Question 1

Monopolistically competitive firms face a perfectly elastic demand curve.

Accepted Answer

Monopolistically competitive firms face a downward-sloping demand curve, but not perfectly elastic. This is because they are still able to differentiate their products from those of their competitors.

Question 2

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases then
A) the output effect of the price change was less than the price effect.
B) the output effect of the price change was greater than the price effect.
C) the firm's demand curve must have decreased.
D) the substitution effect of the price change was greater than the income effect.

Accepted Answer

In monopolistic competition, the firm faces a downward sloping demand curve, which means that when it lowers its price, it can sell more units of output, which is the output effect. However, this increase in sales is offset by the fact that the firm is now charging a lower price for each unit sold, which is the price effect. If the price effect is greater than the output effect, then the total revenue will decrease, resulting in a negative profit impact. Therefore, if the firm lowers its price and the total revenue decreases, it implies that the output effect was less than the price effect.

Question 3

Firms in monopolistic competition compete by selling similar,but not identical products.

Accepted Answer

In monopolistic competition, firms sell products that are differentiated from each other, meaning they have similarities but also differences that make them unique. This allows firms to compete for customers based on the specific characteristics of their products, such as quality or brand image.

Question 4

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 firm is a price taker, so its demand curve is perfectly elastic and thus equal to its marginal revenue curve. In a monopolistically competitive market, the firm has some degree of market power, so it faces a downward-sloping demand curve. The marginal revenue curve of a monopolistically competitive firm lies below its demand curve because for each additional unit sold, the firm must lower the price slightly to sell that unit, thus decreasing the marginal revenue earned on each unit of output. Therefore, the marginal revenue curve of a monopolistically competitive firm lies below its demand curve.

Question 5

One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?

Accepted Answer

The answer of One of the assumptions of monopolistic competition...

Question 6

If marginal revenue is negative then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

Accepted Answer

If marginal revenue is negative, it means that the additional revenue from selling one more unit is less than the revenue lost from receiving a lower price on all units sold at the original price. Therefore, the statement in the question is false.

Question 7

The demand curve of a monopolistically competitive firm
A) is horizontal because the firm must cut its price to sell more.
B) is perfectly elastic.
C) is downward-sloping because it sells an identical product.
D) is downward-sloping because it must cut its price to sell more.

Accepted Answer

The demand curve of a monopolistically competitive firm is downward-sloping because it must cut its price to sell more. This is because there are close substitutes available in the market, so if the firm raises its price, consumers will switch to a substitute product. As a result, the firm must lower its price to entice consumers to buy its product.

Question 8

Explain the differences between total revenue,average revenue,and marginal revenue.

Accepted Answer

The answer of Explain the differences between total revenue,average revenue,and...

Question 9

What are the most important differences between perfectly competitive markets and monopolistically competitive markets?

Accepted Answer

The answer of What are the most important differences between...

Question 10

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Accepted Answer

Monopolistically competitive markets are characterized by low barriers to entry, which means that new firms can easily enter the market and set up their businesses. This is because there are no significant hurdles that prevent new firms from entering the market, such as high start-up costs or legal restrictions. As a result, there is typically a large number of firms operating in monopolistically competitive markets, each offering slightly differentiated products or services.

Question 11

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.
A) $270
B) $20
C) $4
D) $2.50

Accepted Answer

Marginal revenue is the change in total revenue from selling one additional unit. 
Given: 
Price of 25 units = $10 
Price of 30 units = $9

Total revenue for 25 units = 25 x $10 = $250 
Total revenue for 30 units = 30 x $9 = $270

Marginal revenue = Change in total revenue / Change in quantity 
Change in total revenue = $270 - $250 = $20 
Change in quantity = 30 - 25 = 5

Therefore, marginal revenue per unit of output = $20/5 = $4.

Question 12

For a downward-sloping demand curve,marginal revenue decreases as quantity sold increases.

Accepted Answer

This is because in order to sell more quantity, the monopolist must lower the price, which means the revenue generated from each additional unit sold is lower than the revenue generated from the previous unit sold. Therefore, marginal revenue decreases as quantity sold increases.

Question 13

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 units. This means that the marginal revenue earned from selling an additional unit will be less than the price of that unit, making option B the correct answer.

Question 14

The marginal revenue of a monopolistically competitive firm
A) cannot be negative because the price the firm charges will always be greater than zero.
B) can be negative if the firm charges a high price.
C) can be negative if the firm charges a low price.
D) will equal average revenue.

Accepted Answer

In monopolistic competition, the firm faces a downward sloping demand curve and so in order to increase its sales, it must lower its price. In this case, the marginal revenue will be negative due to the inverse relationship between price and quantity demanded. Therefore, choice C is correct as the marginal revenue can be negative if the firm charges a low price.

Question 15

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Accepted Answer

In monopolistic competition, there are many competitors producing similar products, so if one firm raises its price, customers can easily switch to a competitor's product that is similar but offered at a lower price. Therefore, a firm cannot raise its price without losing any customers, as there are close substitutes.

Question 16

Which of the following statements is true?
A) The marginal revenue of a monopolistically competitive firm will be positive at high prices and negative at low prices.
B) Because the demand curve for a monopolistically competitive firm is downward-sloping its marginal revenue will be negative.
C) The marginal revenue of a monopolistically competitive firm will be always be positive.
D) The marginal revenue of a monopolistically competitive firm will be positive at low prices and negative at high prices.

Accepted Answer

The answer of Which of the following statements is true?
A)...

Question 17

Every firm that has the ability to affect the price of the good or service it sells will
A) have a perfectly elastic demand curve.
B) have a marginal revenue curve that lies below its demand curve.
C) earn a short-run profit but break even in the long run.
D) shut down in the short run.

Accepted Answer

If a firm has the ability to affect the price of the good or service it sells, it implies that the demand for its product is somewhat elastic. In this case, the firm cannot charge a higher price without losing a large percentage of its customers. As a result, the firm is a price taker to some degree, meaning that it has to accept the market price of the good or service it sells. The MR curve is below the demand curve in this case because at any given output level, the firm has to lower its price to capture additional sales. This implies that total revenue increases at a diminishing rate as output increases.

Question 18

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Accepted Answer

When a monopolistically competitive firm cuts its price, it may experience a gain in revenue due to increased sales (substitution effect), but it will not necessarily experience a loss in revenue due to the income effect. The income effect refers to the change in quantity demanded resulting from a change in real income (purchasing power). In the case of a price cut, the consumer's real income increases, which could potentially offset the revenue loss from the price cut. However, the overall effect on revenue will depend on the specific situation and market conditions.

Question 19

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 20

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market,but by separate curves for a firm in a monopolistically competitive market?

Accepted Answer

The answer of Why are demand and marginal revenue represented...

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

Monopolistically competitive firms face a perfectly elastic demand curve.

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases then

Firms in monopolistic competition compete by selling similar,but not identical products.

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

One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?

If marginal revenue is negative then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

The demand curve of a monopolistically competitive firm

Explain the differences between total revenue,average revenue,and marginal revenue.

What are the most important differences between perfectly competitive markets and monopolistically competitive markets?

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.

For a downward-sloping demand curve,marginal revenue decreases as quantity sold increases.

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

The marginal revenue of a monopolistically competitive firm

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Which of the following statements is true?

Every firm that has the ability to affect the price of the good or service it sells will

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution 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

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market,but by separate curves for a firm in a monopolistically competitive market?