Question 1

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

Accepted Answer

A)  production takes place where ATC is minimized.
B)  marginal revenue equals marginal cost and price equals average total cost.
C)  normal profit is zero and price equals marginal cost.
D)  economic profit is zero and price equals marginal cost.E) A) and C)
F) None of the above

Question 2

The graph depicts a monopolistically competitive firm.  At the profit-maximizing level of short-run output, this monopolistically competitive firm will be making a profit of

Accepted Answer

A)  $275.
B)  $350.
C)  $500.
D)  $525.E) A) and B)
F) A) and D)

Question 3

Discuss the phrase "variety is the spice of life" in reference to monopolistic competition.

Accepted Answer

The Wendy's TV commercial hammered home ...

Question 4

Answer the question on the basis of the following demand and cost data for a specific firm.  If columns 1 and 3 are this firm's demand schedule, the profit-maximizing level of output will be

Accepted Answer

A)  2 units.
B)  3 units.
C)  5 units.
D)  6 units.E) A) and B)
F) A) and D)

Question 5

The goal of product differentiation and advertising in monopolistic competition is to make

Accepted Answer

A)  the firm allocatively efficient even if it is not productively efficient.
B)  the firm productively efficient even if it is not allocatively efficient.
C)  price less of a factor and product differences more of a factor in consumer purchases.
D)  price more of a factor and product differences less of a factor in consumer purchases.E) A) and B)
F) All of the above

Question 6

A monopolistically competitive firm's marginal revenue curve

Accepted Answer

A)  is downsloping and coincides with the demand curve.
B)  coincides with the demand curve and is parallel to the horizontal axis.
C)  is downsloping and lies below the demand curve.
D)  does not exist because the firm is a "price maker."E) A) and B)
F) C) and D)

Question 7

In monopolistic competition, if a firm advertises and effectively raises consumer awareness of its product, it tends to

Accepted Answer

A)  raise costs and increase demand for its product.
B)  raise costs and decrease demand for its product.
C)  lower costs and increase demand for its product.
D)  lower costs and decrease demand for its product.E) A) and B)
F) A) and D)

Question 8

The price elasticity of a monopolistically competitive firm's demand curve varies

Accepted Answer

A)  inversely with the number of competitors and the degree of product differentiation.
B)  directly with the number of competitors and the degree of product differentiation.
C)  directly with the number of competitors but inversely with the degree of product differentiation.
D)  inversely with the number of competitors but directly with the degree of product differentiation.E) B) and D)
F) None of the above

Question 9

Monopolistically competitive firms are inefficient because they produce at a point on the rising segment of their average cost curves.

Accepted Answer

A) True 
 B)False

Question 10

Monopolistic competition means

Accepted Answer

A)  a market situation where competition is based entirely on product differentiation and advertising.
B)  a large number of firms producing a standardized or homogeneous product.
C)  many firms producing differentiated products.
D)  a few firms producing a standardized or homogeneous product.E) C) and D)
F) A) and C)

Question 11

Refer to the diagram for a monopolistically competitive producer. If this firm were to realize productive efficiency, it would

Accepted Answer

A)  also realize an economic profit.
B)  incur a loss.
C)  also achieve allocative efficiency.
D)  have to produce a smaller output.E) A) and B)
F) All of the above

Question 12

Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium price will be

Accepted Answer

A)  above A.
B)  EF.
C)  A.
D)  B.E) None of the above
F) B) and C)

Question 13

Under monopolistic competition, entry to the industry is

Accepted Answer

A)  completely free of barriers.
B)  more difficult than under pure competition but not nearly as difficult as under pure monopoly.
C)  more difficult than under pure monopoly.
D)  blocked.E) None of the above
F) A) and C)

Question 14

Answer the question on the basis of the following demand and cost data for a specific firm.  If columns 1 and 3 are this firm's demand schedule, the profit-maximizing level of output will be

Accepted Answer

A)  3 units.
B)  5 units.
C)  4 units.
D)  6 units.E) A) and B)
F) A) and C)

Question 15

A significant benefit of monopolistic competition compared with pure competition is

Accepted Answer

A)  less likelihood of X-inefficiency.
B)  improved resource allocation.
C)  greater product variety.
D)  stronger incentives to achieve economies of scale.E) A) and C)
F) B) and C)

Question 16

The main point of the 1987 Wendy's commercial depicting a Soviet fashion show was to

Accepted Answer

A)  show Wendy's product differentiation from its competitors.
B)  grow its international customer base.
C)  emphasize the efficiency of its production model.
D)  highlight the dependability of its reliable and consistent standardized product.E) All of the above
F) B) and C)

Question 17

Refer to the above graphs. A short-run equilibrium that would result in losses for a monopolistically competitive firm would be represented by graph

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  D.E) None of the above
F) A) and B)

Question 18

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below.  Suppose that entry into this industry changes this firm's demand schedule from columns (1) and (3) to columns (2) and (3) . We can conclude that this industry is

Accepted Answer

A)  a pure monopoly.
B)  purely competitive.
C)  a constant cost industry.
D)  monopolistically competitive.E) B) and C)
F) A) and D)

Question 19

Which of the following statements concerning a monopolistically competitive industry is correct?

Accepted Answer

A)  If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms will shift to the right.
B)  If there are short-run economic profits, firms will enter the industry and the demand curves of existing firms will shift to the right.
C)  If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms will shift to the left.
D)  If there are short-run economic profits, firms will leave the industry and the demand curves of the remaining firms will shift to the right.E) C) and D)
F) None of the above

Question 20

Refer to the above graph of the representative firm in monopolistic competition. Point b indicates

Accepted Answer

A)  a situation where the firm is earning economic profits.
B)  the price-output combination that yields maximum profits.
C)  a point that cannot be the long-run equilibrium point.
D)  the lowest possible average cost of producing the firm's product.E) A) and B)
F) B) and C)

Exam 13: Monopolistic Competition

Answer the question on the basis of the following demand and cost data for a specific firm. If columns 1 and 3 are this firm's demand schedule, the profit-maximizing level of output will be

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Refer to the diagram for a monopolistically competitive producer. If this firm were to realize productive efficiency, it would

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The main point of the 1987 Wendy's commercial depicting a Soviet fashion show was to

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A significant benefit of monopolistic competition compared with pure competition is

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The goal of product differentiation and advertising in monopolistic competition is to make

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Monopolistic competition means

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In monopolistic competition, if a firm advertises and effectively raises consumer awareness of its product, it tends to

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

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A monopolistically competitive firm's marginal revenue curve

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Under monopolistic competition, entry to the industry is

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Refer to the above graphs. A short-run equilibrium that would result in losses for a monopolistically competitive firm would be represented by graph

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Which of the following statements concerning a monopolistically competitive industry is correct?

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Answer the question on the basis of the following demand and cost data for a specific firm. If columns 1 and 3 are this firm's demand schedule, the profit-maximizing level of output will be

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The graph depicts a monopolistically competitive firm. At the profit-maximizing level of short-run output, this monopolistically competitive firm will be making a profit of

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Discuss the phrase "variety is the spice of life" in reference to monopolistic competition.

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The price elasticity of a monopolistically competitive firm's demand curve varies

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Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. Suppose that entry into this industry changes this firm's demand schedule from columns (1) and (3) to columns (2) and (3) . We can conclude that this industry is

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Refer to the above graph of the representative firm in monopolistic competition. Point b indicates

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Monopolistically competitive firms are inefficient because they produce at a point on the rising segment of their average cost curves.

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Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium price will be

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The Wendy's TV commercial hammered home ...
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