competition.
D) Production always takes place at minimum average total cost.
E) The price is always greater than the marginal cost.

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Because consumers value product variety,


A) society must be more efficient with monopolistic competition than with perfect competition.
B) the inefficiency of monopolistic competition is partially offset.
C) in the long run,monopolistic competition firms make economic profit.
D) monopolistically competitive industries are efficient.
E) no two goods of the same type will have equal prices.

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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) definitely a perfectly competitive
B) a perfectly competitive or a monopolistically competitive
C) definitely a monopolistically competitive
D) neither a perfectly competitive nor a monopolistically competitive
E) a monopolistic

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Mrs.Smith's bakery shop is a firm in monopolistic competition.The firm's marginal revenue curve


A) is upward sloping.
B) is downward sloping and above the demand curve.
C) is a horizontal line.
D) is the same as the demand curve.
E) is downward sloping and lies below the demand curve.

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Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 14.2.5 -Refer to Figure 14.2.5.The figure shows the situation facing Smart Digit,Inc. ,a firm in monopolistic competition that produces calculators.The firm's markup is ________ per calculator. A) zero B) $2 C) $4 D) $6 E) $10 Figure 14.2.5 -Refer to Figure 14.2.5.The figure shows the situation facing Smart Digit,Inc. ,a firm in monopolistic competition that produces calculators.The firm's markup is ________ per calculator.


A) zero
B) $2
C) $4
D) $6
E) $10

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Excess capacity in monopolistically competitive firms occurs because


A) each firm faces a demand that is perfectly elastic.
B) each firm builds a huge plant.
C) the existence of slightly differentiated products,serving almost the same purpose,causes a waste of precious natural resources.
D) firms produce an output that is less than the output at minimum average total cost.
E) marginal cost is too high.

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The decision to undertake product development in monopolistic competition is made by comparing the


A) marginal benefit of product development to the marginal cost of product development.
B) marginal revenue of product development to the average total cost of product development.
C) total revenue of product development to the total cost of product development.
D) firm's expenditure on product development to expenditures by competing firms.
E) none of the above.

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Which of the following best explains why firms in monopolistic competition face a downward- sloping demand curve while perfectly competitive firms do not?


A) Monopolistically competitive industries have only a few firms.
B) Monopolistically competitive firms face barriers to entry.
C) Only industries with free entry and exit have firms that face horizontal demand curves.
D) Firms in monopolistic competition are price takers.
E) Firms in monopolistic competition sell a differentiated good.

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What will happen in the long run if firms in monopolistic competition incur economic loss?


A) Firms will continue producing and endure the losses.
B) Firms will leave the industry until the remaining firms make positive economic profit.
C) Firms will ask the government for financial aid.
D) Firms will leave the industry until the remaining firms make zero economic profit.
E) The level of investment in this industry will increase to boost the economy.

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D

Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D<sub>1</sub>.To maximize economic profit,this firm in monopolistic competition will charge a price of ________ and produce an output of ________ units. A) $100;200 B) $90;220 C) $80;200 D) $70;100 E) $55;140 Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D1.To maximize economic profit,this firm in monopolistic competition will charge a price of ________ and produce an output of ________ units.


A) $100;200
B) $90;220
C) $80;200
D) $70;100
E) $55;140

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In the long-run,a firm in monopolistic competition produces at an output level where


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

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C

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) All firms charge a price equal to marginal cost.
C) All firms make an economic profit.
D) The demand,average total cost,and marginal cost curves all intersect at the same point.
E) Firms have an incentive to enter the industry.

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Use the figure below to answer the following questions. Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D<sub>1</sub>.If the firm produced the efficient quantity,it would produce A) 100 units. B) 220 units. C) 200 units. D) 250 units. E) 140 units. Figure 14.2.3 -Refer to Figure 14.2.3.Assume this firm faces demand curve D1.If the firm produced the efficient quantity,it would produce


A) 100 units.
B) 220 units.
C) 200 units.
D) 250 units.
E) 140 units.

Correct Answer

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