Chapter 16

Chapter 16

1096 ( Chapter 16/Monopolistic Competition

Chapter 16/Monopolistic Competition ( 1097

Chapter 16

Monopolistic CompetitionTRUE/FALSE1.The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.ANS:TDIF:1REF:16-1NAT:Analytic

LOC:Monopolistic competitionTOP:Monopolistic competition

MSC:Interpretive2.The "monopoly" in monopolistically competitive markets is most likely a result of firms having some pricing power due to product differentiation.ANS:TDIF:1REF:16-1NAT:Analytic


MSC:Interpretive3.Monopolistic competition is characterized by many buyers and sellers, product differentiation, and free entry.ANS:TDIF:1REF:16-1NAT:Analytic


MSC:Definitional4.Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry.ANS:FDIF:1REF:16-1NAT:Analytic


MSC:Definitional5.A monopolistically competitive market is characterized by barriers to entry.ANS:FDIF:1REF:16-1NAT:Analytic


MSC:Interpretive6.Monopolistic competition is the only market structure that features many sellers.ANS:FDIF:1REF:16-1NAT:Analytic

LOC:Monopolistic competitionTOP:MarketsMSC:Interpretive7.Product differentiation always leads to some measure of market power.ANS:TDIF:2REF:16-1NAT:Analytic

LOC:Monopolistic competitionTOP:Demand curve

MSC:Interpretive8.Oligopoly is characterized by a few sellers offering similar products, whereas monopolistic competition is characterized by many sellers offering differentiated products.ANS:TDIF:2REF:16-1NAT:Analytic


MSC:Definitional9.Monopolistic competition is characterized by a few sellers offering similar products, whereas oligopoly is characterized by many sellers offering differentiated products.ANS:FDIF:2REF:16-1NAT:Analytic


MSC:Definitional10.Oligopoly and monopolistic competition are examples of a market structure called imperfect competition.ANS:TDIF:1REF:16-1NAT:Analytic


MSC:Definitional11.Monopolistic competition and monopoly are examples of a market structure called imperfect competition.ANS:FDIF:1REF:16-1NAT:Analytic


MSC:Definitional12.A markup of price over marginal cost is inconsistent with free entry and zero profit.ANS:FDIF:2REF:16-2NAT:Analytic

LOC:Monopolistic competitionTOP:Profit maximization

MSC:Interpretive13.Monopolistically competitive firms, like monopoly firms, maximize their profits by charging a price that exceeds marginal cost.ANS:TDIF:2REF:16-2NAT:Analytic


MSC:Interpretive14.A profit-maximizing firm in a monopolistically competitive market charges a price equal to marginal cost.ANS:FDIF:2REF:16-2NAT:Analytic


MSC:Interpretive15.A profit-maximizing firm in a monopolistically competitive market always operates on the downward-sloping portion of its marginal cost curve.ANS:FDIF:2REF:16-2NAT:Analytic


MSC:Analytical16.For a profit-maximizing firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost.ANS:TDIF:2REF:16-2NAT:Analytic


MSC:Analytical17.A profit-maximizing firm in a monopolistically competitive market can earn positive, negative, or zero profits in the short run.ANS:TDIF:2REF:16-2NAT:Analytic

LOC:Monopolistic competitionTOP:Short-run equilibrium

MSC:Interpretive18.A firm in a monopolistically competitive market can earn both short-run and long-run profits.ANS:FDIF:2REF:16-2NAT:Analytic

LOC:Monopolistic competitionTOP:Short-run equilibrium | Long-run equilibrium

MSC:Interpretive19.A firm in a monopolistically competitive market can earn short-run profits but not long-run profits.ANS:TDIF:2REF:16-2NAT:Analytic


MSC:Interpretive20.In the long run, monopolistically competitive firms produce where demand equals marginal cost.ANS:FDIF:2REF:16-2NAT:Analytic

LOC:Monopolistic competitionTOP:Long-run equilibrium

MSC:Analytical21.When a firm in a monopolistically competitive market earns zero economic profit, its product price must equal marginal cost.ANS:FDIF:2REF:16-2NAT:Analytic


MSC:Interpretive22.In the long run, monopolistically competitive firms produce where demand equals average total cost.ANS:TDIF:2REF:16-2NAT:Analytic


MSC:Analytical23.In a monopolistically competitive market, the number of firms adjusts until economic profits are driven to zero.ANS:TDIF:1REF:16-2NAT:Analytic


MSC:Interpretive24.When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium, marginal cost must lie below average total cost.ANS:TDIF:2REF:16-2NAT:Analytic


MSC:Analytical25.In a monopolistically competitive market, the demand curves faced by incumbent firms are unaffected by the entry of new firms into the market.ANS:FDIF:2REF:16-2NAT:Analytic

LOC:Monopolistic competitionTOP:Demand curve | Long-run equilibrium

MSC:Interpretive26.A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door, since a sale to that customer will not increase the firm's profit.ANS:FDIF:2REF:16-2NAT:Analytic


MSC:Interpretive27.The term excess capacity refers to the fact that a firm operates on the upward-sloping portion of its average-total-cost curve.ANS:FDIF:2REF:16-2NAT:Analytic

LOC:Monopolistic competitionTOP:Excess capacity

MSC:Interpretive28.The term excess capacity refers to the fact that a firm produces a lower quantity than it would if it operated at the efficient scale.ANS:TDIF:2REF:16-2NAT:Analytic


MSC:Interpretive29.Excess capacity characterizes firms in monopolistically competitive markets, even in situations of long-run equilibrium.ANS:TDIF:2REF:16-2NAT:Analytic


MSC:Interpretive30.When a firm operates with excess capacity, it must be in a monopolistically competitive market.ANS:FDIF:2REF:16-2NAT:Analytic


MSC:Interpretive31.A firm that would experience higher average total cost by increasing production is operating with excess capacity.ANS:FDIF:2REF:16-2NAT:Analytic


MSC:Interpretive32.When a firm operates at efficient scale, it is producing at the minimum point on its average total cost curve.ANS:TDIF:1REF:16-2NAT:Analytic

LOC:Monopolistic competitionTOP:Efficient scale

MSC:Definitional33.Defenders of advertising argue that firms use advertising as a signal of quality, even if the advertising delivers little helpful information about the product.ANS:TDIF:1REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Applicative34.Critics of advertising argue that advertising leads to less elastic demand for products and a larger markup of price over marginal cost.ANS:TDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive35.The claim that advertising reduces the elasticity of demand is likely to be made by a defender of advertising.ANS:FDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive36.Critics of advertising argue that firms use advertising to manipulate consumers tastes.ANS:TDIF:1REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Applicative37.When advertising is used to relay information about price, each firm is able to enhance market power.ANS:FDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive38.Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.ANS:TDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive39.Economists are unanimous in their belief that advertising is socially inefficient.ANS:FDIF:1REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Definitional40.When McDonalds opens a store in Dhaka, Bangladesh, it has a strong incentive to enforce product quality consistent with stores in the United States.ANS:TDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive41.The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York. This is an example of a brand name enhancing market efficiency for U.S. tourists visiting the Philippines.ANS:TDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive42.Empirical evidence suggests that advertising usually leads to an increase in the price for advertised products.ANS:FDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive43.Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.ANS:FDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive44.Advertising during the Super Bowl is an example of information about quality contained primarily in the existence and expense of the advertising.ANS:TDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive45.Brand names are rarely used to convey information about product quality.ANS:FDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive46.The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy. Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.ANS:TDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive47.The debate over whether advertising serves a valuable purpose in society is definitively answered by economists who study the tastes and preferences of individuals.ANS:FDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive48.If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be able to charge a larger markup over marginal cost.ANS:TDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive49.There is general disagreement among economists about the role of advertising, but there is widespread agreement about the role of brand names on market efficiency.ANS:FDIF:2REF:16-3NAT:Analytic

LOC:Monopolistic competitionTOP:AdvertisingMSC:Interpretive50.The government may not be able to improve the inefficiencies of a monopolistically competitive market.ANS:TDIF:2REF:16-4NAT:Analytic


MSC:Interpretive51.Firms in monopolistically competitive markets and monopolies can earn long-run profits due to barriers to entry.ANS:FDIF:2REF:16-4NAT:Analytic


MSC:Interpretive52.Free entry eliminates long-run profits for firms in competitive and monopolistic industries.ANS:TDIF:2REF:16-4NAT:Analytic


MSC:InterpretiveSHORT ANSWER1.List five goods that are likely sold in a monopolistically competitive market.ANS:

Books, CDs, movies, computer games, and piano lessons are some examples.DIF:1REF:16-1NAT:AnalyticLOC:Monopolistic competition

TOP:Monopolistic competitionMSC:Interpretive2.Why does a typical monopolistically competitive firm face a downward-sloping demand curve?ANS:

Because its product is different from those offered by other firms.DIF:1REF:16-1NAT:AnalyticLOC:Monopolistic competition

TOP:Demand curve

MSC:Interpretive3.In many college towns, private independent bookstores typically locate on the periphery of the college campus. However, in some college towns, the university has used political power to restrict private bookstores near campus through community zoning laws. Use your knowledge of markets to predict the price and quality of service differences in the market for college textbooks under the two different market regimes.ANS:

In monopoly markets, price will be higher and the quality of service will be lower than in monopolistically competitive markets.DIF:2REF:16-1NAT:AnalyticLOC:Monopolistic competition

TOP:Monopolistic competitionMSC:Analytical4.Use a graph to demonstrate why a profit-maximizing monopolistically competitive firm must operate at excess capacity. Explain why a perfectly competitive firm is not subject to the same constraint.ANS:

Competitive firms do not face downward-sloping demand. The graph shows the firm choosing a level of production in which the intersection of marginal revenue and marginal cost occurs at an output level where average total cost is decreasing. This profit-maximizing output level is less than the efficient scale (minimum of average total cost), and therefore the firm is said to be operating with excess capacity.DIF:2REF:16-2NAT:AnalyticLOC:Monopolistic competition

TOP:Excess capacity

MSC:Analytical5.In a small college town, four microbreweries have opened in the last two years. Demonstrate the effect of new market entrants on demand for existing firms (microbreweries) that already served this market. Assume that the local community now places a moratorium on new liquor licenses for microbreweries. How will this moratorium affect the long-run profitability of incumbent firms?ANS:

The arrival of a new entrant should be graphically depicted by a leftward shift in the demand curves faced by all incumbent firms. If firms are able to make economic profits, these will be able to be maintained in the long run if new entrants are not allowed (which would essentially be a barrier to entry, meaning the market would no longer be characterized as monopolistically competitive).DIF:2REF:16-2NAT:AnalyticLOC:Monopolistic competition

TOP:Long-run equilibrium

MSC:Analytical6.What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?ANS:

Monopolistically competitive firms produce a level of output lower than the efficient scale of output and are therefore said to have excess capacity.DIF:2REF:16-2NAT:AnalyticLOC:Monopolistic competition

TOP:Excess capacity

MSC:Interpretive7.Entry of firms in a monopolistically competitive industry is characterized by two externalities. List them and briefly describe how consumers and existing firms are influenced by them.ANS:

Business-stealing effect: incumbent firms are affected through the loss of sales; consumers are affected by lower price.

Product-variety effect: incumbent firms face a market with more substitutes; consumers have more product variety from which to choose.DIF:2REF:16-2NAT:AnalyticLOC:Monopolistic competition

TOP:ExternalitiesMSC:Interpretive8.Evaluate the following statement in the context of business-stealing and product-variety externalities: "We have too many student apartments in this town already. Statistics show that vacancy rates average 15 percent during any given semester."ANS:

Business-stealing effect: if new entrants into the market can be profitable, then average vacancy rates are likely to rise above 15 percent.

Product-variety effect: if new entrants to the market are able to identify niche markets which are profitable (i.e., offer club rooms, pools, athletic facilities, etc.), then product variety will increase, and average vacancy rates are likely to rise above 15 percent.DIF:2REF:16-2NAT:AnalyticLOC:Monopolistic competition

TOP:ExternalitiesMSC:Interpretive9.Assume the role of a critic of advertising. Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.ANS:

Advertising manipulates people's tastes and is psychological rather than informational. As a result, advertising creates a desire for a product that might not otherwise exist. Advertising may also impede competition by convincing consumers that products that are identical have significant differences.DIF:2REF:16-3NAT:AnalyticLOC:Monopolistic competition

TOP:AdvertisingMSC:Interpretive10.Assume the role of a defender of advertising. Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.ANS:

Advertising provides information to consumers and thus allows consumers to make more informed (and therefore better) choices. Advertising fosters competition by making consumers more aware of prices and product characteristics in a market.DIF:2REF:16-3NAT:AnalyticLOC:Monopolistic competition

TOP:AdvertisingMSC:Interpretive11.Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."ANS:

Some people argue that celebrity endorsements are a signal of quality due to the high cost of the advertisement. If so, then these advertisements relay information about product quality and enhance the effective functioning of markets.DIF:2REF:16-3NAT:AnalyticLOC:Monopolistic competition

TOP:AdvertisingMSC:Interpretive12.Professional organizations (for example, the American Medical Association and the American Bar Association) have been active advocates for regulation to restrict the right of professionals to advertise. Describe what economic incentives might exist for existing professionals to restrict advertising.ANS:

If advertising increases information about prices and services, then providers of professional services will be required to compete with each other on the basis of price and service. As such, existing professionals will be subject to more competitive pressure in the markets they service, and individual profits are likely to fall.DIF:2REF:16-3NAT:AnalyticLOC:Monopolistic competition

TOP:AdvertisingMSC:Analytical13.Discuss how brand names may enhance the efficiency of markets in a less developed country.ANS:

Recognizable brand names signal quality products. In the tourist- and business-services market, this signal can be critical at the early stages of development to ensure visitors have a quality experience when other information is unavailable or unreliable.DIF:2REF:16-3NAT:AnalyticLOC:Monopolistic competition

TOP:AdvertisingMSC:Interpretive14.As developing countries make a transition to market-based economies, one of the first major capital investments is in "Western-quality" hotels. Explain why brand-name hotel accommodations are a critical step in attracting foreign investment.ANS:

Brand-name hotels are a critical first step to economic development because their recognized signal of quality reduces the barriers of facilitating foreign visitors (and their money).DIF:2REF:16-3NAT:AnalyticLOC:Monopolistic competition

TOP:AdvertisingMSC:Analytical15.In markets where the government imposes an excise tax on unit sales, it also has a tendency to dabble with restrictions on advertising (for example, cigarettes and hard liquor). Do potential (or actual) restrictions on advertising in these markets serve the interest of a government that is interested in maximizing its tax revenue from the sale of these products? Explain your answer.ANS:

In the case of the examples given, demand is quite inelastic, so restrictions on advertising are not likely to have a large impact on total sales but may have an impact on the distribution of sales across brand names. As such, government revenue is largely unaffected if the tax is on unit sales.DIF:3REF:16-3NAT:AnalyticLOC:Monopolistic competition

TOP:AdvertisingMSC:Analytical

Sec 00 - Monopolistic CompetitionMULTIPLE CHOICE1.Which of the following is a characteristic of monopolistic competition?a.ownership of a key resource by a single firm

b.free entry

c.identical product

d.patents

ANS:BDIF:1REF:16-0NAT:Analytic


MSC:Definitional2.The market for novels is a.perfectly competitive.

b.a monopoly.

c.monopolistically competitive.

d.an oligopoly.

ANS:CDIF:1REF:16-0NAT:Analytic


MSC:Applicative3.Which of the following statements is not correct?a.Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs.

b.Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry.

c.Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry.

d.Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers.



MSC:Analytical4.Which of the following statements is not correct?a.Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry.

b.Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly.

c.Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly.

d.Both monopolistic competition and perfect competition are characterized by product differentiation.

ANS:DDIF:2REF:16-0NAT:Analytic


MSC:Analytical5.Monopolistic competition is a type of a.oligopoly.

b.market structure.

c.price discrimination.

d.advertising strategy.



MSC:Definitional6.A monopolistically competitive market has characteristics that are similar to a.a monopoly only.

b.a competitive firm only.

c.both a monopoly and a competitive firm.

d.neither a monopoly nor a competitive firm.



MSC:Applicative

Sec01 - Monopolistic Competition - Between Monopoly and Perfect CompetitionMULTIPLE CHOICE1.A typical firm in the U. S. economy would be classified asa.perfectly competitive.

b.imperfectly competitive.

c.a duopolist.

d.an oligopolist.


LOC:Monopolistic competitionTOP:Imperfect competition

MSC:Interpretive2.The typical firm in the U. S. economya.has some degree of market power.

b.sells its product for a price that is equal to the marginal cost of producing the last unit.

c.is perfectly competitive.

d.is a monopoly.

ANS:ADIF:2REF:16-1NAT:Analytic


MSC:Interpretive3.Which of the following pairs illustrates the two extreme examples of market structures?a.competition and oligopoly

b.competition and monopoly

c.monopoly and monopolistic competition

d.oligopoly and monopolistic competition



MSC:Interpretive4.The general term for market structures that fall somewhere in-between monopoly and perfect competition isa.incomplete markets.

b.imperfectly competitive markets.

c.oligopoly markets.

d.monopolistically competitive markets.



MSC:Definitional5.The two types of imperfectly competitive markets area.markets with differentiated products and monopoly.

b.markets with differentiated products and oligopoly.

c.oligopoly and monopoly.

d.monopolistic competition and oligopoly.



MSC:Interpretive6.The two types of imperfectly competitive markets are a.monopoly and monopolistic competition.

b.monopoly and oligopoly.

c.monopolistic competition and oligopoly.

d.monopolistic competition and cartels.



MSC:Definitional7.In a market that is characterized by imperfect competition,a.firms are price takers.

b.there are always a large number of firms.

c.there are at least a few firms that compete with one another.

d.the actions of one firm in the market never have any impact on the other firms' profits.



MSC:Interpretive8.Firms in industries that have competitors but do not face so much competition that they are price takers are operating in either a(n)a.oligopoly or perfectly competitive market.

b.oligopoly or monopoly market.

c.oligopoly or monopolistically competitive market.

d.monopoly or monopolistically competitive market.



MSC:Interpretive9.Imperfectly competitive firms are characterized bya.horizontal demand curves.

b.standardized products.

c.a large number of small firms.

d.price making ability.



MSC:Interpretive10.An oligopoly a.has a concentration ratio of less than 50 percent.

b.is a price taker.

c.is a type of imperfectly competitive market.

d.has many firms rather than just one firm or a few firms.


LOC:Monopolistic competitionTOP:OligopolyMSC:Interpretive11.An oligopoly is a market in whicha.there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market.

b.firms are price takers.

c.the actions of one seller in the market have no impact on the other sellers' profits.

d.there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.


LOC:Monopolistic competitionTOP:OligopolyMSC:Definitional12.One characteristic of an oligopoly market structure is:a.firms in the industry are typically characterized by very diverse product lines.

b.firms in the industry have some degree of market power.

c.products typically sell at a price equal to their marginal cost of production.

d.the actions of one seller have no impact on the profitability of other sellers.


LOC:Monopolistic competitionTOP:OligopolyMSC:Interpretive13.A market structure with only a few sellers, each offering similar or identical products, is known asa.oligopoly.

b.monopoly.

c.monopolistic competition.

d.perfect competition.


LOC:Monopolistic competitionTOP:OligopolyMSC:Definitional14.The commercial jetliner industry consisting of Boeing and Airbus would best be described as a (an)a.perfectly competitive market.

b.monopolistically competitive market.

c.oligopoly.

d.monopoly.


LOC:Monopolistic competitionTOP:OligopolyMSC:Interpretive15.Crude oil is primarily supplied to the world market by a few Middle Eastern countries. Such a market is an example of a(n)(i)imperfectly competitive market.

(ii)monopoly market.

(iii)oligopoly market.

a.(i) and (ii) only

b.(ii) and (iii) only

c.(i) and (iii) only

d.(iii) only


LOC:Monopolistic competitionTOP:OligopolyMSC:Interpretive16.A concentration ratio a.measures the percentage of total output supplied by the four largest firms in the industry.

b.reflects the level of competition in an industry.

c.is related to the control that each firm has over price.

d.All of the above are correct.


LOC:Monopolistic competitionTOP:Concentration ratio

MSC:Applicative17.A concentration ratio a.measures the percentage of total sales of the top firm in the industry.

b.reflects the level of competition in an industry.

c.is inversely related to the price charged by the top firm in the industry.




MSC:Applicative18.The higher the concentration ratio, the a.more control an individual firm has to set prices.

b.more competitive the industry.

c.less competitive the industry.

d.Both a and c are correct.



MSC:Interpretive19.The lower the concentration ratio, the a.more control an individual firm has to set prices.

b.more competitive the industry.

c.less competitive the industry.




MSC:Interpretive20.Which of the following industries has the highest concentration ratio?a.wheat

b.novels

c.cigarettes

d.dog food



MSC:ApplicativeTable 16-1

The following table shows the percentage of output supplied by the top eight firms in four different industries.

FirmIndustry AIndustry BIndustry CIndustry D

10.240.460.100.32

20.130.240.080.16

30.100.100.060.08

40.080.050.050.04

50.050.040.040.02

60.030.030.030.01

70.020.020.020.01

80.010.010.010.01

21.Refer to Table 16-1. What is the concentration ratio in Industry A?a.24%

b.55%

c.66%

d.82%



MSC:Applicative22.Refer to Table 16-1. What is the concentration ratio in Industry B?a.5%

b.46%

c.85%

d.95%



MSC:Applicative23.Refer to Table 16-1. What is the concentration ratio in Industry C?a.29%

b.39%

c.45%

d.56%



MSC:Applicative24.Refer to Table 16-1. What is the concentration ratio in Industry D?a.32%

b.56%

c.60%

d.65%



MSC:Applicative25.Refer to Table 16-1. Which industry has the highest concentration ratio?a.Industry A

b.Industry B

c.Industry C

d.Industry D



MSC:Applicative26.Refer to Table 16-1. Which industry is the least competitive?a.Industry A

b.Industry B

c.Industry C

d.Industry D



MSC:Applicative27.Refer to Table 16-1. Which industry has the lowest concentration ratio?a.Industry A

b.Industry B

c.Industry C

d.Industry D



MSC:Applicative28.Refer to Table 16-1. Which industry is the most competitive?a.Industry A

b.Industry B

c.Industry C

d.Industry D



MSC:ApplicativeTable 16-2The following table shows the total output produced by the top six firms as well as the total industry output for each industry.

FirmIndustry AIndustry BIndustry CIndustry D

113,2508,7501,75015,000

210,9757,5001,72514,000

38,1756,4001,70013,000

44,2755,0001,67512,000

51,2504,2501,65011,000

68754,0001,62510,000

Total45,35070,90030,125120,000

29.Refer to Table 16-2. What is the concentration ratio for Industry A?a.about 71%

b.about 81%

c.about 88%

d.100%



MSC:Applicative30.Refer to Table 16-2. What is the concentration ratio for Industry B?a.about 12%

b.about 32%

c.about 39%

d.about 51%



MSC:Applicative31.Refer to Table 16-2. What is the concentration ratio for Industry C?a.about 23%

b.about 34%

c.about 43%

d.about 52%



MSC:Applicative32.Refer to Table 16-2. What is the concentration ratio for Industry D?a.about 13%

b.about 35%

c.about 45%

d.about 63%



MSC:Applicative33.Refer to Table 16-2. Which industry has the highest concentration ratio?a.Industry A

b.Industry B

c.Industry C

d.Industry D



MSC:Applicative34.Refer to Table 16-2. Which industry is the least competitive?a.Industry A

b.Industry B

c.Industry C

d.Industry D



MSC:Applicative35.Refer to Table 16-2. Which industry has the lowest concentration ratio?a.Industry A

b.Industry B

c.Industry C

d.Industry D



MSC:Applicative36.Refer to Table 16-2. Which industry is the most competitive?a.Industry A

b.Industry B

c.Industry C

d.Industry D



MSC:Applicative37.One key difference between an oligopoly market and a competitive market is that oligopolistic firmsa.are price takers while competitive firms are not.

b.can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make.

c.sell completely unrelated products while competitive firms do not.

d.sell their product at a price equal to marginal cost while competitive firms do not.


LOC:Monopolistic competitionTOP:Monopolistic competition | Oligopoly

MSC:Interpretive38.One way in which monopolistic competition differs from oligopoly is thata.there are no barriers to entry in oligopolies.

b.in oligopoly markets there are only a few sellers.

c.all firms in an oligopoly eventually earn zero economic profits.

d.strategic interactions between firms are rare in oligopolies.


LOC:Monopolistic competitionTOP:Monopolistic competition | Oligopoly

MSC:Interpretive39.Which of the following is an example of a monopolistically competitive industry?a.computer operating systems

b.tennis balls

c.movies

d.cable television



MSC:Applicative40.Which of the following is an example of a monopolistically competitive industry?a.computer operating systems

b.tennis balls

c.restaurants in New York City

d.cable television



MSC:Applicative41.Which of the following goods are likely to be sold in a monopolistically competitive market?a.compact discs

b.wheat

c.corn

d.postage stamps



MSC:Applicative42.Which of the following goods are not likely to be sold in monopolistically competitive markets?a.compact discs

b.books

c.cookies

d.wheat



MSC:Applicative43.Examples of monopolistically competitive markets include the markets fora.restaurants and furniture.

b.wheat and corn.

c.postage stamps and wooden pencils.




MSC:Applicative44.Which of the following markets is not likely characterized by a monopolistically competitive market?a.piano lessons

b.corn

c.cookies

d.clothing



MSC:Applicative45.A monopolistically competitive industry is characterized bya.many firms selling products that are similar but not identical.

b.many firms selling identical products.

c.a few firms selling products that are similar but not identical.

d.a few firms selling highly different products.



MSC:Definitional46.A monopolistically competitive industry is characterized bya.many firms, differentiated products, and barriers to entry.

b.many firms, differentiated products, and free entry.

c.a few firms, identical products, and free entry.

d.a few firms, differentiated products, and barriers to entry.



MSC:Definitional47.A market structure in which there are many firms selling products that are similar but not identical is known asa.oligopoly.

b.monopoly.

c.monopolistic competition.

d.perfect competition.



MSC:Definitional48.What do economists call a market structure in which there are many firms selling products that are similar but not identical?a.perfect competition

b.monopoly

c.monopolistic competition

d.oligopoly



MSC:Definitional49.Which of the following is not a characteristic of monopolistic competition?a.a large number of sellers

b.firms are price takers

c.free entry into the market

d.a differentiated product



MSC:Definitional50.Monopolistic competition is characterized by which of the following attributes?(i)free entry

(ii)product differentiation

(iii)many sellers

a.(i) and (iii) only

b.(i) and (ii) only

c.(ii) and (iii) only

d.(i), (ii), and (iii)



MSC:Definitional51.In a monopolistically competitive market,a.there are only a few sellers.

b.each firm takes the price of its product as given.

c.firms can enter or exit the market without restrictions.

d.each firm produces a product that is essentially identical to the products of other firms in the market.



MSC:Definitional52.A monopolistically competitive marketa.has some features of monopoly and some features of competition.

b.has one large, dominant firm and many other smaller firms.

c.is difficult to enter.

d.occurs whenever firms earn zero economic profit.



MSC:Definitional53.Select the type of market that is described by the following attributes: many firms, differentiated products, and free entry.a.natural monopoly

b.perfectly competition


d.monopoly



MSC:Definitional54.If firms in a particular market sell identical products, then the market is(i)perfectly competitive.

(ii)monopolistically competitive.

(iii)an oligopoly.

a.(i) or (ii) only

b.(ii) or (iii) only

c.(i) or (iii) only

d.(i) only


LOC:Monopolistic competitionTOP:Perfect competition

MSC:Interpretive55.When an industry has many firms, the industry isa.an oligopoly if the firms sell differentiated products, but it is monopolistically competitive if the firms sell identical products.

b.an oligopoly if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products.

c.monopolistically competitive if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products.

d.perfectly competitive if the firms sell differentiated products, but it is monopolistically competitive if the firms sell identical products.


LOC:Monopolistic competitionTOP:Monopolistic competition | Perfect competition

MSC:Interpretive56.If there are many firms participating in a market, the market is eithera.an oligopoly or monopolistically competitive.

b.perfectly competitive or monopolistically competitive.

c.an oligopoly or perfectly competitive.

d.an oligopoly or a cartel.



MSC:Interpretive57.Which of the following statements is correct?a.Monopolistic competition is similar to monopoly because both market structures are characterized by patents.

b.Monopolistic competition is similar to perfect competition because both market structures are characterized by each seller being small compared to the market.

c.Monopolistic competition is similar to oligopoly because both market structures are characterized by free entry.

d.Monopolistic competition is similar to perfect competition because both market structures are characterized by excess capacity.



MSC:Analytical58.In which of the following market structures is(are) there a large number of sellers?(i)monopolistic competition

(ii)perfect competition

(iii)oligopoly

a.(i) and (ii) only

b.(ii) and (iii) only

c.(ii) only




MSC:Definitional59.Monopolistic competition differs from perfect competition because in monopolistically competitive marketsa.there are barriers to entry.

b.all firms can eventually earn economic profits.

c.each of the sellers offers a somewhat different product.

d.strategic interactions between firms are important.



MSC:Interpretive60.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.

a.(i) only

b.(iii) only

c.(i) and (iii) only

d.(ii) and (iii) only



MSC:Interpretive61.In both perfect competition and monopolistic competition, each firm a.has some monopoly power.

b.sells a product that is at least slightly different from those of other firms.

c.faces a downward-sloping demand curve.

d.has many competitors.



MSC:Definitional62.Which of the following conditions distinguishes monopolistic competition from perfect competition?a.the number of sellers in the market

b.the freedom of entry and exit by firms in the market

c.the size of firms in the market

d.product differentiation



MSC:Interpretive63.A similarity between monopoly and monopolistic competition is that in both market structuresa.strategic interactions among sellers are important.

b.there are a small number of sellers.

c.sellers are price makers rather than price takers.

d.there are only a few buyers but many sellers.


LOC:Monopolistic competitionTOP:Monopolistic competition | Monopoly

MSC:Interpretive64.Which of the following statements is correct?a.Cigarettes are likely to be produced in a monopolistically competitive industry.

b.Novels are likely to be produced in a monopoly industry.

c.Movies are likely to be produced in a monopolistically competitive industry.

d.Milk is likely to be produced in an oligopoly industry.



MSC:Interpretive65.Which of the following statements is not correct?a.Novels are likely to be produced in a monopolistically competitive industry.

b.Cable television is likely to be produced in a monopoly industry.

c.Milk is likely to be produced in a monopolistically competitive industry.

d.Cigarettes are likely to be produced in an oligopoly industry.



MSC:Interpretive

Sec02 - Monopolistic Competition - Competition with Differentiated ProductsMULTIPLE CHOICE1.A downward-sloping demand curvea.is a feature of all monopolistically competitive firms.

b.means that the firm in question will never experience a zero profit.

c.causes marginal revenue to exceed price.

d.prohibits firms from earning positive economic profits in the long run.



MSC:Interpretive2.Each firm in a monopolistically competitive firm faces a downward-sloping demand curve becausea.there are many other sellers in the market.

b.there are very few other sellers in the market.

c.the firm's product is different from those offered by other firms in the market.

d.that firm faces the threat of entry into the market by new firms.



MSC:Interpretive3.For a monopolistically competitive firm,a.marginal revenue and price are the same.

b.average revenue and price are the same.

c.at the profit-maximizing quantity of output, price equals marginal cost.

d.at the profit-maximizing quantity of output, price equals the minimum of average total cost.



MSC:Interpretive4.For a monopolistically competitive firm, at the profit-maximizing quantity of output,a.price exceeds marginal cost.

b.marginal revenue exceeds marginal cost.

c.marginal cost exceeds average revenue.

d.price equals marginal revenue.



MSC:Interpretive5.Product differentiation causes the seller of a good to face what type of demand curve?a.downward sloping

b.vertical

c.horizontal

d.Any of the above could be correct since product differentiation does not affect the shape of the demand curve.



MSC:Interpretive6.A firm in a monopolistically competitive market faces aa.downward-sloping demand curve because the firms product is different from those offered by other firms.

b.downward-sloping demand curve because there are only a few firms in the market.

c.horizontal demand curve because there are many firms in the market.

d.horizontal demand curve because firms can enter the market without restriction.


LOC:Monopolistic competitionTOP:Monopolistic competition | Demand curve

MSC:Interpretive7.In the short run, a firm in a monopolistically competitive market operates much like aa.firm in a perfectly competitive market.

b.firm in an oligopoly.

c.monopolist.

d.monopsonist.



MSC:Interpretive8.Each firm in a monopolistically competitive market a.earns both short-run and long-run profits.

b.faces a downward-sloping demand curve.

c.cannot earn economic profit in the short run.

d.sets price equal to marginal cost.



MSC:Interpretive9.In a monopolistically competitive industry, firms set pricea.equal to marginal cost since each firm is a price taker.

b.below marginal cost since each firm is a price taker.

c.above marginal cost since each firm is a price setter.

d.always a fraction of marginal cost since each firm is a price setter.



MSC:Interpretive10.A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive marketa.is characterized by market-share maximization.

b.has no barriers to entry.

c.faces a downward-sloping demand curve for its product.

d.faces a horizontal demand curve at the market clearing price.



MSC:Interpretive11.A monopolistically competitive firm choosesa.the quantity of output to produce, but the market determines price.

b.the price, but competition in the market determines the quantity.

c.price, but output is determined by a cartel production quota.

d.the quantity of output to produce and the price at which it will sell its output.



MSC:Interpretive12.Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,a.marginal revenue will equal average total cost.

b.price will exceed marginal cost.

c.marginal cost will exceed average revenue.

d.average variable cost will be declining.



MSC:Interpretive13.In a monopolistically competitive industry, a firms demand curve also represent its a.marginal revenue.

b.marginal cost.

c.average revenue.

d.profit.



MSC:Definitional14.A firm in a monopolistically competitive market is similar to a monopoly in the sense that(i)they both face downward-sloping demand curves.

(ii)they both charge a price that exceeds marginal cost.

(iii)free entry and exit determines the long-run equilibrium.

a.(i) only

b.(ii) only

c.(i) and (ii) only

d.(i), (ii), and (iii) only



MSC:Interpretive15.A monopolistically competitive firm's choice of output level is virtually identical to the choice made bya.a perfectly competitive firm.

b.a duopolist.

c.a monopolist.

d.an oligopolist.



MSC:Interpretive16.To maximize its profit, a monopolistically competitive firma.takes the price as given and chooses its quantity, just as a competitive firm does.

b.takes the price as given and chooses its quantity, just as a colluding oligopolist does.

c.chooses its quantity and price, just as a competitive firm does.

d.chooses its quantity and price, just as a monopoly does.



MSC:Interpretive17.Because monopolistically competitive firms produce differentiated products, each firma.faces a demand curve that is horizontal.

b.faces a demand curve that is vertical.

c.has no control over product price.

d.has some control over product price.



MSC:Interpretive18.A monopolistically competitive firm chooses its a.price and quantity just as a monopoly does.

b.quantity but faces a horizontal demand curve just as a competitive firm does.

c.price but can sell any quantity at the market price just as an oligopoly does.

d.price and quantity based on the decisions of the other firms in the industry just as an oligopoly does.


LOC:Monopolistic competitionTOP:Profit maximization | Demand curve

MSC:Interpretive19.When a monopolistically competitive firm raises its price,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.



MSC:Analytical20.A monopolistically competitive firm chooses the quantity to produce where a.price equals marginal cost.

b.demand equals marginal cost.

c.marginal revenue equals marginal cost.




MSC:Interpretive21.The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at whicha.marginal revenue is equal to marginal cost.

b.average total cost is equal to marginal revenue.

c.average total cost is equal to price.

d.average revenue exceeds average total cost.



MSC:Interpretive22.A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?a.average revenue exceeds marginal revenue

b.marginal revenue exceeds average revenue

c.average revenue is equal to marginal revenue

d.revenue is always maximized along with profit



MSC:Interpretive23.A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?a.average revenue exceeds marginal revenue

b.marginal revenue equals marginal cost

c.price exceeds marginal cost




MSC:Interpretive24.A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?a.marginal cost exceeds marginal revenue

b.average revenue equals marginal cost

c.price exceeds marginal cost




MSC:Interpretive25.To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which a.price equals marginal cost.

b.marginal revenue equals marginal cost.

c.average total cost is minimized.




MSC:Interpretive26.A monopolistically competitive firm faces the following demand schedule for its product:

Price ($)10987 6 5 4 3 2 1

Quantity 2469111315171921

The firm has total fixed costs of $20 and a constant marginal cost of $2 per unit. The firm will maximize profit witha.6 units of output.

b.9 units of output.

c.11 units of output.

d.13 units of output.



MSC:Applicative27.A monopolistically competitive firm faces the following demand curve for its product:

Price ($)10987 6 5 4 3 2 1

Quantity 2468101214161820

The firm has total fixed costs of $20 and a constant marginal cost of $5 per unit. The firm will maximize profit with the production ofa.6 units of output.

b.8 units of output.

c.10 units of output.

d.12 units of output.



MSC:Applicative28.A monopolistically competitive firm has the following cost structure:

Output 1 2 3 4 5 6 7

Total Cost($)30323642506377

The firm faces the following demand curve:

Price ($)20181512974

Quantity 1 2 3 4567

To maximize profit (or minimize losses), the firm will producea.2 units.

b.3 units.

c.4 units.

d.5 units.



MSC:Applicative29.A monopolistically competitive firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal cost equal to $6, and has average total cost equal to $12. From this information we can infer thata.the firm is currently maximizing its profit.

b.the profits of the firm are negative.

c.firms are likely to leave this market in the long run.




MSC:Analytical30.If "too much choice" is a problem for consumers, it would occur in which market structure(s)?a.perfect competition

b.monopoly


d.perfect competition and monopolistic competition



MSC:Interpretive31.In the short run, a firm operating in a monopolistically competitive market can earn a.positive economic profits.

b.economic losses.

c.zero economic profits.

d.All of the above are possible.



MSC:Interpretive32.In the short run, a firm operating in a monopolistically competitive market a.produces an output level where marginal revenue equals average total cost.

b.maximizes revenues as well as profits.

c.can earn zero economic profits.

d.sets price equal to marginal cost.



MSC:Interpretive33.In the short run, a firm operating in a monopolistically competitive market a.produces an output level where marginal revenue equals average total cost.

b.sets price equal to demand where marginal revenue equals marginal cost.

c.must earn zero economic profits.

d.maximizes revenues as well as profits.



MSC:Interpretive34.When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,a.the firm must be earning a positive economic profit.

b.the firm may be incurring economic losses

c.there is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity.

d.new firms will enter the market in the long run.



MSC:Analytical35.Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?a.P = AR

b.MR = MC

c.P > MC




MSC:Analytical36.Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?a.P > AR

b.MR > MC

c.P > MC




MSC:Analytical37.Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?a.P > ATC

b.P = ATC

c.P < ATC

d.Any of the above could be correct.



MSC:Analytical38.Which of the following conditions is characteristic of a monopolistically competitive firm in both the short-run and the long run?a.P > MC

b.MC = ATC

c.P < MR




MSC:Analytical39.For a profit-maximizing monopolistically competitive firm, price exceeds marginal cost in a.the short run but not in the long run.

b.the long run but not in the short run.

c.both the short run and the long run.

d.neither the short run nor the long run.



MSC:Interpretive40.For a profit-maximizing monopolistically competitive firm, marginal revenue equals marginal cost in a.the short run but not in the long run.






MSC:Interpretive41.A firm operating in a monopolistically competitive market can earn economic profits in a.the short run but not in the long run.






MSC:Interpretive42.When a market is monopolistically competitive, the typical firm in the market is likely to experience aa.positive profit in the short run and in the long run.

b.positive or negative profit in the short run and a zero profit in the long run.

c.zero profit in the short run and a positive or negative profit in the long run.

d.zero profit in the short run and in the long run.



MSC:Analytical43.When a market is monopolistically competitive, the typical firm in the market can earna.losses in the short run and profits in the long run.

b.profits in the short run and the long run.

c.losses in the short run and zero profit in the long run.

d.zero profit in the short run and losses in the long run.



MSC:Analytical44.An important difference between the situation faced by a profit-maximizing monopolistically competitive firm in the short run and the situation faced by that same firm in the long run is that in the short run,a.price may exceed marginal revenue, but in the long run, price equals marginal revenue.

b.price may exceed marginal cost, but in the long run, price equals marginal cost.

c.price may exceed average total cost, but in the long run, price equals average total cost.

d.there are many firms in the market, but in the long run, there are only a few firms in the market.



MSC:InterpretiveFigure 16-1. The figure is drawn for a monopolistically competitive firm.

45.Refer to Figure 16-1. The firms profit-maximizing level of output isa.8 units.

b.12 units.

c.16 units.

d.24 units.



MSC:Applicative46.Refer to Figure 16-1. In order to maximize profit, the firm will charge a price ofa.$8.

b.$12.

c.$16.

d.$18.



MSC:Applicative47.Refer to Figure 16-1. Suppose that average total cost is $18 when Q=12. What is the profit-maximizing price and resulting profit?a.P=$12, profit=$0

b.P=$18, profit=$72

c.P=$18, profit=$24

d.P=$18, profit=$0



MSC:Applicative48.Refer to Figure 16-1. If the average total cost is $15 at the profit-maximizing quantity, then the firms maximum profit isa.$18.

b.$24.

c.$36.

d.$45.



MSC:Applicative49.Refer to Figure 16-1. If the average variable cost is $12 at the profit-maximizing quantity, and if the firms fixed costs amount to $30, then the firms maximum profit isa.$-30.

b.$22.

c.$36.

d.$42.



MSC:Applicative50.Refer to Figure 16-1. If the average variable cost is $13 at the profit-maximizing quantity, and if the firms profit is $20 at that quantity, then its fixed costs amount to a.$12.

b.$22.

c.$40.

d.$60.



MSC:Applicative51.Refer to Figure 16-1. Suppose ATC = $18 when Q = 12. Then the a.firm is in a long-run equilibrium when it produces 12 units of output.

b.firm is in a long-run equilibrium when it produces 16 units of output.

c.best the firm can do is sustain a loss of $24.

d.best the firm can do is earn a profit of $48.



MSC:Applicative52.Refer to Figure 16-1. Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium. You would draw the ATC curvea.with its minimum at the point (Q = 12, P = $18).

b.with its minimum at the point (Q = 12, P = $12).

c.tangent to the demand curve at the point (Q = 12, P = $18).

d.tangent to the demand curve at the point (Q = 16, P = $16).



MSC:ApplicativeFigure 16-2This figure depicts a situation in a monopolistically competitive market.

53.Refer to Figure 16-2. What price will the monopolistically competitive firm charge in this market?a.$60

b.$70

c.$75

d.$80



MSC:Analytical54.Refer to Figure 16-2. What is the profit-maximizing price, quantity, and resulting profit?a.P=$60, Q=20 units, profit=$200

b.P=$80, Q=20 units, profit=$200

c.P=$75, Q=25 units, profit=$100

d.P=$60, Q=40 units, profit=$0



MSC:Analytical55.Refer to Figure 16-2. How much consumer surplus will be derived from the purchase of this product at the monopolistically competitive price?a.$200

b.$312.50

c.$400

d.$800



MSC:Analytical56.Refer to Figure 16-2. How much profit will the monopolistically competitive firm earn in this situation?a.a $10 profit

b.a $200 profit

c.a $400 profit

d.No profit, since monopolistically competitive firms never earn economic profit.



MSC:Analytical57.Refer to Figure 16-2. How much output will the monopolistically competitive firm produce in this situation?a.20 units

b.25 units

c.40 units

d.80 units



MSC:AnalyticalFigure 16-3

58.Refer to Figure 16-3. The firm in this figure is monopolistically competitive. It illustratesa.the shut-down case.

b.a long-run economic profit.

c.a short-run economic profit.

d.a short-run loss.



MSC:Interpretive59.Refer to Figure 16-3. At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has total costs of approximatelya.$2,000.

b.$3,000.

c.$4,000.

d.$5,000.



MSC:Applicative60.Refer to Figure 16-3. Assume the firm in the figure is currently producing 8 units of output and charging $400. The firma.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.



MSC:Analytical61.Refer to Figure 16-3. The maximum total short-run economic profit for the monopolistically competitive firm in this figure isa.$1,000.

b.$2,000.

c.$3,000.

d.$5,000.



MSC:ApplicativeFigure 16-4

62.Refer to Figure 16-4. Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry?a.panel a

b.panel b

c.panel c

d.panel d



MSC:Interpretive63.Refer to Figure 16-4. Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry?a.panel a

b.panel b

c.panel c

d.panel d



MSC:Interpretive64.Refer to Figure 16-4. Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry?a.panel a

b.panel b

c.panel c

d.panel d



MSC:Interpretive65.Refer to Figure 16-4. Panel a shows a profit-maximizing monopolistically competitive firm that isa.earning zero economic profit.

b.likely to exit the market in the long run.

c.producing its efficient scale of output.

d.not maximizing its profit.



MSC:Interpretive66.Refer to Figure 16-4. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?a.panel a

b.panel b

c.panel c

d.panel d



MSC:Interpretive67.Refer to Figure 16-4. Panel b is consistent with a firm in a monopolistically competitive market that isa.not in long-run equilibrium.

b.in long-run equilibrium.

c.producing its efficient scale of output.

d.earning a positive economic profit.



MSC:Interpretive68.Refer to Figure 16-4. Which of the panels shown could illustrate the short-run situation for a monopolistically competitive firm?a.panel a

b.panel b

c.panel c




MSC:InterpretiveFigure 16-5

69.Refer to Figure 16-5. Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit?a.panel a

b.panel b

c.panel c

d.panel d



MSC:Interpretive70.Refer to Figure 16-5. Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money?a.panel a

b.panel b

c.panel c

d.panel d



MSC:Interpretive71.Refer to Figure 16-5. Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium?a.panel a

b.panel b

c.panel c

d.None of the above is correct.



MSC:InterpretiveFigure 16-6

72.Refer to Figure 16-6. Which of the graphs depicts the situation for a profit-maximizing firm in a monopolistically competitive market?a.panel a

b.panel b

c.panel c

d.panel d



MSC:Interpretive73.Refer to Figure 16-6. Suppose a firm is operating in the situation depicted in panel a. Which of the following statements is correct?a.The firm is earning positive short-run profits.

b.The firm is earning negative short-run profits.

c.The firm is earning zero short-run profits.

d.We cannot determine profits because we do not know the firms average total costs.



MSC:Interpretive74.Refer to Figure 16-6. If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d), it woulda.not be maximizing its profit.

b.be minimizing its losses.

c.be losing market share to other firms in the market.

d.be operating at excess capacity.



MSC:Analytical75.Refer to Figure 16-6. The firm depicted in panel b faces a horizontal demand curve. If panel b depicts a profit-maximizing firm,a.it could be operating in either a perfectly competitive market or in a monopolistically competitive market.

b.it would not have excess capacity in its production as long as it is earning zero economic profit.

c.it is able to choose the price at which it sells its product.

d.the firm can always raise its profit by increasing production since consumers will buy as much as the firm can produce.



MSC:Interpretive76.In which of the following markets is economic profit driven to zero in the long run?a.oligopoly

b.monopoly


d.cartels



MSC:Interpretive77.Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?a.P > demand and P = MR

b.ATC > demand and MR = MC

c.P > MC and demand = ATC

d.P < ATC and demand > MR



MSC:Analytical78.Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?a.P > MR and P = MC

b.ATC = demand and MR = MC

c.P < MC and demand = ATC

d.P > ATC and demand > MR



MSC:Analytical79.A monopolistically competitive firma.charges a price that is equal to marginal cost.

b.experiences a zero profit in the long run.

c.produces at the efficient scale in the long run.




MSC:Interpretive80.In a monopolistically competitive market, a.entry by new firms is impeded by barriers to entry; thus, the number of firms in the market is never ideal.

b.entry by new firms is impeded by barriers to entry, but the number of firms in the market is nevertheless always ideal.

c.free entry ensures that the number of firms in the market is ideal.

d.there may be too few or too many firms in the market, despite free entry.



MSC:Interpretive81.In which of the following market structures does free entry and exit play an important role in the long-run equilibrium outcome?(i)perfect competition

(ii)monopolistic competition

(iii)monopoly

a.(i) only

b.(i) and (ii) only

c.(ii) and (iii) only




MSC:Interpretive82.If firms in a monopolistically competitive market are earning positive profits, thena.firms will likely be subject to regulation.

b.barriers to entry will be strengthened.

c.some firms will exit the market.

d.new firms will enter the market.



MSC:Interpretive83.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?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



MSC:Interpretive84.If firms in a monopolistically competitive market are incurring economic losses, which of the following scenarios would best describe the change existing firms (who are able to stay in the market) would face as the market adjusts to the long-run equilibrium?a.a downward shift in the marginal cost curve for each firm

b.an upward shift in the marginal cost curve for each firm

c.a decrease in demand for each firm

d.an increase in demand for each firm



MSC:Interpretive85.In monopolistically competitive markets, positive economic profitsa.suggest that some existing firms will exit the market.

b.suggest that new firms will enter the market.

c.are sustained through government-imposed barriers to entry.

d.are never possible.



MSC:Interpretive86.In monopolistically competitive markets, economic lossesa.suggest that some existing firms will exit the market.

b.suggest that new firms will enter the market.

c.are minimized through government-imposed barriers to entry.

d.are never possible.



MSC:Interpretive87.As new firms enter a monopolistically competitive market, profits of existing firmsa.rise, and product diversity in the market increases.

b.rise, and product diversity in the market decreases.

c.decline, and product diversity in the market increases.

d.decline, and product diversity in the market decreases.



MSC:Analytical88.As firms exit a monopolistically competitive market, profits of remaining firmsa.decline, and product diversity in the market decreases.

b.decline, and product diversity in the market increases.

c.rise, and product diversity in the market decreases.

d.rise, and product diversity in the market increases.



MSC:Analytical89.The free entry and exit of firms in a monopolistically competitive market guarantees thata.both economic profits and economic losses can persist in the long run.

b.both economic profits and economic losses disappear in the long run.

c.economic profits, but not economic losses, can persist in the long run.

d.economic losses, but not economic profits, can persist in the long run.



MSC:Interpretive90.In monopolistically competitive markets, free entry and exit suggests thata.the market structure will eventually be characterized by perfect competition in the long run.

b.all firms earn zero economic profits in the long run.

c.some firms will be able to earn economic profits in the long run.

d.some firms will be forced to incur economic losses in the long run.



MSC:Interpretive91.When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,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.



MSC:Interpretive92.When a firm's demand curve is tangent to its average total cost curve, thea.firm's economic profit is zero.

b.firm must be earning economic profits.

c.firm must be incurring economic losses.

d.firm must be operating at its efficient scale.



MSC:Interpretive93.When a firm's demand curve is tangent to its average total cost curve, thea.firm's economic profit is zero.

b.firm may be earning economic profits.

c.firm must be operating at its efficient scale.




MSC:Interpretive94.When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,a.the demand curve will be perfectly elastic.

b.price exceeds marginal cost.

c.marginal cost must be falling.

d.marginal revenue exceeds marginal cost.



MSC:Interpretive95.A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium hasa.minimized average total cost.

b.chosen to produce where demand is unitary elastic.

c.produced the efficient scale of output.

d.chosen a quantity of output where average revenue equals average total cost.



MSC:Interpretive96.In a long-run equilibrium, a firm in a monopolistically competitive market operatesa.where marginal revenue is zero.

b.where marginal revenue is negative.

c.on the rising portion of its average total cost curve.

d.on the declining portion of its average total cost curve.



MSC:Interpretive97.When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market willa.shift to the left.

b.shift to the right.

c.shift in a direction that is unpredictable without further information.

d.remain unchanged. It is the supply curve that will shift.



MSC:Analytical98.When a firm exits a monopolistically competitive market, the individual demand curves faced by all remaining firms in that market willa.shift in a direction that is unpredictable without further information.

b.shift to the right.

c.shift to the left.

d.remain unchanged. It is the supply curve that will shift.



MSC:Analytical99.Long-run profit earned by a monopolistically competitive firm is driven to the competitive level due to a(n) a.change in the technology that the firm utilizes.

b.shift of its demand curve.

c.shift of its supply curve.

d.increase in the firms average cost of production.



MSC:Interpretive100.Because a monopolistically competitive firm has some market power, in the long-run the price of its product exceeds itsa.average revenue.

b.average total cost.

c.marginal cost.

d.profit per unit.



MSC:Interpretive101.New firms will likely enter a monopolistically competitive market when price exceedsa.marginal revenue.

b.average revenue.

c.marginal cost.

d.average total cost.



MSC:Interpretive102.Which two curves are tangent to each other in a monopolistically competitive market with zero economic profit?a.demand and average variable cost

b.demand and average total cost

c.marginal revenue and average variable cost

d.marginal revenue and average total cost



MSC:Interpretive103.In a monopolistically competitive market,a.strategic interactions among the firms are very important.

b.

Chapter 16

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