Question 1

1 units B)  Q2 units C)  Q3 units D)  Q4 units" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-12. What is the allocatively efficient output for the firm represented in the diagram?

Accepted Answer

A)   Q1 units
B)   Q2 units
C)   Q3 units
D)   Q4 unitsE) A) and B)
F) B) and D)

Question 2

If a monopolistically competitive firm lowers its price and, as a result, its total revenue decreases, then

Accepted Answer

A)   the output effect of the price change was less than the price effect.
B)   the output effect of the price change was greater than the price effect.
C)   the firm's demand curve must have decreased.
D)   the substitution effect of the price change was greater than the income effect.E) C) and D)
F) B) and C)

Question 3

Compared to a perfectly competitive firm, the demand curve facing a monopolistically competitive firm is

Accepted Answer

A)   more elastic because there are many close substitutes for the product of a monopolistically competitive firm.
B)   less elastic because monopolistically competitive firms produce similar, but not identical, products.
C)   just as elastic because there are many sellers in both markets.
D)   more elastic because in the long run, the demand curve is tangent to the firm's average total cost curve.E) All of the above
F) A) and B)

Question 4

If a perfectly competitive firm maximises short-run profits, its marginal revenue will be positive and less than its price.

Accepted Answer

A) True 
 B)False

Question 5

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

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.E) All of the above
F) A) and B)

Question 6

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.E) A) and D)
F) B) and C)

Question 7

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

Accepted Answer

A)   the original firm is driven into bankruptcy.
B)   the firm's demand curve is perfectly elastic.
C)   the firm's demand curve is tangent to its average total cost curve.
D)   the firm exits the market.E) A) and B)
F) B) and C)

Question 8

A monopolistically competitive industry 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 9

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

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

Question 10

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.E) None of the above
F) All of the above

Question 11

-Refer to Table 10-3. 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.E) A) and B)
F) A) and C)

Question 12

In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?

Accepted Answer

A)   Firms in perfect competition achieve productive and allocative efficiency while firms in monopolistic competition achieve neither allocative nor productive efficiency.
B)   The only difference is that in a monopolistically competitive market there are many brands to choose from while in a perfectly competitive market there is one standard product.
C)   Firms in perfect competition achieve productive efficiency while firms in monopolistic competition achieve allocative efficiency.
D)   Firms in perfect competition achieve allocative efficiency while firms in monopolistic competition achieve brand efficiency.E) A) and B)
F) A) and C)

Question 13

When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the

Accepted Answer

A)   substitution effect.
B)   income effect.
C)   price effect.
D)   output effect.E) A) and D)
F) B) and D)

Question 14

Some factors that allow firms to make economic profits are beyond its control. All but one of the following is an uncontrollable factor. Which factor is controllable?

Accepted Answer

A)   input prices
B)   consumer tastes
C)   chance events
D)   product differentiationE) B) and C)
F) B) and D)

Question 15

Productive efficiency does not hold for a profit-maximising, monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.

Accepted Answer

A) True 
 B)False

Question 16

A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is true?

Accepted Answer

A)   The marginal revenue of a monopolistically competitive firm will be positive at high prices and negative at low prices.
B)   Because the demand curve for a monopolistically competitive firm is downward sloping, its marginal revenue will be negative.
C)   The marginal revenue of a monopolistically competitive firm will be always be positive.
D)   The marginal revenue of a monopolistically competitive firm will be positive at low prices and negative at high prices.E) B) and C)
F) A) and D)

Question 18

When a credit card company offers different services with its card, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to

Accepted Answer

A)   create a barrier to entry for competing firms.
B)   create a perfectly competitive market in which to sell its credit card.
C)   convince customers that its card has greater value than those offered by rival firms.
D)   shift the demand curve for competing firms to the right.E) C) and D)
F) B) and D)

Question 19

A monopolistically competitive firm maximises profit in the short run by producing where

Accepted Answer

A)   price is less than marginal cost.
B)   price is less than marginal revenue.
C)   price is less than average revenue.
D)   price is greater than marginal cost.E) A) and D)
F) None of the above

Question 20

A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.

Accepted Answer

A) True 
 B)False

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

If a monopolistically competitive firm lowers its price and, as a result, its total revenue decreases, then

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In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?

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A monopolistically competitive firm maximises profit in the short run by producing where

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A monopolistically competitive firm chooses

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-Refer to Table 10-3. If this firm continues to produce, what is likely to happen to the product's price in the long run?

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Compared to a perfectly competitive firm, the demand curve facing a monopolistically competitive firm is

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Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?

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A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

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When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the

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

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Productive efficiency does not hold for a profit-maximising, monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.

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When a credit card company offers different services with its card, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to

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Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

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A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.

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Which of the following statements is true?

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

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Some factors that allow firms to make economic profits are beyond its control. All but one of the following is an uncontrollable factor. Which factor is controllable?

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A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.

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-Refer to Figure 10-12. What is the allocatively efficient output for the firm represented in the diagram?

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If a perfectly competitive firm maximises short-run profits, its marginal revenue will be positive and less than its price.

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