Question 1

If firms in a monopolistically competitive market are incurring economic losses,which of the following scenarios would best describe the change remaining firms would face as the market adjusts to the long-run equilibrium?

Accepted Answer

In the long run, firms incurring losses will exit the market, reducing supply and increasing demand for the remaining firms, moving them towards normal profit.

Question 2

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

In monopolistic competition, firms differentiate their products to some extent, which causes demand for each firm's product to be relatively elastic. In long-run equilibrium, the firm will produce where MR = MC, which is also where the demand curve is tangent to the ATC curve. At this point, the price will be greater than the firm's marginal cost (P > MC) but demand will be equal to the firm's ATC (demand = ATC). Therefore, choice C is correct.

Question 3

If firms in a monopolistically competitive market are earning positive profits,then

Accepted Answer

Positive profits in a monopolistically competitive market indicate that there is an opportunity for new firms to enter and capture some of the market share. This increased competition will eventually lead to a reduction in profits for all firms in the market, as they will need to lower prices or increase the quality of their products to remain competitive. Therefore, new firms will likely enter the market to take advantage of the positive profits.

Question 4

Figure 16-6
 
-Refer to Figure 16-6.If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d),it would

Accepted Answer

At output level Qd, the firm is not maximizing its profit because it is not producing where marginal cost equals marginal revenue, which is the profit-maximizing condition for firms in monopolistic competition.

Question 5

Figure 16-5
 
-Refer to Figure 16-5.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money?

Accepted Answer

Panel b shows a firm in a monopolistically competitive market that is producing at the output level where marginal revenue equals marginal cost, but the price is below the average total cost. This means the firm is still incurring losses even though it is producing at the optimal level.

Question 6

In which of the following markets is economic profit driven to zero in the long run?

Accepted Answer

In monopolistic competition, firms have some degree of market power due to product differentiation, but the low barriers to entry allow for new firms to enter the market in the long run, driving down profits for existing firms. This competition ultimately drives economic profit to zero in the long run. In oligopoly, firms may still have some market power and able to earn economic profit. In monopoly, a single firm has complete market control and able to earn economic profit in the long run. Cartels involve collusion among firms to restrict competition and earn economic profit, but this is unsustainable in the long run due to the incentive for individual firms to cheat and seek higher profits.

Question 7

A monopolistically competitive firm

Accepted Answer

The answer of A monopolistically competitive firm
...

Question 8

In monopolistically competitive markets,positive economic profits

Accepted Answer

The answer of In monopolistically competitive markets,positive economic profits
...

Question 9

Figure 16-6
 
-Refer to Figure 16-6.Suppose a firm is operating in the situation depicted in panela.Which of the following statements is correct?

Accepted Answer

Without information on the firm's average total costs, we cannot determine whether the firm is earning positive, negative, or zero short-run profits.

Question 10

Figure 16-6
 
-Refer to Figure 16-6.The firm depicted in panel b faces a horizontal demand curve.If panel b depicts a profit-maximizing firm,

Accepted Answer

A firm facing a horizontal demand curve is operating in a perfectly competitive market, where it earns zero economic profit in the long run and does not have excess capacity.

Question 11

Figure 16-5
 
-Refer to Figure 16-5.Which of the graphs shown would be consistent with a profit maximizing firm in a monopolistically competitive market that is earning a positive profit?

Accepted Answer

The answer of Figure 16-5
 
-Refer to Figure 16-5.Which of...

Question 12

If firms in a monopolistically competitive market are earning economic profits,which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?

Accepted Answer

In the long run, firms in a monopolistically competitive market will face competition from new firms entering the market. This will increase the supply of goods and services, putting downward pressure on prices, thereby reducing the economic profits of existing firms. As a result, existing firms will face a decrease in demand as consumers switch to alternative products that are now available in the market.

Question 13

In a monopolistically competitive market,

Accepted Answer

In a monopolistically competitive market, there are no major barriers to entry, which means that new firms can enter the market relatively easily. However, due to product differentiation and non-price competition, firms may still be able to maintain some market power and charge higher prices than in a perfectly competitive market. This can result in the market having too few or too many firms, depending on the specific circumstances. Therefore, the number of firms in the market may not always be ideal, despite free entry.

Question 14

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

In long-run equilibrium, a monopolistically competitive firm produces at the point where MR = MC, and its price is equal to its ATC. Therefore, option B is correct because ATC = demand and MR = MC. Option A is wrong because P > MC, which is not possible in the long run. Option C is wrong because P < MC, which means the firm is making a loss in the long run. Option D is wrong because P > ATC, which is not possible in the long-run equilibrium of a monopolistically competitive firm.

Question 15

Figure 16-6
 
-Refer to Figure 16-6.Which of the graphs depicts the situation for a profit-maximizing firm in a monopolistically competitive market?

Accepted Answer

The profit-maximizing firm in a monopolistically competitive market will produce at the point where marginal cost (MC) equals marginal revenue (MR). This is shown in panel a, where the firm produces Q1 units of output and sells them at a price of P1.

Question 16

Figure 16-5
 
-Refer to Figure 16-5.Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

The answer of Figure 16-5
 
-Refer to Figure 16-5.Which of...

Question 17

In monopolistically competitive markets,economic losses

Accepted Answer

In monopolistically competitive markets, economic losses suggest that some existing firms will exit the market. This is because monopolistically competitive firms have some control over the price they charge for their product, but they are unable to earn economic profits in the long run. When economic losses occur, some firms will not be able to cover their costs and will be forced to exit the market. This process eventually leads to a new equilibrium where remaining firms earn zero economic profit.

Question 18

Figure 16-4
 
-Refer to Figure 16-4.Panel b is consistent with a firm in a monopolistically competitive market that is

Accepted Answer

Panel b shows that the firm is producing at a quantity where marginal cost is less than average total cost, indicating that the firm is not producing its efficient scale of output. This results in excess capacity and suggests that the firm is not in long-run equilibrium. Additionally, since price is above average total cost, the firm is earning positive economic profit.

Question 19

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

The answer of In which of the following market structures...

Question 20

Figure 16-4
 
-Refer to Figure 16-4.Which of the panels shown could illustrate the short-run situation for a monopolistically competitive firm?

Accepted Answer

In the short run, a monopolistically competitive firm can experience profits, losses, or break-even, which can be illustrated by different panels showing different cost and revenue scenarios.

Quiz 16: Monopolistic Competition.

If firms in a monopolistically competitive market are incurring economic losses,which of the following scenarios would best describe the change remaining firms would face as the market adjusts to the long-run equilibrium?

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

If firms in a monopolistically competitive market are earning positive profits,then

Figure 16-6 -Refer to Figure 16-6.If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d) ,it would

Figure 16-5 -Refer to Figure 16-5.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money?

In which of the following markets is economic profit driven to zero in the long run?

A monopolistically competitive firm

In monopolistically competitive markets,positive economic profits

Figure 16-6 -Refer to Figure 16-6.Suppose a firm is operating in the situation depicted in panela.Which of the following statements is correct?

Figure 16-6 -Refer to Figure 16-6.The firm depicted in panel b faces a horizontal demand curve.If panel b depicts a profit-maximizing firm,

Figure 16-5 -Refer to Figure 16-5.Which of the graphs shown would be consistent with a profit maximizing firm in a monopolistically competitive market that is earning a positive profit?

If firms in a monopolistically competitive market are earning economic profits,which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?

In a monopolistically competitive market,

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

Figure 16-6 -Refer to Figure 16-6.Which of the graphs depicts the situation for a profit-maximizing firm in a monopolistically competitive market?

Figure 16-5 -Refer to Figure 16-5.Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium?

In monopolistically competitive markets,economic losses

Figure 16-4 -Refer to Figure 16-4.Panel b is consistent with a firm in a monopolistically competitive market that is

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

Figure 16-4 -Refer to Figure 16-4.Which of the panels shown could illustrate the short-run situation for a monopolistically competitive firm?