Question 1

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 many buyers and sellers, low barriers to entry, and average revenue being equal to price. However, the products sold by firms in monopolistic competition are not identical, but rather differentiated in some way, such as through branding, quality, or design.

Question 2

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

Monopolistically competitive firms face a downward-sloping demand curve for their product, meaning that they have some degree of market power and can influence the price of their output. However, this power is limited by the availability of close substitutes and the presence of competitors in the market.

Question 3

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

Accepted Answer

Monopolistically competitive markets are characterized by many firms offering differentiated products, with some degree of market power. This is a common market structure for most consumer goods and services, such as fast food restaurants, hair salons, and clothing stores. Consumers have a wide range of choices in these markets and can easily switch to another firm if they are not satisfied with price or quality. Therefore, it is most likely that the average person mostly patronizes firms that operate in monopolistically competitive markets.

Question 4

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 5

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 characterized by many firms selling differentiated products that are somewhat similar but not perfect substitutes. Firms in this market structure can influence the market price to some extent through the differentiation of their products, but they do not have full control over the price. Barriers to entry are low, meaning new firms can easily enter the market and compete with existing firms.

Question 6

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 7

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 8

Which of the following characterizes the market that Starbucks competes in?
A) All coffeehouses face horizontal demand curves.
B) Coffeehouses sell identical products.
C) Barriers to entry are low.
D) There are a small number of firms.

Accepted Answer

Starbucks competes in a market with low barriers to entry, allowing many coffeehouses to enter and compete.

Question 9

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. In a monopolistically competitive market, there are many firms that produce similar, but not identical, products. Movie theaters may have different amenities, prices, and showtimes, but ultimately they are selling the same product - movies. This allows for some differentiation and competition, but not enough to create a true monopoly or oligopoly.

Question 10

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

The "one bad thing" that happens to a monopolistically competitive firm when it lowers its price is the price effect. This refers to the fact that by lowering the price, the firm is also lowering its per-unit revenue, which can lead to a decrease in profits.

Question 11

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 gain in revenue from selling the additional unit, which is the output effect. X represents the loss in revenue from having to charge a lower price to sell the additional unit, which is the price effect.

Question 12

Starbucks started out small in 1971, but by 1993 Starbucks was a national chain and had coffeehouses in 38 countries. A key to the company's success was the realization by executives that
A) there was a demand for coffeehouses where consumers could sit and drink high-quality coffee.
B) coffee prices would have to be cut in order for Starbucks to compete with other stores that sold coffee.
C) they had to keep their stores open longer hours to attract a large number of customers.
D) their stores should be located close to other stores that sold similar products.

Accepted Answer

The key to Starbucks' success was realizing that there was a demand for coffeehouses where consumers could enjoy high-quality coffee. This led to the development of the company's signature cafes with comfortable seating and a cozy atmosphere. This focus on quality and customer experience helped set Starbucks apart from other coffee chains and contributed to its rapid growth and success.

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

Marginal revenue is the change in total revenue that results from selling one additional unit of the product. If marginal revenue is negative, it means that the revenue received 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. A zero marginal revenue does not mean that quantity demanded falls to zero when the firm changes its price; it means that the total revenue is maximized at that point. Marginal revenue can be positive if the additional revenue received from selling one more unit is greater than the revenue lost from lowering the price on all the units that could have been sold at the original price. Finally, marginal revenue decreases as price falls and quantity sold increases.

Question 14

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 15

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. Each firm has some degree of market power due to product differentiation, but they face competition from other firms selling similar products.

Question 16

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 monopolistic competition, a firm faces a downward-sloping demand curve and can increase its sales by slightly reducing the price. Therefore, the marginal revenue (MR) is less than the price (P) and the average revenue (AR). However, since each firm has some degree of control over its price, it can charge a price that exceeds the marginal cost (MC) in order to earn a profit. Therefore, the price (P) is greater than the marginal cost (MC) and the marginal revenue (MR) is less than the price (P) but the same as the average revenue (AR). Hence, the correct option is C, i.e., P = AR > MR.

Question 17

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

The characteristic that firms are price takers is not true for monopolistic competition. Instead, firms in monopolistic competition have some control over their prices, although this control is limited due to competition from similar products.

Question 18

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, each firm's goods are perfect substitutes for each other, so the demand curve is perfectly elastic, and the marginal revenue curve is identical to it. In contrast, in a monopolistically competitive market, each firm has some degree of market power due to product differentiation, so the demand curve is downward-sloping, and the marginal revenue curve lies below it. However, the marginal revenue curve is still downward-sloping because the firm must lower its price to sell more units.

Question 19

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 market for restaurants in San Francisco is monopolistically competitive because there are many restaurants offering different types of cuisines, but they differentiate themselves through factors such as ambiance, location, and menu options. Each restaurant has some degree of control over their prices and can attract customers based on their specific offerings. However, there is still a relatively low barrier to entry for new restaurants to enter the market.

Question 20

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...

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

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

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

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

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

Monopolistic competition is a market structure in which

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?

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

Which of the following characterizes the market that Starbucks competes in?

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

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

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,

Starbucks started out small in 1971, but by 1993 Starbucks was a national chain and had coffeehouses in 38 countries. A key to the company's success was the realization by executives that

Which of the following statements is true about marginal revenue?

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 monopolistically competitive market is described as one in which there are

For the monopolistically competitive firm,

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

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

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

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