Question 1

Under which of the following market structures would the highest output of a particular good be produced?

Accepted Answer

In perfect competition, there are many small firms competing with each other. None of them has a significant market share, and they have to accept the market price. Therefore, firms in perfect competition cannot influence prices; they can only adjust their output levels. In such a market, the firms have to produce as much as they can at the lowest possible cost to stay in business. Consequently, the highest output of a particular product would be produced in a perfect competition market structure.

Question 2

Joe's Juice Shop operates in a monopolistically competitive market. Joe's is currently producing where its average total cost is minimized. In the long run we would expect Joe's output to

Accepted Answer

The answer of Joe's Juice Shop operates in a monopolistically...

Question 3

In the long run, a monopolistically competitive firm produces a quantity that is

Accepted Answer

In the long run, monopolistically competitive firms face downward-sloping demand curves and possess some market power, which allows them to charge prices above marginal cost. However, they do not have the same degree of market power as pure monopolies and there is still some competition. As a result, monopolistically competitive firms do not produce at the quantity where marginal cost equals marginal revenue (i.e. where society's resources are being used most efficiently). Instead, they produce a quantity that is less than the efficient scale.

Question 4

A monopolistically competitive firm faces the following demand curve for its product:  The firm has total fixed costs of $120 and a constant marginal cost of $12 per unit. We can conclude that

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The answer of A monopolistically competitive firm faces the following...

Question 5

Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost?

Accepted Answer

The answer of Consider monopoly, monopolistic competition, and perfect competition....

Question 6

Consider a monopolistically competitive firm in a market in long-run equilibrium. This firm is likely earning

Accepted Answer

In the long run, a monopolistically competitive firm will only earn zero economic profit because, unlike a monopoly, it faces competition. Therefore, it cannot charge a price above its average total cost in the long run. If it did, other firms would enter the market and drive down the price until there is no longer any economic profit. The monopolistically competitive firm will produce at the point where marginal revenue equals marginal cost, which will be less than the price it charges. Therefore, in the long run, a monopolistically competitive firm will only earn enough to cover its average total cost, resulting in zero economic profit.

Question 7

Which of the following statements is correct?

Accepted Answer

Excess capacity means the firm is not producing at the efficient scale. In the long run, perfectly competitive firms produce at the efficient scale, while monopolistically competitive firms operate with excess capacity. Therefore, option A is incorrect. Option C is also incorrect because efficient scale varies depending on the industry and the firm's cost structure, not necessarily when the ATC curve is tangent to the demand curve.

Question 8

Which of the following statements regarding monopolistic competition is not correct?

Accepted Answer

The answer of Which of the following statements regarding monopolistic...

Question 9

A firm has the following cost structure:  If this firm is in a typical perfectly competitive market, in the long run it will likely produce

Accepted Answer

The answer of A firm has the following cost structure:...

Question 10

In a long-run equilibrium,

Accepted Answer

In a long-run equilibrium, only a perfectly competitive firm operates at its efficient scale, where price equals marginal cost, ensuring no economic profits and efficient scale of production. Monopolistically competitive firms, due to product differentiation and market power, typically do not operate at their efficient scale and often charge a markup over marginal cost.

Question 11

Suppose the point of tangency that characterizes long-run equilibrium for a monopolistically competitive firm occurs at Q1 units of output. This level of output, Q1,

Accepted Answer

In long-run equilibrium for a monopolistically competitive firm, the point of tangency occurs where the demand curve is tangent to the average total cost curve. At this point, price equals average total cost, but price is greater than marginal cost, meaning Q1 falls short of the level of output at which price equals marginal cost.

Question 12

Suppose for some firm that average total cost is minimized at Q1 units of output. For a monopolistically competitive firm in long-run equilibrium, Q1

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The answer of Suppose for some firm that average total...

Question 13

In which of the following market structures can firms earn economic profits in the long run?

Accepted Answer

Only in a monopoly can firms earn economic profits in the long run. In perfect competition and monopolistic competition, firms are forced to compete on price and product differentiation, respectively, which leads to lower profits.

Question 14

In the long run,

Accepted Answer

In the long run, both monopolistically competitive and perfectly competitive firms earn zero economic profit, meaning they produce where price equals average total cost (P = ATC).

Question 15

A monopolistically competitive firm is currently earning a positive economic profit. If other firms enter the market, we would expect that the added competition will cause this firm to adjust its output such that it

Accepted Answer

The answer of A monopolistically competitive firm is currently earning...

Question 16

In the long run, a firm in a perfectly competitive market operates

Accepted Answer

In the long run, a firm in a perfectly competitive market operates at its efficient scale because there are no barriers to entry and the market is characterized by many firms producing homogenous products. However, a monopolistically competitive firm operates with excess capacity because it produces differentiated products, which creates some market power and allows for some control over price. As a result, the firm will not produce at the minimum point of its average total cost curve, but rather at a higher point with excess capacity.

Question 17

Under which of the following market structures would consumers likely receive the most product variety?

Accepted Answer

Monopolistic competition is characterized by a large number of firms offering differentiated products. This means that there is a wide variety of products available to consumers, as each firm tries to differentiate their product from competitors' products. In contrast, perfect competition and monopoly tend to offer very homogeneous or limited products, while oligopolies may have limited product variety due to the small number of dominant firms.

Question 18

A firm has the following cost structure:  If this firm is in a typical monopolistically competitive market, in the long run it will likely produce

Accepted Answer