Question 1

Figure 16-8
The figure is drawn for a monopolistically-competitive firm.
 
-Refer to Figure 16-8.As the figure is drawn,the firm is in

Accepted Answer

A)   a short-run equilibrium but it is not in a long-run equilibrium.
B)   a long-run equilibrium but it is not in a short-run equilibrium.
C)   a short-run equilibrium as well as a long-run equilibrium.
D)   neither a short-run equilibrium nor a long-run equilibrium.E) None of the above
F) All of the above

Question 2

Which of the following statements is correct?

Accepted Answer

A)   Firms in monopolistic competition and monopoly can earn economic profits in both the short run and the long run.
B)   Both perfectly competitive and monopolistically competitive firms are price takers.
C)   Both a monopolistically competitive industry and a monopoly are characterized by a very small number of (or one)  firm(s) .
D)   Firms can easily enter a perfectly competitive or monopolistically competitive industry.E) None of the above
F) A) and D)

Question 3

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

Accepted Answer

A)   (i)  only
B)   (i)  and (ii)  only
C)   (ii)  and (iii)  only
D)   (i) , (ii) , and (iii) E) A) and B)
F) None of the above

Question 4

Monopolistic competition is an

Accepted Answer

A)   inefficient market structure because there is deadweight loss.
B)   inefficient market structure because price exceeds marginal cost.
C)   efficient market structure because free entry drives long-run profits to zero.
D)   Both a and b are correct.E) B) and C)
F) A) and B)

Question 5

Scenario 16-2
McDonald's restaurants has recently announced intentions to open a new restaurant in Smalltown, Indiana. Assume that the fast-food restaurant market in Smalltown is characterized by monopolistic competition.
-Refer to Scenario 16-2.As a result of the new McDonald's,existing fast food restaurants in Smalltown are likely to

Accepted Answer

A)   suffer from a product-variety externality.
B)   suffer from a business-stealing externality.
C)   increase their production to achieve the efficient scale.
D)   Both b and c are correct.E) A) and B)
F) All of the above

Question 6

The fact that monopolistically competitive firms charge a price that exceeds marginal cost is responsible for the

Accepted Answer

A)   business-stealing externality that is observed in monopolistically competitive markets.
B)   product-variety externality that is observed in monopolistically competitive markets.
C)   inefficiencies of the long-term losses earned by monopolistically competitive firms.
D)   persistence of positive profits into the long run for monopolistically competitive firms.E) B) and C)
F) A) and D)

Question 7

Since a firm in a monopolistically competitive market faces a

Accepted Answer

A)   downward-sloping demand curve, it will always operate with excess capacity.
B)   downward-sloping demand curve, it will always operate at its efficient scale.
C)   perfectly elastic demand curve, it will always operate with excess capacity.
D)   perfectly inelastic demand curve, it will always operate at its efficient scale.E) All of the above
F) C) and D)

Question 8

A monopolistically competitive firm chooses the quantity to produce where

Accepted Answer

A)   price equals marginal cost.
B)   demand equals marginal cost.
C)   marginal revenue equals marginal cost.
D)   Both a and c are correct.E) A) and D)
F) None of the above

Question 9

A firm can earn economic profits in the short run

Accepted Answer

A)   only when the market is perfectly competitive.
B)   only when the market is a monopoly or monopolistically competitive.
C)   only when the market is monopolistically competitive or perfectly competitive.
D)   when the market is perfectly competitive, monopolistically competitive, or monopolistic.E) B) and D)
F) B) and C)

Question 10

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

Accepted Answer

A)   average revenue exceeds marginal revenue
B)   marginal revenue equals marginal cost
C)   price exceeds marginal cost
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 11

Scenario 16-4
Consider the problem facing two firms, Burger Prince and McDaniel's, in the fast-food restaurant market. Each firm has just come up with an idea for a new fast-food menu item which it would sell for $5. Assume that the marginal cost for each new menu item is a constant $3, and the only fixed cost is for advertising. Each company knows that if it spends $16 million on advertising it will get 2 million consumers to try its new product. Burger Prince has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 2 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. McDaniel's's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year. On the basis of its market research, McDaniel's estimates that its initial 2 million customers will buy one unit of the product each month in the coming year, for a total of 32 million units.
-Refer to Scenario 16-4.Which of the following is most likely?

Accepted Answer

A)   Both Burger Prince and McDaniel's will advertise.
B)   Neither Burger Prince nor McDaniel's will advertise.
C)   Burger Prince will advertise, but McDaniel's will not advertise.
D)   McDaniel's will advertise, but Burger Prince will not advertise.E) B) and D)
F) A) and D)

Question 12

A monopolistically competitive market is like a competitive market in that

Accepted Answer

A)   both market structures feature easy entry by new firms in the long run.
B)   the main objective of firms in both market structures is something other than profit maximization.
C)   firms in both market structures produce the welfare-maximizing level of output.
D)   firms in both market structures set price above marginal cost.E) A) and D)
F) A) and C)

Question 13

Of the following market structures,which are considered imperfectly competitive? I.
Perfect competition
II) 
Monopoly
III) 
Monopolistic competition
IV) 
Oligopoly

Accepted Answer

A)   III only
B)   II and III
C)   III and IV
D)   II, III, and IVE) A) and B)
F) C) and D)

Question 14

In the long run,a firm in a perfectly competitive market operates

Accepted Answer

A)   at its efficient scale, and a monopolistically competitive firm operates at its efficient scale.
B)   at its efficient scale, and a monopolistically competitive firm operates with excess capacity.
C)   with excess capacity, and a monopolistically competitive firm operates with excess capacity.
D)   with excess capacity, and a monopolistically competitive firm operates at its efficient scale.E) All of the above
F) B) and C)

Question 15

Table 16-6
Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for haircuts at Traci's Hairstyling.
 
-Refer to Table 16-6.If the government forced Traci's to produce at the efficient scale of output,what is the maximum profit Traci's could earn?

Accepted Answer

A)   $77
B)   $80
C)   $84
D)   $96E) All of the above
F) B) and C)

Question 16

For the economy as a whole,spending on advertising comprises about what percent of total firm revenue?

Accepted Answer

A)   0.5
B)   2
C)   10
D)   20E) A) and B)
F) A) and C)

Question 17

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.

Accepted Answer

Business-stealing effect: incumbent firm...

Question 18

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.
 
-Refer to Table 16-1.Which industry is the least competitive?

Accepted Answer

A)   Industry W
B)   Industry X
C)   Industry Y
D)   Industry ZE) A) and C)
F) None of the above

Question 19

Monopolistic competition is an inefficient market structure because

Accepted Answer

A)   marginal revenue equals marginal cost.
B)   it has a deadweight loss, just as monopoly does.
C)   long-run profits are zero due to free entry.
D)   All of the above are correct.E) A) and D)
F) A) and B)

Question 20

Figure 16-3
 
-Refer to Figure 16-3.The maximum total short-run economic profit for the monopolistically competitive firm in this figure is

Accepted Answer

A)   $1,500.
B)   $6,000.
C)   $10,500.
D)   $12,500.E) All of the above
F) A) and B)

Exam 16: Monopolistic Competition.

Monopolistic competition is an inefficient market structure because

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Which of the following statements is correct?

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Figure 16-3 -Refer to Figure 16-3.The maximum total short-run economic profit for the monopolistically competitive firm in this figure is

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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.

Correct Answer
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Business-stealing effect: incumbent firm...
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Monopolistic competition is an

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For the economy as a whole,spending on advertising comprises about what percent of total firm revenue?

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Since a firm in a monopolistically competitive market faces a

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A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

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Of the following market structures,which are considered imperfectly competitive? I. Perfect competition II) Monopoly III) Monopolistic competition IV) Oligopoly

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The fact that monopolistically competitive firms charge a price that exceeds marginal cost is responsible for the

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A monopolistically competitive firm chooses the quantity to produce where

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A monopolistically competitive market is like a competitive market in that

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Figure 16-8 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-8.As the figure is drawn,the firm is in

Correct Answer
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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

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A firm can earn economic profits in the short run

Correct Answer
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In the long run,a firm in a perfectly competitive market operates

Correct Answer
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Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1.Which industry is the least competitive?

Correct Answer
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Exam 16: Monopolistic Competition.

Monopolistic competition is an inefficient market structure because

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Which of the following statements is correct?

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Figure 16-3 -Refer to Figure 16-3.The maximum total short-run economic profit for the monopolistically competitive firm in this figure is

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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.

Correct AnswerverifiedBusiness-stealing effect: incumbent firm...View AnswerShow Answer

Monopolistic competition is an

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For the economy as a whole,spending on advertising comprises about what percent of total firm revenue?

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Since a firm in a monopolistically competitive market faces a

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A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

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Of the following market structures,which are considered imperfectly competitive? I. Perfect competition II) Monopoly III) Monopolistic competition IV) Oligopoly

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The fact that monopolistically competitive firms charge a price that exceeds marginal cost is responsible for the

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Correct AnswerverifiedShow Answer

A monopolistically competitive firm chooses the quantity to produce where

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A monopolistically competitive market is like a competitive market in that

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Correct AnswerverifiedShow Answer

Figure 16-8 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-8.As the figure is drawn,the firm is in

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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

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A firm can earn economic profits in the short run

Correct AnswerverifiedShow Answer

In the long run,a firm in a perfectly competitive market operates

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Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1.Which industry is the least competitive?

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Business-stealing effect: incumbent firm...
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