Question 1

Because the monopolistically competitive firm faces a ________ demand curve for its product, it ________ the price of its output.
A) downward-sloping; cannot influence
B) horizontal; can influence
C) horizontal; cannot influence
D) downward-sloping; can influence

Accepted Answer

In a monopolistically competitive market, firms produce differentiated products, leading to a downward-sloping demand curve for their product. The firm has some degree of market power, which means it can influence the price of its output. Therefore, the correct option is D, downward-sloping; can influence.

Question 2

Which of the following characterizes the market that Panera Bread competes in?
A) All "fast-casual" restaurants face horizontal demand curves.
B) "Fast-casual" restaurants sell identical products.
C) Barriers to entry are low.
D) There are a small number of firms.

Accepted Answer

The answer of Which of the following characterizes the market...

Question 3

Table 13-1
 
-Refer to Table 13-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?
A) output effect = $3.00; price effect = $0.50
B) output effect = $1.50; price effect = $2.00
C) output effect = $5.50; price effect = -$2.00
D) output effect = $4.00; price effect = -$0.50

Accepted Answer

The answer of Table 13-1
 
-Refer to Table 13-1. What...

Question 4

A monopolistically competitive market is described as one in which there are
A) a few firms producing an identical product.
B) a large number of firms selling similar, but not identical, products.
C) a few firms producing differentiated products.
D) one large firm and many small firms producing identical products.

Accepted Answer

A monopolistically competitive market is characterized by a large number of firms selling similar but not identical products. These firms have some control over the price they charge and can differentiate their products through branding, advertising, or product differentiation. Examples of monopolistically competitive markets include restaurants, clothing stores, and hair salons.

Question 5

Figure 13-3 
-Refer to Figure 13-3. What is the marginal revenue of the sixth unit of output?
A) $4
B) $5
C) $9
D) $54

Accepted Answer

The answer of Figure 13-3 
-Refer to Figure 13-3. What...

Question 6

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?
A) The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies above its demand curve.
B) The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies below its demand curve.
C) The monopolistically competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a perfectly competitive firm lies below its demand curve.
D) The marginal revenue curve of a monopolistically competitive firm lies below its demand curve; the marginal revenue curve of a perfectly competitive firm lies above its demand curve.

Accepted Answer

In a perfectly competitive market, the individual firm is a price taker, meaning that the market price is given and the firm has no control over it. Therefore, its demand curve is perfectly elastic, which also means that its marginal revenue curve is the same as its demand curve. In contrast, a monopolistically competitive firm faces a downward sloping demand curve because it has some control over the price due to product differentiation. This means that its marginal revenue curve lies below its demand curve.

Question 7

When a monopolistically competitive firm lowers its price, one good thing happens to the firm. What is this "one good thing" called?
A) the output effect
B) the price effect
C) the income effect
D) the substitution effect

Accepted Answer

The answer of When a monopolistically competitive firm lowers its...

Question 8

The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair. It sells 8 pairs of jeans per day at a price of $90 per pair. The marginal revenue of the eighth pair of jeans is
A) $20.
B) $90.
C) $100.
D) $700.

Accepted Answer

The answer of The Jeans Store sells 7 pairs of...

Question 9

Figure 13-3 
-Refer to Figure 13-3. The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit. Based on the diagram in the figure
A) X represents the gain (price effect) and Y the loss (output effect).
B) X + Z represents the loss (output effect) and Y the gain (price effect).
C) Y represents the gain (output effect) and X the loss (price effect).
D) X represents the loss (price effect) and Y + Z the gain (output effect).

Accepted Answer

In the diagram, Y represents the increase in revenue from selling an additional unit, which is the gain from the output effect. X represents the decrease in revenue from having to lower the price on all units sold in order to sell the additional unit, which is the loss from the price effect. Therefore, choice C is the correct answer.

Question 10

Which of the following is the best example of a firm that competes in a monopolistically competitive market?
A) the U.S. Postal Service
B) Microsoft
C) a movie theater
D) an automobile manufacturer

Accepted Answer

A movie theater is the best example of a firm that competes in a monopolistically competitive market because there are many other similar movie theaters in the surrounding area and they differentiate themselves through factors such as location, quality of facilities, and movie selection. The U.S. Postal Service is a government-run monopoly, Microsoft is a near-monopoly in the software industry, and automobile manufacturers operate in an oligopolistic market dominated by a few large firms.

Question 11

Which of the following is not a characteristic of monopolistic competition?
A) There are many buyers and sellers.
B) There are low barriers to entry.
C) Average revenue is equal to price.
D) The products sold by all firms are identical.

Accepted Answer

Monopolistic competition is characterized by differentiated products, which means that the products sold by each firm are not identical. A) Many buyers and sellers, and B) low barriers to entry are both characteristics of monopolistic competition. C) Average revenue is equal to price in all market structures.

Question 12

When a monopolistically competitive firm lowers it price one bad thing happens to the firm. What is this "one bad thing" called?
A) the output effect
B) the income effect
C) the substitution effect
D) the price effect

Accepted Answer

When a monopolistically competitive firm lowers its price, it experiences a decrease in revenue due to the price effect. The price effect is the negative effect on total revenue that results from the fact that a lower price must be charged on all units sold, reducing the revenue earned on each unit.

Question 13

Which of the following statements is true about marginal revenue?
A) If marginal revenue is zero, it means that quantity demanded falls to zero when a firm changes its price.
B) If marginal revenue is negative, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price.
C) If marginal revenue is positive, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price.
D) Marginal revenue increases as price falls and quantity sold increases.

Accepted Answer

If marginal revenue is negative, it means that the additional revenue gained from selling one more unit is less than the revenue lost from lowering the price on all the units that could have been sold at the original price. This occurs because in order to sell more units, the firm must lower the price, which reduces the revenue on all units sold, not just the additional unit.

Question 14

Which of the following is not a characteristic of monopolistic competition?
A) Firms are price takers.
B) There are many buyers and sellers.
C) Barriers to entry are low.
D) Firms sell similar, but not identical, products.

Accepted Answer

In monopolistic competition, firms have some degree of pricing power due to product differentiation, so they are not pure price takers.

Question 15

In the United States, the average person mostly patronizes firms that operate in
A) perfectly competitive markets.
B) monopolistically competitive markets.
C) oligopolies.
D) monopolies.

Accepted Answer

Monopolistically competitive markets are the most common type of market structure in the United States. These markets offer a variety of products that are differentiated from each other and are sold at different prices. Consumers have some degree of choice, but firms can have some market power by differentiating their products. Examples of monopolistically competitive markets include restaurants, clothing stores, and hair salons.

Question 16

In San Francisco there are many restaurants that specialize in a wide variety of cuisines. Patronage at these restaurants is influenced by factors such as tastes, price, and location. This market is
A) perfectly competitive.
B) monopolistically competitive.
C) oligopolistic.
D) monopolistic.

Accepted Answer

The fact that there are many restaurants offering different cuisines suggests that it is a monopolistically competitive market. In this type of market, firms differentiate their products to appeal to different consumer preferences, but they still face competition from similar businesses. Prices are also likely to vary across restaurants.

Question 17

For the monopolistically competitive firm,
A) Price (P) = Marginal Revenue (MR) = Average Revenue (AR).
B) P = MR > AR.
C) P = AR > MR.
D) P > MR = AR.

Accepted Answer

In a monopolistically competitive market, firms have some degree of market power to set their own prices. Therefore, the demand curve facing a monopolistically competitive firm is downward sloping, which means that the marginal revenue curve is below the demand curve. As a result, the price that the firm can charge (P) is higher than the marginal revenue (MR), but lower than the average revenue (AR) because of the price-cost markup. Thus, the correct choice is C, where P = AR > MR.

Question 18

Table 13-1
 
-Refer to Table 13-1. What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?
A) output effect = $24.00; price effect = $19.50
B) output effect = $6.50; price effect = $2.00
C) output effect = -$0.50; price effect = $5.00
D) output effect = $6.00; price effect = -$1.50

Accepted Answer

The answer of Table 13-1
 
-Refer to Table 13-1. What...

Question 19

When a firm faces a downward-sloping demand curve, marginal revenue
A) must exceed price because the price effect outweighs the output effect.
B) is less than price because a firm must lower its price to sell more.
C) equals price because the firm sells a standardized product.
D) must exceed price because the output effect outweighs the price effect.

Accepted Answer

When a firm faces a downward-sloping demand curve, it must lower its price to sell more output. As a result, marginal revenue will be less than the price. This is because every time the firm sells an additional unit, it must lower its price, and so it earns less on all units sold.

Question 20

Monopolistic competition is a market structure in which
A) firms produce and sell products for which there are no close substitutes.
B) the demand curve for a typical firm is horizontal.
C) firms cannot influence the market price.
D) barriers to entry are low.

Accepted Answer

Monopolistic competition is a market structure in which there are many firms producing differentiated products with low barriers to entry. This means that new firms can enter the market fairly easily, leading to a relatively large number of competitors. While firms may have some pricing power due to product differentiation, they do not have enough market power to influence the market price. The demand curve for a typical firm in a monopolistically competitive market is downward sloping, but not perfectly elastic like in a perfectly competitive market. Therefore, while there may be close substitutes, there is still some level of product differentiation.

Quiz 13: Monopolistic Competition: the Competitive Model in a More Realistic Setting

Because the monopolistically competitive firm faces a demand curve for its product, it the price of its output.

Which of the following characterizes the market that Panera Bread competes in?

Table 13-1 -Refer to Table 13-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

A monopolistically competitive market is described as one in which there are

Figure 13-3 -Refer to Figure 13-3. What is the marginal revenue of the sixth unit of output?

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?

When a monopolistically competitive firm lowers its price, one good thing happens to the firm. What is this "one good thing" called?

The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair. It sells 8 pairs of jeans per day at a price of $90 per pair. The marginal revenue of the eighth pair of jeans is

Figure 13-3 -Refer to Figure 13-3. The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit. Based on the diagram in the figure

Which of the following is the best example of a firm that competes in a monopolistically competitive market?

Which of the following is not a characteristic of monopolistic competition?

When a monopolistically competitive firm lowers it price one bad thing happens to the firm. What is this "one bad thing" called?

Which of the following statements is true about marginal revenue?

Which of the following is not a characteristic of monopolistic competition?

In the United States, the average person mostly patronizes firms that operate in

In San Francisco there are many restaurants that specialize in a wide variety of cuisines. Patronage at these restaurants is influenced by factors such as tastes, price, and location. This market is

For the monopolistically competitive firm,

Table 13-1 -Refer to Table 13-1. What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?

When a firm faces a downward-sloping demand curve, marginal revenue

Monopolistic competition is a market structure in which