Question 1

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

Accepted Answer

In the long run, firms in perfectly competitive markets operate at their efficient scale, producing at the lowest average total cost. However, in monopolistically competitive markets, firms have some market power and can differentiate their products, leading to excess capacity. This means that they produce below their efficient scale and have unused resources. Therefore, choice B is the best answer.

Question 2

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 3

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

Accepted Answer

In the long run, a monopolistically competitive firm produces a quantity that is less than the efficient scale. This is because the firms in monopolistic competition have market power and therefore charge a price above marginal cost, leading to a lower quantity produced compared to the efficient scale. Additionally, firms in monopolistic competition engage in product differentiation, which leads to excess capacity and duplication of plant and equipment, resulting in a higher average cost than the efficient scale. Therefore, the firm produces at a quantity where its marginal revenue equals its marginal cost, which is less than the efficient scale.

Question 4

In comparison to perfect competition, monopolistic competition is characterized by

Accepted Answer

Monopolistic competition is characterized by excess capacity, meaning firms are not operating at full capacity even though they could be producing more. This is due to the presence of differentiated products and the ability of firms to charge slightly higher prices than marginal cost. Efficient scale is not a characteristic of monopolistic competition because firms are not minimizing costs to reach the lowest possible average cost. Pricing at marginal cost is also not a characteristic because firms have some degree of market power and can charge slightly higher prices.

Question 5

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 6

Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm experience zero economic profit?

Accepted Answer

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

Question 7

A monopolistically competitive firm

Accepted Answer

The answer of A monopolistically competitive firm
...

Question 8

When a firm operates with excess capacity,

Accepted Answer

When a firm operates with excess capacity, it means that it is not producing at its maximum potential. Therefore, if it increases production, it can spread its fixed costs over a larger quantity of output, which results in lower average total costs. Therefore, additional production would lower the average total cost, making option A the correct choice.

Question 9

In a monopolistically competitive market, social welfare would be enhanced if

Accepted Answer

The answer of In a monopolistically competitive market, social welfare...

Question 10

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 11

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 producing differentiated products. Therefore, consumers are likely to receive the most product variety in this market structure. In perfect competition, firms sell homogeneous products, so there is no variety. In oligopoly and monopoly, there are only a few firms, which would limit the variety of products available.

Question 12

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

Accepted Answer

In monopoly, there is no competition, which allows the firm to have market power and set prices above marginal cost, leading to economic profits in the long run. In perfect competition, there is no market power and firms can only earn normal profits in the long run. In monopolistic competition, firms can earn short-run economic profits, but in the long run, new firms can enter the market and increase competition, leading to zero economic profits. Therefore, only monopoly can earn economic profits in the long run.

Question 13

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

Accepted Answer

In long-run equilibrium of a monopolistically competitive market, firms are earning only normal profit, which means they are covering all their costs including opportunity cost of resources. This implies that firms are charging a price equal to their average total cost, which makes the answer D the correct one.

Question 14

Since a firm in a monopolistically competitive market faces a

Accepted Answer

In monopolistically competitive markets, firms face a downward-sloping demand curve because they have some degree of market power to set their own prices. However, due to the presence of many close substitutes, the demand for each individual firm's product is relatively elastic. This means that if a firm were to raise its price above the market price, it would lose a significant amount of customers to its competitors. As a result, firms in these markets tend to operate with excess capacity because they produce less output than would be produced if they were operating at their efficient scale.

Question 15

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

Accepted Answer

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

Question 16

In the long run,

Accepted Answer

The answer of In the long run,
...

Question 17

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 against each other, and none have market power. Therefore, they must produce at the lowest cost possible in order to keep up with competitors. This leads to the highest output of the particular good being produced. In the other market structures, there is less competition and some degree of market power, which can lead to lower output levels.

Question 18

Which of the following statements is correct?

Accepted Answer

Excess capacity refers to the gap between a firm's actual output and its efficient scale. Therefore, option B is correct. In the long run, perfectly competitive firms operate at the efficient scale and do not have excess capacity, but monopolistically competitive firms may have excess capacity due to the differentiation of their products (option A is incorrect). The efficient scale is the level of output at which the average total cost is minimized (option C is incorrect as demand curve's tangent point is where the marginal cost equals marginal revenue).

Question 19

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

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

Question 20

Under which of the following market structures would consumers likely pay the highest price for a product?

Accepted Answer

Consumers are likely to pay the highest price for a product under a monopoly as there is only one supplier in the market with complete control over pricing. In contrast, perfect competition and monopolistic competition involve multiple firms competing for market share, which can drive down prices. Oligopolies involve a small number of firms dominating the market, which can lead to higher prices but not as high as a monopoly.

Quiz 16: Monopolistic Competition