Question 1

When a monopolistically competitive firm is in long-run equilibrium,

Accepted Answer

A)  marginal revenue is equal to marginal cost.
B)  marginal revenue is equal to average total cost.
C)  marginal revenue is equal to price.
D)  price is equal to marginal cost.

Question 2

Regulation of a firm in a monopolistically competitive market

Accepted Answer

A)  usually implies a very small administrative burden.
B)  will lower the firm's costs.
C)  is commonly used to enhance market efficiency.
D)  is unlikely to improve market efficiency.

Question 3

A monopolistically competitive firm has the following cost structure: 
The firm faces the following demand curve:

If the government forces this firm to produce at its efficient scale,it will

Accepted Answer

A)  produce 3 units and make $9.
B)  produce 4 units and make $6.
C)  produce 5 units and lose $5.
D)  produce 7 units and lose $49.

Question 4

If a firm in a monopolistically competitive market successfully uses advertising to decrease elasticity of demand for its product,

Accepted Answer

A)  the firm will be able to increase its markup over marginal cost.
B)  the firm will eventually have to lower price to remain competitive.
C)  it will increase the welfare of society.
D)  it will reduce average total cost.

Question 5

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,

Accepted Answer

A)  its average revenue will equal its marginal cost.
B)  its marginal revenue will exceed its marginal cost.
C)  it will be earning positive economic profits.
D)  its demand curve will be tangent to its average-total-cost curve.

Question 6

Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its

Accepted Answer

A)  marginal revenue curve and its total cost curve.
B)  marginal revenue curve and its average total cost curve.
C)  demand curve and its total cost curve.
D)  demand curve and its average total cost curve.

Question 7

Monopolistically competitive firms have excess capacity.To maximize profits,firms will

Accepted Answer

A)  increase their output to lower their average total cost of production and eliminate the excess capacity.
B)  produce where price equals marginal cost to eliminate the excess capacity.
C)  produce where average revenue equals marginal cost to eliminate the excess capacity.
D)  maintain the excess capacity.

Question 8

Monopolistically competitive markets differ from perfectly competitive markets due to (i) 	the number of sellers.
(ii) 	the barriers to entry.
(iii) 	the product differentiation among the sellers.

Accepted Answer

A)  (i)  only
B)  (iii)  only
C)  (i)  and (iii) 
D)  (ii)  and (iii)

Question 9

Cecilia's Café is in a monopolistically competitive market.Cecilia's is currently producing where average total cost is at its minimum,and Cecilia's is earning a positive economic profit.In the long run we would expect Cecilia's output to

Accepted Answer

A)  decrease and average total cost to increase.
B)  decrease and average total cost to decrease.
C)  remain unchanged as Cecilia's is doing the best it can.
D)  increase and average total costs to decrease.

Question 10

Professional organizations and producer groups have an incentive to

Accepted Answer

A)  restrict advertising in order to enhance competition on the basis of price.
B)  restrict advertising in order to reduce competition on the basis of price.
C)  encourage advertising in order to reduce competition on the basis of price.
D)  encourage advertising in order to enhance competition on the basis of price.

Question 11

A monopolistically competitive firm has the following cost structure: 
The firm faces the following demand curve:

To maximize profit (or minimize losses) ,the firm will produce

Accepted Answer

A)  2 units.
B)  3 units.
C)  4 units.
D)  5 units.

Question 12

In a long-run equilibrium,

Accepted Answer

A)  only a perfectly competitive firm operates at its efficient scale.
B)  only a monopolistically competitive firm operates at its efficient scale.
C)  neither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost.
D)  both a perfectly competitive firm and a monopolistically competitive firm operate at their efficient scale of production.

Question 13

Critics of advertising argue that advertising

Accepted Answer

A)  creates desires that otherwise might not exist.
B)  hinders competition.
C)  often fails to convey substantive information.
D)  All of the above are correct.

Question 14

The administrative burden of regulating price in a monopolistically competitive market is

Accepted Answer

A)  small due to economies of scale.
B)  large because price is usually below marginal cost.
C)  large because of the large number of firms that produce differentiated products.
D)  small because firms produce with excess capacity.

Question 15

If firms in a monopolistically competitive market are earning economic profits,which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?

Accepted Answer

A)  An increase in demand for each firm
B)  A decrease in demand for each firm
C)  A downward shift in the marginal cost curve for each firm
D)  An upward shift in the marginal cost curve for each firm

Question 16

When a monopolistically competitive firm raises its price,

Accepted Answer

A)  quantity demanded falls to zero.
B)  quantity demanded declines, but not to zero.
C)  the market supply curve shifts outward.
D)  quantity demanded remains constant.

Question 17

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

Accepted Answer

A) True 
 B)False

Question 18

In a monopolistically competitive market,

Accepted Answer

A)  strategic interactions among the firms are very important.
B)  the threat of entry by new firms is not an important consideration.
C)  the attainment of a Nash equilibrium is an important objective.
D)  firms may enter even though they will earn zero economic profit in the long run.

Question 19

Monopolistic competition is the only market structure that features "many sellers."

Accepted Answer

A) True 
 B)False

Question 20

Figure 17-6
 
-Refer to Figure 17-6..Assume the firm in the figure is currently producing 8 units of output and charging $400.The firm

Accepted Answer

A)  will increase its profits if it raises its price and reduces its production level.
B)  will increase its profits if it lowers its price and expands its production level.
C)  is maximizing profits.
D)  will increase its profits if it raises its prices and expands its production level.

Exam 17: Monopolistic Competition

Regulation of a firm in a monopolistically competitive market

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Critics of advertising argue that advertising

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A monopolistically competitive firm has the following cost structure: The firm faces the following demand curve: If the government forces this firm to produce at its efficient scale,it will

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When a monopolistically competitive firm raises its price,

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Cecilia's Café is in a monopolistically competitive market.Cecilia's is currently producing where average total cost is at its minimum,and Cecilia's is earning a positive economic profit.In the long run we would expect Cecilia's output to

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If a firm in a monopolistically competitive market successfully uses advertising to decrease elasticity of demand for its product,

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Monopolistically competitive firms have excess capacity.To maximize profits,firms will

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Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its

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If firms in a monopolistically competitive market are earning economic profits,which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?

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Monopolistic competition is the only market structure that features "many sellers."

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Professional organizations and producer groups have an incentive to

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When a monopolistically competitive firm is in long-run equilibrium,

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A monopolistically competitive firm has the following cost structure: The firm faces the following demand curve: To maximize profit (or minimize losses) ,the firm will produce

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Figure 17-6 -Refer to Figure 17-6..Assume the firm in the figure is currently producing 8 units of output and charging $400.The firm

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When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,

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In a long-run equilibrium,

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In a monopolistically competitive market,

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The administrative burden of regulating price in a monopolistically competitive market is

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Monopolistically competitive markets differ from perfectly competitive markets due to (i) the number of sellers. (ii) the barriers to entry. (iii) the product differentiation among the sellers.

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The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

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