Question 1

Monopolistic competitive firms are productively inefficient because production occurs where

Accepted Answer

A)  price is greater than marginal revenue.
B)  marginal cost is less than price.
C)  marginal cost is not at its lowest.
D)  average total cost is not at its lowest.E) A) and B)
F) A) and C)

Question 2

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because

Accepted Answer

A)  of product differentiation and consequent product promotion activities.
B)  monopolistically competitive firms cannot realize an economic profit in the long run.
C)  the number of firms in the industry is larger.
D)  monopolistically competitive producers use strategic pricing strategies to combat rivals.E) All of the above
F) B) and C)

Question 3

The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers is most suggestive that the industry is monopolistically competitive?

Accepted Answer

A)  25 and 207
B)  76 and 2,662
C)  80 and 1,800
D)  89 and 2,582E) All of the above
F) C) and D)

Question 4

A monopolistically competitive industry is like a purely competitive industry in that

Accepted Answer

A)  each firm produces a standardized product.
B)  nonprice competition is a feature in both industries.
C)  neither industry has significant barriers to entry.
D)  firms in both industries face a horizontal demand curve.E) None of the above
F) All of the above

Question 5

Refer to the above graph for a representative firm in monopolistic competition in a constant-cost industry. This firm is

Accepted Answer

A)  in short-run equilibrium, but not long-run equilibrium.
B)  in long-run equilibrium, but not short-run equilibrium.
C)  in both short-run and long-run equilibrium.
D)  not in either short-run or long-run equilibrium.E) A) and D)
F) None of the above

Question 6

Monopolistically competitive firms are similar to monopolies in that they have

Accepted Answer

A)  high barriers to entry in their industry.
B)  close substitutes for their products.
C)  inelastic demand for their products.
D)  marginal revenues that are less than price.E) B) and C)
F) C) and D)

Question 7

Monopolistically competitive sellers realize economic profits in the long run because entry barriers are significant.

Accepted Answer

A) True 
 B)False

Question 8

Answer the question on the basis of the following demand and cost data for a specific firm.  With the demand schedule shown by columns (2) and (3) , in long-run equilibrium

Accepted Answer

A)  price will equal average total cost.
B)  total cost will exceed total revenue.
C)  marginal cost will exceed price.
D)  price will equal marginal revenue.E) A) and C)
F) A) and B)

Question 9

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes,

Accepted Answer

A)  the likelihood of realizing economic profits in the long run would be enhanced.
B)  individual firms would now be operating at outputs where their average total costs would be higher.
C)  the industry would more closely approximate pure competition.
D)  the likelihood of collusive pricing would increase.E) B) and C)
F) B) and D)

Question 10

Refer to the diagram for a monopolistically competitive producer. This firm is experiencing

Accepted Answer

A)  a shortage of production capacity.
B)  excess capacity of CD.
C)  excess capacity of DE.
D)  diseconomies of scale.E) B) and D)
F) All of the above

Question 11

Monopolistic competition is characterized by excess capacity because

Accepted Answer

A)  firms are always profitable in the long run.
B)  firms charge a price that is greater than marginal cost.
C)  firms produce at an output level less than the least-cost output.
D)  the demand for the product is perfectly elastic in this type of industry.E) A) and B)
F) B) and C)

Question 12

Why do monopolistically competitive firms spend funds for product differentiation and advertising when this practice only adds to the firm's costs?

Accepted Answer

Although product differentiation and adv...

Question 13

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, maximum economic profit will be

Accepted Answer

A)  $115.
B)  $300.
C)  $185.
D)  $35.E) A) and B)
F) B) and C)

Question 14

The monopolistically competitive seller maximizes profits by equating price and marginal cost.

Accepted Answer

A) True 
 B)False

Question 15

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below.  What will be the economic profit (or loss) for this monopolistically competitive firm at the profit-maximizing level of output?

Accepted Answer

A)  $4
B)  $20
C)  $6
D)  $13E) B) and C)
F) A) and D)

Question 16

The economic profits earned by monopolistically competitive sellers are zero in the long run.

Accepted Answer

A) True 
 B)False

Question 17

If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is

Accepted Answer

A)  10,000.
B)  2,500.
C)  3,750.
D)  1,000.E) All of the above
F) B) and C)

Question 18

What are the benefits of product variety?

Accepted Answer

If a product is differentiated, then the...

Question 19

Refer to the diagrams, which pertain to monopolistically competitive firms. A short-run equilibrium entailing economic profits is shown by

Accepted Answer

A)  diagram a only.
B)  diagram b only.
C)  diagram c only.
D)  both diagrams b and c.E) All of the above
F) A) and B)

Question 20

Which is true of pure competition but not of monopolistic competition?

Accepted Answer

A)  There are no significant barriers to entry.
B)  Long-run economic profits are zero.
C)  There are a large number of firms in the market.
D)  Long-run equilibrium occurs at the minimum point on the ATC curve.E) All of the above
F) A) and D)

Exam 13: Monopolistic Competition

Refer to the above graph for a representative firm in monopolistic competition in a constant-cost industry. This firm is

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Refer to the diagram for a monopolistically competitive producer. This firm is experiencing

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Answer the question on the basis of the following demand and cost data for a specific firm. With the demand schedule shown by columns (2) and (3) , in long-run equilibrium

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Which is true of pure competition but not of monopolistic competition?

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A monopolistically competitive industry is like a purely competitive industry in that

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The economic profits earned by monopolistically competitive sellers are zero in the long run.

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What are the benefits of product variety?

Correct AnswerverifiedIf a product is differentiated, then the...View AnswerShow Answer

Monopolistically competitive sellers realize economic profits in the long run because entry barriers are significant.

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Refer to the diagrams, which pertain to monopolistically competitive firms. A short-run equilibrium entailing economic profits is shown by

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The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers is most suggestive that the industry is monopolistically competitive?

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The monopolistically competitive seller maximizes profits by equating price and marginal cost.

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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, maximum economic profit will be

Correct AnswerverifiedShow Answer

Monopolistic competitive firms are productively inefficient because production occurs where

Correct AnswerverifiedShow Answer

Why do monopolistically competitive firms spend funds for product differentiation and advertising when this practice only adds to the firm's costs?

Correct AnswerverifiedAlthough product differentiation and adv...View AnswerShow Answer

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. What will be the economic profit (or loss) for this monopolistically competitive firm at the profit-maximizing level of output?

Correct AnswerverifiedShow Answer

Monopolistically competitive firms are similar to monopolies in that they have

Correct AnswerverifiedShow Answer

If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is

Correct AnswerverifiedShow Answer

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes,

Correct AnswerverifiedShow Answer

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because

Correct AnswerverifiedShow Answer

Monopolistic competition is characterized by excess capacity because

Correct AnswerverifiedShow Answer

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If a product is differentiated, then the...
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Although product differentiation and adv...
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