Question 1

A monopolistically competitive market is described as one in which there are

Accepted Answer

A)   a few firms producing an identical product.
B)   a large number of firms selling similar, but not identical, products.
C)   a few firms producing differentiated products.
D)   one large firm and many small firms producing identical products.

Question 2

Unlike a perfectly competitive firm, for a monopolistically competitive firm

Accepted Answer

A)   price ≠ marginal cost for all output levels.
B)   price ≠ marginal revenue for all output levels.
C)   price ≠ average revenue for all output levels.
D)   marginal revenue = marginal cost at the profit-maximising output.

Question 3

For a downward-sloping demand curve, marginal revenue decreases as quantity sold increases.

Accepted Answer

A) True 
 B)False

Question 4

If a firm faces a downward-sloping demand curve,

Accepted Answer

A)   the demand for its product must be inelastic.
B)   it can control both price and quantity sold.
C)   it must reduce its price to sell more units.
D)   it will always make a profit.

Question 5

y units and charging a price of P0. C)  The firm should minimise its losses by producing Qy units and charging a price of P2. D)  The firm should minimise its losses by producing Qy units and charging a price of P1." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-7. Which of the following statements describes the best course of action for the firm depicted in the diagram?

Accepted Answer

A)   The firm should exit the industry because its price is less than its average total cost.
B)   The firm should minimise its losses by producing Qy units and charging a price of P0.
C)   The firm should minimise its losses by producing Qy units and charging a price of P2.
D)   The firm should minimise its losses by producing Qy units and charging a price of P1.

Question 6

Why do most firms in monopolistic competition typically make zero profit in the long run?

Accepted Answer

A)   because firms produce differentiated products
B)   because the lack of entry barriers would compete away profits
C)   because firms do not produce at their minimum efficient scale
D)   because the total market is not large enough to accommodate so many firms

Question 7

One goal a firm tries to achieve when it advertises a product is to

Accepted Answer

A)   make the demand curve for the product more elastic.
B)   shift the demand curve for the product to the left.
C)   make the demand curve for the product unitary elastic.
D)   make the demand curve for the product more inelastic.

Question 8

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

New firms entering an industry cause the...

Question 9

In monopolistic competition there is/are

Accepted Answer

A)   many sellers who each face a downward-sloping demand curve.
B)   a few sellers who each face a downward-sloping demand curve.
C)   only one seller who faces a downward-sloping demand curve.
D)   many sellers who each face a perfectly elastic demand curve.

Question 10

h - Qf units B)  Qj - Qf units C)  Qj - Qh units D)  Qh - Qg units" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-17. What is the amount of excess capacity?

Accepted Answer

A)   Qh - Qf units
B)   Qj - Qf units
C)   Qj - Qh units
D)   Qh - Qg units

Question 11

b, but in the long run after it adjusts its capacity, it will produce the allocatively efficient output, Qa. B)  it is not possible for a monopolistic competitor to produce the productively efficient output level, Qa, because of product differentiation. C)  it is possible for a monopolistic competitor to produce the productively efficient output level, Qa, if it is willing to lower its price from Pb to Pa. D)  in the long run, the monopolistic competitor produces the minimum-cost output level, Qa, but in the short run its output of Qb is not cost minimising." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-18. The diagram demonstrates that

Accepted Answer

A)   in the short run, the monopolistic competitor produces an output Qb, but in the long run after it adjusts its capacity, it will produce the allocatively efficient output, Qa.
B)   it is not possible for a monopolistic competitor to produce the productively efficient output level, Qa, because of product differentiation.
C)   it is possible for a monopolistic competitor to produce the productively efficient output level, Qa, if it is willing to lower its price from Pb to Pa.
D)   in the long run, the monopolistic competitor produces the minimum-cost output level, Qa, but in the short run its output of Qb is not cost minimising.

Question 12

-Refer to Figure 10-14. If the diagram represents a typical firm in the market, what is likely to happen to its average cost of production in the long run?

Accepted Answer

A)   It will probably fall since the firm must be cost efficient to remain competitive.
B)   It will probably fall since the firm will be selling less than its current amount.
C)   It will probably rise since the firm will be producing less than its current amount.
D)   It will probably rise since its long-run demand is likely to be higher.

Question 13

f units and not Qg units, which has a lower average cost of production? A)  Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss. B)  At Qg, average cost exceeds marginal cost so the firm will actually incur a loss. C)  At Qg, marginal revenue is less than average revenue, which will result in a loss for the firm. D)  The firm's goal is to charge a high price and make a small profit rather than charge a low price and make no profit." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-17. In the long run, why will the firm produce Qf units and not Qg units, which has a lower average cost of production?

Accepted Answer

A)   Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.
B)   At Qg, average cost exceeds marginal cost so the firm will actually incur a loss.
C)   At Qg, marginal revenue is less than average revenue, which will result in a loss for the firm.
D)   The firm's goal is to charge a high price and make a small profit rather than charge a low price and make no profit.

Question 14

-Refer to Table 10-3. What is the best course of action for the firm in the short run?

Accepted Answer

A)   It should shut down.
B)   It should stay in business because it covers some of its fixed cost.
C)   It should increase its sales by lowering its price.
D)   It should not cut its price, but it should increase its sales by advertising.

Question 15

When new firms are encouraged to enter a monopolistically competitive market,

Accepted Answer

A)   some existing firms must be earning economic profits.
B)   they do so because there is insufficient product differentiation.
C)   the demand curve facing an existing firm shifts to the right.
D)   the marginal cost curve facing an existing firm shifts downwards.

Question 16

A major difference between monopolistic competition and perfect competition is

Accepted Answer

A)   the number of sellers in the markets.
B)   the degree by which the market demand curves slope downwards.
C)   that products are not standardised in monopolistic competition, unlike in perfect competition.
D)   the barriers to entry in the two markets.

Question 17

For allocative efficiency to hold,

Accepted Answer

A)   price must equal marginal revenue of the last unit sold.
B)   price must equal the marginal cost of the last unit produced.
C)   average variable cost is minimised in production.
D)   average total cost is minimised in production.

Question 18

a units, what is the price charged? A)  P0 B)  P1 C)  P2 D)  P3" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?

Accepted Answer

A)   P0
B)   P1
C)   P2
D)   P3

Question 19

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 20

Which of the following is a disadvantage of trademarking a firm's product?

Accepted Answer

A)   A trademark differentiates a firm's product.
B)   A trademark conveys information about the product to the public.
C)   A trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name.
D)   A trademark does not affect demand for the firm's product.

Exam 10: Monopolistic Competition : The Competitive Model in More Realistic Setting

-Refer to Figure 10-17. What is the amount of excess capacity?

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-Refer to Figure 10-17. In the long run, why will the firm produce Qf units and not Qg units, which has a lower average cost of production?

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Unlike a perfectly competitive firm, for a monopolistically competitive firm

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Which of the following is a disadvantage of trademarking a firm's product?

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-Refer to Figure 10-14. If the diagram represents a typical firm in the market, what is likely to happen to its average cost of production in the long run?

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-Refer to Table 10-3. What is the best course of action for the firm in the short run?

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If a firm faces a downward-sloping demand curve,

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When new firms are encouraged to enter a monopolistically competitive market,

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For a downward-sloping demand curve, marginal revenue decreases as quantity sold increases.

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A monopolistically competitive market is described as one in which there are

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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?

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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?

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-Refer to Figure 10-18. The diagram demonstrates that

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-Refer to Figure 10-7. Which of the following statements describes the best course of action for the firm depicted in the diagram?

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-Refer to Figure 10-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?

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In monopolistic competition there is/are

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Why do most firms in monopolistic competition typically make zero profit in the long run?

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For allocative efficiency to hold,

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A major difference between monopolistic competition and perfect competition is

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One goal a firm tries to achieve when it advertises a product is to

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-Refer to Figure 10-17. In the long run, why will the firm produce Q_f units and not Q_gunits, which has a lower average cost of production?

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New firms entering an industry cause the...
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-Refer to Figure 10-4. If the firm represented in the diagram is currently producing and selling Q_aunits, what is the price charged?

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