Deck 6: Increasing Returns to Scale and Monopolistic Competition

Question 1

For a monopolistic competitor, marginal revenue at its short­run
Equilibrium price and quantity equals:

A)price.
B)marginal cost.
C)average cost.
D)average revenue.

Answer 1

B

Question 2

Suppose that imports and exports in an industry are $100 million
And $200 million, respectively.Will the index of intra­industry
Trade for this industry rise, fall, or remain unchanged if exports
Fall to $100 million?

A)It will rise.
B)It will fall.
C)It will remain unchanged.
D)There is not enough information to determine how the index will change.

Answer 2

B

Question 3

A monopolistic competitive firm:

A)will always earn monopoly profits.
B)will never earn monopoly profits.
C)may earn monopoly profits in the short run.
D)may earn monopoly profits in the long run.

Answer 3

C

Question 4

A feature of imperfect competition is _________, which means
That as the firm expands its production, average costs of
Production fall.Therefore, the firm can _______ its costs of
Production by selling internationally.

A)economies of scale; decrease
B)economies of scale; increase
C)increasing returns to scale; decrease
D)specialization; increase

Question 5

What will happen when a firm raises the price of a differentiated
Product in an imperfectly competitive market?

A)It will see lower sales but will not lose all its sales.
B)It will lose all its sales to competitor firms.
C)It will actually get new customers from other firms.
D)It will see an increase in revenues.

Question 6

The ____________ model best explains intra­industry trade.

A)Ricardian
B)Heckscher­Ohlin
C)monopolistic competition
D)specific­factors

Question 7

Which of the following is the term describing very similar
Products being exported and imported by trading partners?

A)reciprocal trade
B)imperfect competition
C)intra­industry trade
D)inter­industry trade

Question 8

What term is used to describe situations where countries
Specialize in and trade different varieties of the same type of
Product?

A)comparative advantage
B)the Heckscher­Ohlin model
C)intra­industry trade
D)increasing returns to scale

Question 9

The price charged by a monopoly firm is the market price
(demand curve) at which:

A)MR = MC, and usually P > MR and P > MC.
B)the firm is just breaking even.
C)the firm makes a normal profit.
D)the firm can export its products.

Question 10

A monopolist maximizes its profits by selling up to the point
Where:

A)its price equals its marginal cost.
B)its price equals its marginal revenue.
C)its marginal revenue equals its marginal costs.
D)the difference between its price and average cost is maximized.

Question 11

A differentiated product is one that:

A)is slightly different from the competitor's product, although it is a close substitute.
B)is very different.
C)is traded within firms and is not for sale in retail markets.
D)has a shelf life of less than a year.

Question 12

Which of the following is NOT characteristic of a monopolistically
Competitive industry?

A)monopoly profits
B)many firms in the industry
C)differentiated products
D)Individual firms can influence the market price.

Question 13

Equilibrium in a monopoly occurs when:

A)the monopolist has driven out all competitors.
B)the monopoly firm has sold the maximum number of units.
C)the monopoly firm produces the quantity that maximizes its profits (or minimizes loss) where MR = MC.
D)the monopoly firm has gotten unions to agree to wage concessions.

Question 14

Which of the following features is characteristic of monopolistic
Competition?

A)many large producers
B)homogeneous products
C)differentiated products
D)No individual producer has any influence on the market price.

Question 15

The cross­trade of very similar products exported and imported
By trading partners seems to contradict which of the following
Model(s)?

A)Ricardian
B)Heckscher­Ohlin
C)specific­factors
D)It contradicts all of these models.

Question 16

To analyze intra­industry trade, we must bring in imperfect
Competition, and we change our assumptions about our trade
Models to allow:

A)price­conscious consumers.
B)short­run unemployment.
C)differentiated products.
D)perfect competition.

Question 17

Products traded between two nations that are very similar and
Very close substitutes, but that may be of different quality or
Prices, are called:

A)differentiated complements.
B)differentiated substitutes.
C)differentiated products.
D)perfect substitute products.

Question 18

"Differentiated" is another word for:

A)identical.
B)homogeneous.
C)heterogeneous.
D)None of these has the same meaning.

Question 19

Increasing returns to scale occurs when a firm's:

A)average costs of production increase as its output increases.
B)average costs of production decrease as its output increases.
C)average fixed costs increase as its output increases.
D)marginal costs increase as its output increases.

Question 20

If there is a duopoly and the products are identical
(homogeneous), the firm selling the product for a lower price:

A)will earn less revenue.
B)will get 100% of the sales.
C)will have a hard time being profitable.
D)will be perceived to have lower quality products.

Question 21

Which of the following will NOT cause increasing returns to scale
And declining average costs?

A)focusing on a single product line and specializing
B)exporting goods to other countries
C)selling more in their home market
D)hiring more workers at the existing plant

Question 22

Which of the following is NOT an assumption of monopolistic
Competition?

A)Each firm's output is slightly different from other firms in the industry.
B)There are many firms in the industry.
C)Production occurs with increasing returns to scale technology.
D)Each firm faces a perfectly elastic demand curve.

Question 23

If a firm has a total fixed cost of $75 and an average variable
Cost of $35 for producing 10 units of output, the average total
Cost would be:

A)$425.
B)$42.50.
C)$110.
D)$350.

Question 24

A firm's average costs will be falling whenever its:

A)marginal costs are positive.
B)marginal costs are negative.
C)marginal costs are less than average costs.
D)marginal costs are less than fixed costs.

Question 25

In the long run, profits in a monopolistic competition market are
Zero because:

A)of government regulations.
B)of collusion.
C)firms are free to enter and exit the market.
D)firms produce a differentiated product.

Question 26

Consider the following cost information for a monopolist: its MR
= $15, its MC = $23, and it is producing 9 units of output.Which
Of the following statements is correct?

A)The monopolist should produce and sell 9 units of output.
B)The monopolist should increase production of output.
C)We need more information to decide if the firm needs to produce.
D)The monopolist should not produce this output because MR < MC.

Question 27

When there are increasing returns to scale, average costs must
Be:

A)falling.
B)rising.
C)constant.
D)falling, then rising.

Question 28

In a duopoly where products are differentiated and firms charge
Different prices, the demand curves are _______________ than
If the firms sell identical products at the same price.

A)steeper
B)farther to the right
C)more elastic (flatter)
D)less elastic

Question 29

In a duopoly, each firm faces:

A)a more elastic demand curve if it raises its price.
B)a more elastic demand curve if it lowers its price.
C)a perfectly elastic demand curve.
D)a perfectly inelastic demand curved.

Question 30

If a firm has a total cost of $150 and a variable cost of $100 for
Producing 5 units of output, then the fixed cost is:

A)$35.
B)$50.
C)$250.
D)$100.

Question 31

In the short run, in equilibrium, firms that operate in a
Monopolistically competitive market face a down sloping demand
Curve and will charge a price where _____ and ______.

A)quantity produced is maximized; costs are minimized
B)sales revenue is maximized; costs are falling
C)MR = MC; P > average cost
D)average costs are rising; sales are rising

Question 32

Whenever a firm's marginal costs are less than its average costs,
Its average costs must be:

A)falling.
B)rising.
C)constant.
D)falling, then rising.

Question 33

A monopolistic competitor has fixed costs of $100 and marginal
Costs of $10 per unit.What is its marginal revenue at its
Equilibrium price and quantity?

A)$10
B)$11
C)$1,100
D)$2,000

Question 34

At its current production level, a monopolist's marginal revenue
Is $20 and its marginal cost is $10.Which of the following is
CORRECT?

A)The monopolist should produce and sell more output.
B)The monopolist should produce and sell less output.
C)The monopolist is maximizing its profits at its current level of output.
D)More information is required to decide if the firm needs to change its production.

Question 35

To analyze monopolistic competition in trade, we make several
Assumptions about the market.Which of the following is NOT an
Assumption of monopolistic competition?

A)many firms in the industry
B)easy entry and exit
C)constant long­run average cost
D)increasing returns to scale, falling long­run average cost

Question 36

Which of the following is NOT an assumption for monopolistic
Competition?

A)Firms produce goods, using a technology with increasing returns to scale.
B)There are many firms in the industry.
C)Firms have some control over the price of the product.
D)Each firm produces a good that is similar to, but differentiated from, the goods that other firms in the industry
Produce.

Question 37

The demand curve facing a monopolistic competitor:

A)is perfectly inelastic.
B)is perfectly elastic.
C)slopes downward to the right.
D)has a positive slope.

Question 38

When average costs of production are falling, average cost:

A)is higher than marginal cost.
B)is equal to price.
C)is negative.
D)is less than marginal cost.

Question 39

A monopolistic competitor has fixed costs of $100 and marginal
Costs of $10 per unit.What is its average cost of producing 100
Units?

A)$10
B)$11
C)$1,100
D)$2,000

Question 40

If a firm has an average total cost of $55 and an average fixed
Cost of $10 for producing 5 units of output, then the total
Variable cost will be:

A)$550.
B)$525.
C)$225.
D)$65.

Question 41

In long­run equilibrium with trade, losses from import
Competition will force some firms to ______________,
Increasing demand for the remaining firms' output, which will
Then cause their demand curves to become ______________,
Due to the increased variety of products from
_______________.

A)raise prices; steeper; new firms entering the industry
B)leave the industry; flatter; foreign firms
C)lower prices; more inelastic; new firms entering the industry
D)lay off workers; more elastic; the research and development departments in firms

Question 42

Figure: Costs and Demand for a Monopolistic Competitor (Figure: Costs and Demand for a Monopolistic Competitor) The
Profits for the firm are:

A)$320.
B)$480.
C)$160.
D)$420.

Question 43

When firms charge different prices for differentiated products in
Imperfect competition, each firm's demand curve is
___________ than would be the case if all firms had identical
Products and prices.

A)flatter
B)steeper
C)farther to the right
D)less elastic

Question 44

SCENARIO: A MONOPOLIST'S MARKET
A monopolistically competitive firm faces demand given by this
Equation: P = 50 ​ Q.It has no fixed costs and its marginal cost
Is $20 per unit.
Reference: Ref 6­2
(Scenario: A Monopolist's Market) What quantity will the firm
Produce when it is maximizing its profits?

A)10
B)15
C)20
D)25

Question 45

Figure: Costs and Demand for a Monopolistic Competitor (Figure: Costs and Demand for a Monopolistic Competitor) What
Price should the firm charge?

A)$15
B)$10
C)The firm cannot be profitable, so the price is zero.
D)The firm is a price maker, so it should charge $20.

Question 46

Demand Equation for a Good Produced by a
Monopolistically Competitive Firm:
P = 10 - Q
Reference: Ref 6­3
(Demand Equation) If the firm's marginal cost is a constant $2
Per unit, what price will it charge and how many units will it
Produce if it maximizes its profits?

A)$8 and 2 units
B)$7 and 3 units
C)$6 and 4 units
D)$5 and 5 units

Question 47

What is the expected outcome when trade occurs in a
Monopolistically competitive industry if the nations have similar
Tastes, technology, products, and costs?

A)No trade is possible.
B)Consumers are left with no choices.
C)Each firm has a larger market in which to sell, and consumers have more choices of sellers and products.
D)Transportation costs become the driving factor.

Question 48

In the short run, international trade allows a monopolistically
Competitive firm an opportunity:

A)to produce more output.
B)to earn monopoly profits.
C)to reduce its average costs.
D)to produce more output, earn monopoly profits, and reduce its average costs.

Question 49

In the long run, a monopolistically competitive firm:

A)will earn normal profits.
B)will earn excess profits.
C)will earn no profits.
D)will produce where marginal cost equals price.

Question 50

In the long run, a monopolistically competitive firm will produce
Where:

A)average cost equals price.
B)average cost equals marginal revenue.
C)marginal revenue equals price.
D)marginal cost equals price.

Question 51

(Figure: Costs and Demand for a Monopolistic Competitor) The
Total cost of producing the profit­maximizing output is:

A)$320.
B)$480.
C)$420.
D)$500.

Question 52

If a firm in monopolistic competition lowers its price, what will
Happen to the quantity of products it sells?

A)The quantity of products sold will increase and sales revenue will fall.
B)The quantity of products sold will decrease because this is not perfect competition.
C)The quantity of products sold will increase slightly-and in some cases not at all.
D)The quantity of products sold and sales revenues will increase as the firm lures customers from its competitors and attracts
New customers.

Question 53

Demand Equation for a Good Produced by a
Monopolistically Competitive Firm:
P = 10 - Q
Reference: Ref 6­3
(Demand Equation) At what price is the firm's total revenue
Maximized?

A)$9
B)$7
C)$5
D)$3

Question 54

Which of the following describes the long­run situation in a
Monopolistically competitive market?

A)Competition drives out firms until there is only one left.
B)New firms enter the market because of monopoly profits, the demand curve shifts to the left and becomes flatter, and profits
Disappear.
C)New firms enter the market and eventually there is only one kind of product, and each firm agrees to share the profits.
D)Consumers are left with no choices and no close substitutes, and firms make higher profits.

Question 55

SCENARIO: A MONOPOLIST'S MARKET
A monopolistically competitive firm faces demand given by this
Equation: P = 50 ​ Q.It has no fixed costs and its marginal cost
Is $20 per unit.
Reference: Ref 6­2
(Scenario: A Monopolist's Market) What is the value of the firm's
Monopoly profits when it sets a price that maximizes its
Monopoly profits?

A)$125
B)$300
C)$425
D)$225

Question 56

Demand Equation for a Good Produced by a
Monopolistically Competitive Firm:
P = 10 - Q
Reference: Ref 6­3
(Demand Equation) If the firm has no fixed costs and variable
Costs of $2 per unit, what is the value of the firm's monopoly
Profits when it sets a price that maximizes its monopoly profits?

A)$7
B)$12
C)$15
D)$16

Question 57

In the long run, international trade allows a monopolistically
Competitive firm an opportunity:

A)to produce more output and earn monopoly profits.
B)to produce less output and earn monopoly profits.
C)to produce more output and reduce its average costs.
D)to produce less output and increase its average costs.

Question 58

When trade occurs among nations with similar tastes,
Technology, products, and costs, monopolistically competitive
Firms will have an incentive:

A)to lower prices to get new customers and increase market share.
B)to raise prices to take advantage of a lucrative situation.
C)to cut corners in manufacturing to boost profits.
D)to raise quality, so they can charge a higher price than the competition.

Question 59

SCENARIO: A MONOPOLIST'S MARKET
A monopolistically competitive firm faces demand given by this
Equation: P = 50 ​ Q.It has no fixed costs and its marginal cost
Is $20 per unit.
Reference: Ref 6­2
(Scenario: A Monopolist's Market) What price will the firm charge
When it is maximizing its profits?

A)$20
B)$25
C)$30
D)$35

Question 60

(Figure: Costs and Demand for a Monopolistic Competitor) The
Profit­maximizing amount of output produced:

A)will be 42.
B)will be 32.
C)will be 0 (not profitable).
D)will be 50.

Question 61

Which of the following is likely under free trade and monopolistic
Competition?

A)Domestic firms will always be provided cash subsidies.
B)Some domestic firms will shut down.
C)Consumers will not benefit at all from trade.
D)Foreign firms will sell the product at a higher price in the export market.

Question 62

The costs identified with opening trade are called:

A)short­run costs.
B)adjustment costs.
C)variable costs.
D)overhead costs.

Question 63

Consumers gain from trade within a monopolistically competitive
Industry because:

A)prices fall and product varieties decrease.
B)prices rise and product varieties increase.
C)prices rise and product varieties decrease.
D)prices fall and product varieties increase.

Question 64

NAFTA is believed to have __________ manufacturing
Productivity, especially in the maquiladora plants.

A)raised
B)lowered
C)had no effect on
D)greatly hindered

Question 65

In the long run, a monopolistically competitive firm that trades
Internationally ____________ than it would in autarky.

A)will produce more output
B)will earn more monopoly profits
C)will have higher average costs
D)will produce more output and earn more monopoly profits

Question 66

How do consumers benefit from trade among monopolistically
Competitive firms?

A)Prices are the same as in autarky, but the wider choice of goods increases consumer surplus.
B)Consumer surplus increases because prices are lower than in autarky, and there is a wider choice of goods.
C)Prices are higher than in autarky, but the wider choice of goods increases consumer surplus.
D)The government provides cash subsidies to consumers.

Question 67

Studies have concluded that NAFTA caused ________ in
Economic welfare to Canada.

A)a gain
B)a loss
C)no change
D)first a gain, then a loss

Question 68

In what two ways does trade benefit consumers when firms are
Monopolistically competitive?

A)better quality products, increased information
B)higher incomes, more dependable products
C)lots of bells and whistles, higher wages
D)lower prices, more variety

Question 69

Studies of NAFTA have concluded that from 1994 to 2003, free
Trade caused ______ increases in the productivity of Mexican
Maquiladora firms producing for export than for Mexican firms
Mainly producing for the Mexican domestic market.

A)larger
B)smaller
C)identical
D)substantially larger

Question 70

NAFTA benefited Canadian consumers because:

A)of higher wages and more travel opportunity.
B)of lower wages but also lower taxes.
C)of lower prices but lower quality.
D)of lower prices and increased variety.

Question 71

Since NAFTA was signed, Mexico saw the productivity of its
Firms:

A)decrease in the nonmaquiladora plants.
B)decrease in the maquiladora plants.
C)increase in the maquiladora plants at a faster pace than in the nonmaquiladora plants.
D)increase in the maquiladora plants at a slower pace than in the nonmaquiladora plants.

Question 72

In the long run, prices in a monopolistically competitive industry
________ prices without trade.

A)will be higher than
B)will be lower than
C)will be equal to
D)will be the same as

Question 73

Studies of U.S.-Canadian free trade have concluded that free
Trade produced what effect on Canadian firms?

A)increased productivity
B)decreased productivity
C)no change in productivity
D)could not be determined

Question 74

Which of the following is NOT a reason for Canada to join
NAFTA?

A)Canadian firms can expand their markets by selling to the United States and Mexico.
B)Canadian firms can enjoy lower average costs by producing more.
C)Canada did not want U.S.products to dominate its domestic market.
D)Canada will see an increase in income and employment by joining NAFTA.

Question 75

With increasing returns (falling average costs), as the remaining
Firms expand, their demand curves become _______________
Due to foreign competition, and firms must _______________.

A)steeper; raise prices
B)flatter; lower prices
C)flatter; raise prices
D)steeper; lower prices

Question 76

Studies of U.S.-Canadian free trade have concluded that the
Number of new jobs created in Canadian manufacturing were
_________ the number of jobs lost elsewhere in Canadian
Manufacturing due to free trade.

A)less than
B)equal to
C)greater than
D)substantially greater than

Question 77

In the long run, the equilibrium number of monopolistically
Competitive firms with trade:

A)is less than the total number of firms worldwide in autarky.
B)is the same as the total number of firms worldwide in autarky.
C)is greater than the total number of firms worldwide in autarky.
D)may be less than, the same as, or greater than the total number of firms worldwide in autarky.

Question 78

Mexico's gains from NAFTA have benefited mostly:

A)unskilled workers.
B)semi­skilled workers.
C)higher­income workers.
D)agricultural workers.

Question 79

Which of the following probably slowed NAFTA's effect on the
Wages of Mexican workers?

A)the Mexican peso crisis in which Mexico's currency fell greatly in value
B)the reluctance of the U.S.government to allow guest workers
C)the Iraq war
D)so much illegal immigration

Question 80

Adjustment costs include:

A)dealing with child labor issues.
B)human rights.
C)getting used to foreign products.
D)short­term unemployment.