Question 1

If ATC > P, then a profit-maximizing, monopolistically competitive firms earns ________ economic profits.

Accepted Answer

If ATC (Average Total Cost) is greater than P (Price), it means that the cost of producing each unit is higher than the price at which it is sold, leading to negative economic profits for the firm.

Question 2

A monopolistically competitive firm maximizes profit where

Accepted Answer

A monopolistically competitive firm, like firms in other market structures, maximizes profit where marginal revenue (MR) equals marginal cost (MC).

Question 3

Refer to the information provided in Figure 15.1 below to answer the question(s) that follow. Below are cost curves for Dom's Barber Shop, a monopolistically competitive firm.  Figure 15.1
-Refer to Figure 15.1. The profit-maximizing number of haircuts for Dom's Barber Shop is

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 4

The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake for $12. At that production level ATC is $20, AVC is $15, AFC is $5, and both MR and MC are $8. This firm should

Accepted Answer

The firm should produce zero cakes and just pay fixed costs because the price ($12) is less than the average total cost ($20), resulting in a loss on each cake sold. Since MR ($8) is also less than ATC, the firm is not covering its total costs and should cease production to minimize losses.

Question 5

Advertising can contribute to product differentiation.

Accepted Answer

Advertising can highlight the unique features, benefits, and advantages of a product, making it stand out from competitors and thus contributing to product differentiation.

Question 6

A monopolistically competitive firm that is incurring a loss will shut down if

Accepted Answer

A monopolistically competitive firm will shut down in the short run if the revenue it would earn from producing is less than its variable costs, because it cannot cover its variable costs, let alone any of its fixed costs.

Question 7

A monopolistically competitive firm that is incurring a loss will produce in the short run as long as the revenue the firm receives is sufficient to cover

Accepted Answer

In the short run, a monopolistically competitive firm will continue to produce as long as it can cover its variable costs, even if it is incurring a loss. This is because, by covering variable costs, the firm can contribute to fixed costs and minimize losses. Fixed costs are sunk in the short run, so the firm focuses on covering variable costs.

Question 8

A monopolistically competitive firm

Accepted Answer

In a monopolistically competitive market, firms have some degree of market power. Unlike perfect competition, where firms are price takers, a monopolistically competitive firm faces a downward-sloping demand curve. This means to sell more, the firm must lower its price.

Question 9

The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake for $17. At that production level, ATC is $20, AVC is $15, AFC is $5, and both MR and MC are $8. This firm should

Accepted Answer

Since the price ($17) is greater than the AVC ($15), the firm should continue to produce because it is covering its variable costs and contributing to fixed costs, even though it's not covering the full ATC. Shutting down would mean the firm still incurs its fixed costs without generating any revenue to cover them.

Question 10

Unlike a monopolistic firm's product, a monopolistically competitive firm's product

Accepted Answer

A monopolistically competitive firm's product has many close substitutes, distinguishing it from a monopolistic firm's product, which might be unique or have no close substitutes. This characteristic allows for competition despite product differentiation.

Question 11

Compared to a perfectly competitive firm, the demand schedule of a monopolistically competitive firm faces is

Accepted Answer

The answer of Compared to a perfectly competitive firm, the...

Question 12

A profit‐maximizing firm in a monopolistically competitive market structure behaves much like a ________ in the short run.

Accepted Answer

In the short run, a monopolistically competitive firm has some degree of market power, similar to a monopolistic firm, allowing it to set prices above marginal cost. Unlike perfectly competitive firms, which are price takers, or dominant and Cournot duopolist firms, which involve strategic interactions with other firms, a monopolistically competitive firm faces a downward-sloping demand curve and can make positive economic profits by setting its price.

Question 13

The demand facing a monopolistically competitive firm is ________ a monopolistic firm and ________ a perfectly competitive firm.

Accepted Answer

The answer of The demand facing a monopolistically competitive firm...

Question 14

A monopolistically competitive firm can minimize its losses by producing where ________ as long as ________.

Accepted Answer

In a monopolistically competitive market, a firm minimizes its losses or maximizes its profits by producing at the quantity where marginal revenue (MR) equals marginal cost (MC), provided that the price (P) is above average variable cost (AVC) to ensure the firm covers its variable costs.

Question 15

The Do It Yourself Hardware Store is a monopolistically competitive firm. Its marginal revenue curve

Accepted Answer

The answer of The Do It Yourself Hardware Store is...

Question 16

The pizza delivery industry is monopolistically competitive. Little Joe's Pizzeria raises its prices by 10%, but all the other pizzerias in town keep their prices the same. Which of the following is most likely to occur?

Accepted Answer

In a monopolistically competitive market, firms have some degree of market power due to product differentiation. If Little Joe's Pizzeria raises its prices while others do not, it is likely to lose some customers to competitors offering similar products at lower prices.

Question 17

If P > ATC, then a profit-maximizing, monopolistically competitive firm earns ________ economic profits.

Accepted Answer

When P (price) is greater than ATC (average total cost), a profit-maximizing firm, including those in monopolistic competition, earns positive economic profits because it is selling its product at a price higher than its average cost of production.

Question 18

Advertising can create a barrier to entry of new firms into an industry and therefore reduce competition.

Accepted Answer

Advertising can increase brand loyalty and consumer preference for established products, making it more difficult and costly for new entrants to gain market share, thus creating a barrier to entry and potentially reducing competition.

Question 19

A monopolistically competitive firm produces where

Accepted Answer

In a monopolistically competitive market, firms produce where marginal revenue (MR) equals marginal cost (MC), similar to firms in perfectly competitive markets. This is the profit-maximizing condition for most firms.

Question 20

To maximize profit, a monopolistically competitive firm will produce where

Accepted Answer

In a monopolistically competitive market, firms maximize profit by producing at the level where marginal revenue equals marginal cost. This is the point where the cost of producing one more unit equals the revenue gained from selling that additional unit.

Quiz 15: Monopolistic Competition