Question 1

If a dominant firm is able to drive out the competitive fringe and become a monopolist, the firm would have _______ than if they were to remain a dominant firm.

Accepted Answer

If a dominant firm becomes a monopolist, it has the power to raise prices and restrict output without losing significant market share to competitors. This means that the firm can charge a higher markup compared to when it was a dominant firm competing with a fringe of smaller firms. Therefore, the answer is D - a higher markup.

Question 2

The demand curve for the monopolistically competitive firm makes the ______lie _______ the demand curve.

Accepted Answer

In a monopolistically competitive market, the demand curve for the firm is downward-sloping and more elastic than that of a monopolist. Therefore, the marginal revenue curve will always lie below the demand curve. The correct choice is D, where the demand curve is above the marginal revenue curve.

Question 3

A dominant firm's residual marginal revenue curve is always linear and downward sloping.

Accepted Answer

The shape of a dominant firm's residual marginal revenue curve can vary depending on the market demand and the supply of the competitive fringe. It is not always linear nor necessarily always downward sloping.

Question 4

The competitive fringe firms in the market, the ______ the markup and the______ the profit for the dominant firm.

Accepted Answer

The answer of The competitive fringe firms in the market,...

Question 5

To maximize profit, a dominant firm sets residual demand equal to marginal cost.

Accepted Answer

This is the basic rule of profit maximization for a monopolist or a dominant firm in a market with no or limited competition. By setting the price where marginal cost equals marginal revenue, the firm can achieve maximum profits by producing at the point where the cost of an additional unit equals the revenue it generates. This is known as the profit-maximizing quantity or output level.

Question 6

All else equal, managers of dominant firms want ______competitive fringe firms in the market as this allows dominant firms to have a ______markup.

Accepted Answer

Managers of dominant firms prefer fewer competitive fringe firms in the market because this reduces competition, allowing the dominant firms to have a higher markup on their products or services. Fewer competitors mean less price competition, enabling dominant firms to maintain higher prices and profit margins.

Question 7

A monopolistically competitive firm's marginal revenue curve is______.

Accepted Answer

A monopolistically competitive firm's marginal revenue curve is downward sloping because they have some price-making power due to product differentiation, but they still face competition from other firms in the market. As they increase their output, they have to lower their price to attract customers away from their competitors, causing the marginal revenue curve to slope downwards.

Question 8

Monopolistically competitive firms have some market power because______ .

Accepted Answer

Monopolistically competitive firms have some market power because they produce a differentiated product, which means that they can charge a slightly higher price for their unique product. This is different from perfect competition, where all products are identical, and firms are price takers. While there are still many sellers in a monopolistically competitive market, and there are no barriers to entry, the differentiated product is what gives firms some market power.

Question 9

If a monopolistically competitive firm is producing 700 units of output and the marginal revenue from producing the 700th unit of output is $5 and the marginal cost is $5.50, which of the following is true?

Accepted Answer

If the marginal cost is higher than the marginal revenue, the firm is not maximizing profit. In this case, if the 700th unit of output is not generating enough revenue to cover its cost, it is not profitable for the firm to continue producing more. Therefore, the firm should decrease production to maximize profit.

Question 10

A monopolistically competitive firm's demand curve is______ .

Accepted Answer

A monopolistically competitive firm's demand curve is downward sloping, which means that as the firm increases its price, the quantity demanded decreases. This is because there are many close substitutes available to consumers, so if the price of one firm's product is too high, consumers can easily switch to a similar product from a competing firm.

Question 11

Monopolistically competitive firms have some market power because______ .

Accepted Answer

Monopolistically competitive firms have some degree of market power because their products are differentiated from those of their competitors, meaning there are no perfect substitutes. This allows the firm to have some control over the price it charges and the quantity it sells. However, this market power is limited because there are still many other firms producing similar products, so consumers have some alternatives to choose from. Additionally, there are usually low barriers to entry, meaning that new firms can easily enter the market and compete with existing firms, which also limits the market power of monopolistically competitive firms.

Question 12

If a monopolistically competitive firm is producing 1,200 units of output and the marginal revenue from producing the 1,200th unit of output is $5 and the marginal cost is $4.50, which of the following is true?

Accepted Answer

Since the marginal revenue ($5) of producing the 1,200th unit is greater than the marginal cost ($4.50), the firm can increase its profit by producing more. This is because each additional unit produced adds more to revenue than it does to cost.

Question 13

A dominant firm's residual demand lies above the market demand.

Accepted Answer

A dominant firm's residual demand lies below the market demand because it is calculated by subtracting the quantity supplied by the competitive fringe from the total market demand.

Question 14

All of the following are characteristics of monopolistic competition except which one?

Accepted Answer

The characteristic of monopolistic competition is that there are no barriers to entry, many sellers, and firms produce differentiated products. The only incorrect statement is that there are barriers to entry in monopolistic competition.

Question 15

The competitive fringe firms in the market, the ______ the markup and the______ the profit for the dominant firm.

Accepted Answer

When there are more competitive fringe firms in the market, it increases competition, which typically leads to a lower markup for the dominant firm as it faces more price competition. Consequently, with a lower markup, the dominant firm's profit is also lower.

Question 16

Monopolistically competitive firms have some market power because______ .

Accepted Answer

Monopolistically competitive firms produce differentiated products, which means that they have some degree of market power as consumers perceive them as unique from their competitors. However, they still face competition from other firms producing similar products, limiting their ability to completely control the price.

Question 17

To maximize profit, the dominant firm produces the quantity that sets its marginal cost equal to its residual marginal revenue.

Accepted Answer

This is the standard profit-maximizing rule for a dominant firm in a market. By setting marginal cost equal to residual marginal revenue (which takes into account the effect of the dominant firm's output on the market price), the dominant firm can produce the quantity that generates the highest profit.

Question 18

All of the following are characteristics of monopolistic competition except which one?

Accepted Answer

The defining characteristic of monopolistic competition is that firms produce differentiated products, meaning they are not homogeneous. Therefore, option D is the one that does not fit the definition. The other options are all true characteristics of monopolistic competition.

Question 19

All of the following are characteristics of monopolistic competition except which one?

Accepted Answer

In monopolistic competition, there are many sellers (not few) and they offer differentiated products with no barriers to entry, making choice A incorrect.

Question 20

The residual demand curve and the residual marginal revenue curve represent a dominant firm's demand and marginal revenue.

Accepted Answer

The residual demand curve and the residual marginal revenue curve represent the demand and marginal revenue facing a firm in a market where there is one dominant firm and the other firms act as price takers.

Quiz 6: Monopoly and Monopolistic Competition

If a dominant firm is able to drive out the competitive fringe and become a monopolist, the firm would have _______ than if they were to remain a dominant firm.

The demand curve for the monopolistically competitive firm makes the lie _ the demand curve.

A dominant firm's residual marginal revenue curve is always linear and downward sloping.

The competitive fringe firms in the market, the the markup and the the profit for the dominant firm.

To maximize profit, a dominant firm sets residual demand equal to marginal cost.

All else equal, managers of dominant firms want competitive fringe firms in the market as this allows dominant firms to have a markup.

A monopolistically competitive firm's marginal revenue curve is______.

Monopolistically competitive firms have some market power because______ .

If a monopolistically competitive firm is producing 700 units of output and the marginal revenue from producing the 700th unit of output is $5 and the marginal cost is $5.50, which of the following is true?

A monopolistically competitive firm's demand curve is______ .

Monopolistically competitive firms have some market power because______ .

If a monopolistically competitive firm is producing 1,200 units of output and the marginal revenue from producing the 1,200th unit of output is $5 and the marginal cost is $4.50, which of the following is true?

A dominant firm's residual demand lies above the market demand.

All of the following are characteristics of monopolistic competition except which one?

The competitive fringe firms in the market, the the markup and the the profit for the dominant firm.

Monopolistically competitive firms have some market power because______ .

To maximize profit, the dominant firm produces the quantity that sets its marginal cost equal to its residual marginal revenue.

All of the following are characteristics of monopolistic competition except which one?

All of the following are characteristics of monopolistic competition except which one?

The residual demand curve and the residual marginal revenue curve represent a dominant firm's demand and marginal revenue.