Deck 11: Monopolistic Competition

Question 1

One reason why the coffeehouse market is competitive is that

A)demand for specialty coffee is very high.
B)it is trendy and therefore is likely to have a customer following.
C)barriers to entry are low.
D)consumption takes place in public.

Answer 1

C

Question 2

In monopolistic competition there is/are

A)many sellers who each face a downward-sloping demand curve.
B)a few sellers who each face a downward-sloping demand curve.
C)only one seller who faces a downward-sloping demand curve.
D)many sellers who each face a perfectly elastic demand curve.

Answer 2

A

Question 3

Table 11.1
$\begin{array}{|c|c|c|}\hline \text { Quantity } & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 7.50 & \$ 7.50 \\\hline 2 & 7.00 & 14.00 \\\hline 3 & 6.50 & 19.50 \\\hline 4 & 6.00 & 24.00 \\\hline 5 & 5.50 & 27.50 \\\hline 6 & 5.00 & 30.00 \\\hline\end{array}$

-Refer to Table 11.1.The Table shows

A)an elastic segment of the demand curve.
B)an inelastic segment of the demand curve.
C)a demand curve with an elastic segment of the demand curve from $7.50 to $6.50 followed by an inelastic segment.
D)a demand curve with an inelastic segment of the demand curve from $7.50 to $6.50 followed by an elastic segment.

Answer 3

an elastic segment of the demand curve.

Question 4

Which of the following characteristics is common to monopolistic competition and perfect competition?

A)Firms produce identical products.
B)Entry barriers into the industry are low.
C)Each firm faces a downward-sloping demand curve.
D)Firms take market prices as given.

Question 5

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because

A)barriers to entry are very low.
B)there are many firms in the market.
C)products are differentiated.
D)entry into the market is blocked.

Question 6

Table 11.1
$\begin{array}{|c|c|c|}\hline \text { Quantity } & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 7.50 & \$ 7.50 \\\hline 2 & 7.00 & 14.00 \\\hline 3 & 6.50 & 19.50 \\\hline 4 & 6.00 & 24.00 \\\hline 5 & 5.50 & 27.50 \\\hline 6 & 5.00 & 30.00 \\\hline\end{array}$

-Refer to Table 11.1.What is the marginal revenue of the 3rd unit?

A)$6.50
B)$5.50
C)$1.83
D)$0.50

Question 7

When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the

A)substitution effect.
B)income effect.
C)price effect.
D)output effect.

Question 8

A major difference between monopolistic competition and perfect competition is

A)the number of sellers in the markets.
B)the degree by which the market demand curves slope downwards.
C)that products are not standardized in monopolistic competition unlike in perfect competition.
D)the barriers to entry in the two markets.

Question 9

A monopolistically competitive firm will

A)charge the same price as its competitors do.
B)always produce at the minimum efficient scale of production.
C)have some control over its price because its product is differentiated.
D)produce an output level that is productively and allocatively efficient.

Question 10

For a monopolistically competitive firm, marginal revenue

A)equals the price.
B)is greater than the price.
C)is less than the price.
D)and price are unrelated.

Question 11

The key characteristics of a monopolistically competitive market structure include

A)few sellers.
B)sellers selling similar but differentiated products.
C)high barriers to entry.
D)sellers acting to maximize revenue.

Question 12

If the demand curve for a firm is downward-sloping, its marginal revenue curve

A)will lie above the demand curve.
B)will lie below the demand curve.
C)is the same as the demand curve.
D)is horizontal.

Question 13

The key characteristics of a monopolistically competitive market structure include

A)many small (relative to the total market)sellers acting independently.
B)all sellers sell a homogeneous product.
C)barriers to entry are strong.
D)sellers have no incentive to advertise their products.

Question 14

When a monopolistically competitive firm cuts its price to increase its sales, it experiences a gain in revenue due to the

A)substitution effect.
B)income effect.
C)price effect.
D)output effect.

Question 15

If a firm faces a downward-sloping demand curve,

A)the demand for its product must be inelastic.
B)it can control both price and quantity sold.
C)it must reduce its price to sell more units.
D)it will always make a profit.

Question 16

Which of the following is true of a typical firm in a monopolistically competitive industry?

A)Product differentiation allows a successful firm to emerge as a market leader in the industry.
B)All firms have identical cost structures.
C)The more successful firms have an incentive to merge in order to exert greater market power.
D)Each firm acts independently.

Question 17

Which of the following is true for a firm with a downward-sloping demand curve for its product?

A)Price, average revenue, and marginal revenue are all equal.
B)Price, average revenue, and marginal revenue are all different.
C)Price equals average revenue but is greater than marginal revenue.
D)Price equals average revenue but is less than marginal revenue.

Question 18

Which of the following characteristics is not common to monopolistic competition and perfect competition?

A)Firms act to maximize profit.
B)Entry barriers into the industry are low.
C)The market demand curve is downward-sloping.
D)Firms take market prices as given.

Question 19

Which of the following is not an example of a monopolistically competitive market?

A)automobile producers
B)supermarkets
C)video stores
D)makers of women's clothing

Question 20

A monopolistically competitive firm faces a downward-sloping demand curve because

A)it is able to control price and quantity demanded.
B)there are few substitutes for its product.
C)of product differentiation.
D)its market decisions are affected by the decisions of its rivals.

Question 21

Table 11.1
$\begin{array}{|c|c|c|}\hline \text { Quantity } & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 7.50 & \$ 7.50 \\\hline 2 & 7.00 & 14.00 \\\hline 3 & 6.50 & 19.50 \\\hline 4 & 6.00 & 24.00 \\\hline 5 & 5.50 & 27.50 \\\hline 6 & 5.00 & 30.00 \\\hline\end{array}$

-Refer to Table 11.1.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

Question 22

Table 11.2
$\begin{array}{|c|c|c|c|}\hline \begin{array}{c}\text { Quantity } \\\text { (cases) }\end{array} & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 75 & \$ 75 & \$ 60 \\\hline 2 & 70 & 140 & 85 \\\hline 3 & 65 & 195 & 105 \\\hline 4 & 60 & 240 & 115 \\\hline 5 & 55 & 275 & 130 \\\hline 6 & 50 & 300 & 155 \\\hline 7 & 45 & 315 & 190 \\\hline 8 & 40 & 320 & 230 \\\hline 9 & 35 & 315 & 280 \\\hline\end{array}$
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11.2 shows the firm's demand and cost schedules.

-Refer to Table 11.2.What is the marginal profit from producing and selling the 5th case?

A)$275
B)$145
C)$35
D)$20

Question 23

A monopolistically competitive firm maximizes profit where

A)price = marginal revenue.
B)price > marginal cost.
C)marginal revenue > average revenue.
D)total revenue > marginal cost.

Question 24

Figure 11.3

Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 11.3.What is the area that represents the total revenue made by the firm?

A)0P₀aQₐ
B)0P₁bQₐ
C)0P₂cQₐ
D)0P₃dQₐ

Question 25

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.

Question 26

What is the profit-maximizing rule for a monopolistically competitive firm?

A)to produce a quantity that maximizes market share
B)to produce a quantity that maximizes total revenue
C)to produce a quantity such that marginal revenue equals marginal cost
D)to produce a quantity such that price equals marginal cost

Question 27

Figure 11.3

Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 11.3.If the firm represented in the diagram is currently producing and selling Qₐ units, what is the price charged?

A)P₀
B)P₁
C)P₂
D)P₃

Question 28

Refer to Figure 11.2.The marginal revenue from selling the additional unit Qb instead of Qₐ equals

A)the area (G + H).
B)the area (H - E).
C)the area (E + F)- (G + H).
D)the area G.
E))

Question 29

Unlike a perfectly competitive firm, for a monopolistically competitive firm

A)price ≠ marginal cost for all output levels.
B)price ≠ marginal revenue for all output levels.
C)price ≠ average revenue for all output levels.
D)marginal revenue = marginal cost at the profit-maximizing output.

Question 30

Table 11.1
$\begin{array}{|c|c|c|}\hline \text { Quantity } & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 7.50 & \$ 7.50 \\\hline 2 & 7.00 & 14.00 \\\hline 3 & 6.50 & 19.50 \\\hline 4 & 6.00 & 24.00 \\\hline 5 & 5.50 & 27.50 \\\hline 6 & 5.00 & 30.00 \\\hline\end{array}$

-Refer to Table 11.1.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

Question 31

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

Question 32

Refer to Figure 11.1.The marginal revenue from the increase in price from P₀ to P₁ equals

A)the area A.
B)the area (B + D - A).
C)the area (A - D).
D)the area (C - B).

Question 33

Table 11.2
$\begin{array}{|c|c|c|c|}\hline \begin{array}{c}\text { Quantity } \\\text { (cases) }\end{array} & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 75 & \$ 75 & \$ 60 \\\hline 2 & 70 & 140 & 85 \\\hline 3 & 65 & 195 & 105 \\\hline 4 & 60 & 240 & 115 \\\hline 5 & 55 & 275 & 130 \\\hline 6 & 50 & 300 & 155 \\\hline 7 & 45 & 315 & 190 \\\hline 8 & 40 & 320 & 230 \\\hline 9 & 35 & 315 & 280 \\\hline\end{array}$
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11.2 shows the firm's demand and cost schedules.

-Refer to Table 11.2.What is likely to happen to the product's price in the long run?

A)It will fall.
B)It will increase.
C)It will remain constant.
D)This cannot be determined without information on its long-run demand curve.

Question 34

Table 11.2
$\begin{array}{|c|c|c|c|}\hline \begin{array}{c}\text { Quantity } \\\text { (cases) }\end{array} & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 75 & \$ 75 & \$ 60 \\\hline 2 & 70 & 140 & 85 \\\hline 3 & 65 & 195 & 105 \\\hline 4 & 60 & 240 & 115 \\\hline 5 & 55 & 275 & 130 \\\hline 6 & 50 & 300 & 155 \\\hline 7 & 45 & 315 & 190 \\\hline 8 & 40 & 320 & 230 \\\hline 9 & 35 & 315 & 280 \\\hline\end{array}$
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11.2 shows the firm's demand and cost schedules.

-Refer to Table 11.2.What is Eco Energy's profit?

A)$125
B)$140
C)$145
D)$150

Question 35

Complete the following table.

Question 36

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.

Question 37

Table 11.2
$\begin{array}{|c|c|c|c|}\hline \begin{array}{c}\text { Quantity } \\\text { (cases) }\end{array} & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 1 & \$ 75 & \$ 75 & \$ 60 \\\hline 2 & 70 & 140 & 85 \\\hline 3 & 65 & 195 & 105 \\\hline 4 & 60 & 240 & 115 \\\hline 5 & 55 & 275 & 130 \\\hline 6 & 50 & 300 & 155 \\\hline 7 & 45 & 315 & 190 \\\hline 8 & 40 & 320 & 230 \\\hline 9 & 35 & 315 & 280 \\\hline\end{array}$
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11.2 shows the firm's demand and cost schedules.

-Refer to Table 11.2.What is the output (Q)that maximizes profit and what is the price (P)charged?

A)P=$55; Q=5 cases
B)P=$50; Q=6 cases
C)P=$45; Q=7 cases
D)P=$40; Q=8 cases

Question 38

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.

Question 39

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.

Question 40

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

Question 41

Figure 11.4

Refer to Figure 11.4.The candy store represented in the diagram is currently selling Qₐ units of candy at a price of Pₐ.Is this candy store maximizing its profit and if it is not, what would you recommend to the firm?

A)Yes, it is maximizing its profit by charging the highest price possible.
B)No, it is not; since its marginal cost is constant, it should produce and sell as much candy as it can. It should sell Qd units at a price of Pd.
C)No, it is not; it should lower its price to Pc and sell Qc units.
D)No, it is not; it should lower its price to Pb and sell Qb units.

Question 42

Arturo runs a Robin's Donuts franchise.He is selling 250 iced cappuccinos per week at a price of $2.75.If he lowers the price to $2.70, he will sell 251 iced cappuccinos.What is the marginal revenue of the 251st iced cappuccino? If selling the extra iced cappuccino adds $0.20 to Arturo's costs, what will be the effect on his profit from selling 251 iced cappuccinos instead of 250?

Question 43

Suppose Jason owns a small pastry shop.Jason wants to maximize his profit, and thinking back to the college microeconomics class he took in college, he decides he needs to produce a quantity of pastries which will minimize his average total cost.Will Jason's strategy necessarily maximize profits for his pastry shop?

A)Yes; Since jason's pastry shop is in a perfectly competitive market, the only way to maximize profit is to produce the quantity where average total cost is minimized.
B)Not necessarily; This strategy will only maximize Jason's profit in the long run, but not in the short run.
C)No; In order to maximize profit, Jason would never want to produce the quantity where average total cost is minimized.
D)Not necessarily; Depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.

Question 44

Table 11.3
$\begin{array}{|c|c|c|c|c|}\hline \text { Quantity } & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Variable } \\\text { Cost } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 0 & \$ 21 & \$ 0 & \$ 0 & \$ 50 \\\hline 1 & 20 & 20 & 16 & 66 \\\hline 2 & 19 & 38 & 31 & 81 \\\hline 3 & 18 & 54 & 45 & 95 \\\hline 4 & 17 & 68 & 59 & 109 \\\hline 5 & 16 & 80 & 75 & 125 \\\hline 6 & 15 & 90 & 93 & 143 \\\hline 7 & 14 & 98 & 112 & 162 \\\hline 8 & 13 & 104 & 140 & 190 \\\hline 9 & 12 & 108 & 180 & 230 \\\hline 10 & 11 & 110 & 230 & 280 \\\hline\end{array}$
Table 11.3 shows the demand and cost schedules for a monopolistically competitive firm.

-Refer to Table 11.3.What is its average variable cost of production at its optimal output level?

A)$0 (because its optimal output =0)
B)$15
C)$14.75
D)$29

Question 45

Consumers in a monopolistically competitive market do not receive any consumer surplus because the price paid for the product exceeds the marginal cost of production.

Question 46

For a monopolistically competitive firm, price equals average revenue.

Question 47

Figure 11.3

Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 11.3.What is the area that represents the total variable cost of production?

A)0P₀aQₐ
B)0P₁bQₐ
C)P₀abP₁
D)P₁bdP₃

Question 48

Assume price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should

A)continue to produce the same quantity.
B)increase output.
C)decrease output.
D)shutdown.

Question 49

Table 11.3
$\begin{array}{|c|c|c|c|c|}\hline \text { Quantity } & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Variable } \\\text { Cost } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 0 & \$ 21 & \$ 0 & \$ 0 & \$ 50 \\\hline 1 & 20 & 20 & 16 & 66 \\\hline 2 & 19 & 38 & 31 & 81 \\\hline 3 & 18 & 54 & 45 & 95 \\\hline 4 & 17 & 68 & 59 & 109 \\\hline 5 & 16 & 80 & 75 & 125 \\\hline 6 & 15 & 90 & 93 & 143 \\\hline 7 & 14 & 98 & 112 & 162 \\\hline 8 & 13 & 104 & 140 & 190 \\\hline 9 & 12 & 108 & 180 & 230 \\\hline 10 & 11 & 110 & 230 & 280 \\\hline\end{array}$
Table 11.3 shows the demand and cost schedules for a monopolistically competitive firm.

-Refer to Table 11.3.If this firm continues to produce, what is likely to happen to the product's price in the long run?

A)It will fall.
B)It will increase
C)It will remain constant.
D)It cannot be determined without information on its long run demand curve.

Question 50

Table 11.3
$\begin{array}{|c|c|c|c|c|}\hline \text { Quantity } & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Variable } \\\text { Cost } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 0 & \$ 21 & \$ 0 & \$ 0 & \$ 50 \\\hline 1 & 20 & 20 & 16 & 66 \\\hline 2 & 19 & 38 & 31 & 81 \\\hline 3 & 18 & 54 & 45 & 95 \\\hline 4 & 17 & 68 & 59 & 109 \\\hline 5 & 16 & 80 & 75 & 125 \\\hline 6 & 15 & 90 & 93 & 143 \\\hline 7 & 14 & 98 & 112 & 162 \\\hline 8 & 13 & 104 & 140 & 190 \\\hline 9 & 12 & 108 & 180 & 230 \\\hline 10 & 11 & 110 & 230 & 280 \\\hline\end{array}$
Table 11.3 shows the demand and cost schedules for a monopolistically competitive firm.

-Refer to Table 11.3.What is the best course of action for the firm in the short run?

A)It should shut down.
B)It should stay in business because it covers some of its fixed cost.
C)It should increase its sales by lowering its price.
D)It should not cut its price but it should increase its sales by advertising.

Question 51

In the short run, a profit-maximizing firm's decision to produce should be guided by whether

A)it makes a profit.
B)its marginal profit is maximized.
C)its total revenue exceeds its fixed cost.
D)its total revenue covers its variable cost.

Question 52

Table 11.3
$\begin{array}{|c|c|c|c|c|}\hline \text { Quantity } & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Variable } \\\text { Cost } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 0 & \$ 21 & \$ 0 & \$ 0 & \$ 50 \\\hline 1 & 20 & 20 & 16 & 66 \\\hline 2 & 19 & 38 & 31 & 81 \\\hline 3 & 18 & 54 & 45 & 95 \\\hline 4 & 17 & 68 & 59 & 109 \\\hline 5 & 16 & 80 & 75 & 125 \\\hline 6 & 15 & 90 & 93 & 143 \\\hline 7 & 14 & 98 & 112 & 162 \\\hline 8 & 13 & 104 & 140 & 190 \\\hline 9 & 12 & 108 & 180 & 230 \\\hline 10 & 11 & 110 & 230 & 280 \\\hline\end{array}$
Table 11.3 shows the demand and cost schedules for a monopolistically competitive firm.

-Refer to Table 11.3.What is the amount of the firm's loss at its optimal output level?

A)$0
B)$41
C)$45
D)$50

Question 53

If price exceeds average variable cost but is less than average total cost, a firm

A)should further differentiate its product.
B)should stay in business for a while longer until its fixed costs expire.
C)is making some profit but less than maximum profit.
D)should shut down.

Question 54

Figure 11.3

Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 11.3.What is the area that represents the loss made by the firm?

A)the area P₀adP₃
B)the area P₁bcP₂
C)the area P₀acP₂
D)the area P₂cdP₃

Question 55

Table 11.3
$\begin{array}{|c|c|c|c|c|}\hline \text { Quantity } & \begin{array}{c}\text { Price } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Revenue } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Variable } \\\text { Cost } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Cost } \\\text { (dollars) }\end{array} \\\hline 0 & \$ 21 & \$ 0 & \$ 0 & \$ 50 \\\hline 1 & 20 & 20 & 16 & 66 \\\hline 2 & 19 & 38 & 31 & 81 \\\hline 3 & 18 & 54 & 45 & 95 \\\hline 4 & 17 & 68 & 59 & 109 \\\hline 5 & 16 & 80 & 75 & 125 \\\hline 6 & 15 & 90 & 93 & 143 \\\hline 7 & 14 & 98 & 112 & 162 \\\hline 8 & 13 & 104 & 140 & 190 \\\hline 9 & 12 & 108 & 180 & 230 \\\hline 10 & 11 & 110 & 230 & 280 \\\hline\end{array}$
Table 11.3 shows the demand and cost schedules for a monopolistically competitive firm.

-Refer to Table 11.3.What are the profit-maximizing/loss-minimizing output level and price?

A)Q=0 (firm should not produce)
B)Q=3; P=$18
C)Q=4; P=$17
D)Q=5; P=$16

Question 56

Figure 11.3

Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 11.3.What is the area that represents the total fixed cost of production?

A)0P₁aQₐ
B)P₀adP₃
C)P₁bdP₃
D)That information cannot be determined from the graph.

Question 57

Unique to New Brunswick, Beausoleil oysters are known for their perfect, petite shells and are described by Rowan Jacobsen's Geography of Oysters as "ideal starter oysters, with the delightful yeasty aroma of Champagne or rising bread dough." Suppose the following table represents cost and revenue data for a New Brunswick oyster concern.

Illustrate this data by graphing the demand, MR, MC, and ATC curves.Identify the profit-maximizing price and quantity, and show the area representing the total profit received.

Question 58

For a profit-maximizing monopolistically competitive firm, for the last unit sold, the marginal cost of production is less than the marginal benefit received by a customer from the purchase of that unit.

Question 59

Figure 11.3

Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 11.3.Should the firm represented in the diagram continue to stay in business despite its losses?

A)No, it should shut down.
B)Yes, its total revenue covers its variable cost.
C)No, it is not able to cover its fixed cost.
D)Yes, it should increase its revenue by raising its price.

Question 60

Assume that price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118, then to maximize profits the firm should increase its output.

Question 61

Figure 11.6

Refer to Figure 11.6.What is the monopolistic competitor's profit maximizing price?

A)P₁
B)P₂
C)P₃
D)P₄

Question 62

In the long run, if price is less than average cost,

A)there is an incentive for firms to exit the market.
B)there is profit incentive for firms to enter the market.
C)the market must be in long-run equilibrium.
D)there is no incentive for the number of firms in the market to change.

Question 63

You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants.Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce.What is likely to happen to your business in the long run?

A)Your competitors are likely to change their menus to make their products more similar to yours.
B)Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero.
C)If your success continues, you will be likely to establish a franchise and expand your market size.
D)If you continue to maintain consistent quality, you will be able to earn profits indefinitely.

Question 64

Figure 11.6

Refer to Figure 11.6.What is the allocatively efficient output for the firm represented in the diagram?

A)Q₁ units
B)Q₂ units
C)Q₃ units
D)Q₄ units

Question 65

If a monopolistically competitive firm breaks even, the firm

A)is earning an accounting profit and will have to pay taxes on that profit.
B)is earning zero accounting and zero economic profit.
C)should advertise its product to stimulate demand.
D)should expand production.

Question 66

Figure 11.6

Refer to Figure 11.6.What is the amount of excess capacity?

A)Q₄ - Q₃ units
B)Q₄ - Q₂ units
C)Q₃ - Q₂ units
D)Q₃ - Q₁ units

Question 67

A monopolistically competitive industry that earns economic profits in the short run will

A)continue to earn economic profits in the long run.
B)experience the entry of new rival firms into the industry in the long run.
C)experience the exit of existing firms out of the industry in the long run.
D)experience a rise in demand in the long run.

Question 68

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

A)the original firm is driven into bankruptcy.
B)the firm's demand curve is perfectly elastic.
C)the firm's demand curve is tangent to its average total cost curve.
D)the firm exits the market.

Question 69

Figure 11.6

Refer to Figure 11.6.The diagram depicts a firm

A)in a constant cost industry.
B)in an increasing cost industry.
C)in long run equilibrium.
D)that is making short run losses.

Question 70

You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants.You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce.What is likely to happen in the restaurant market in your hometown after you open?

A)Your competitors are likely to change their menus to make their products more similar to yours.
B)The demand curve facing each restaurant owner shifts to the right.
C)The demand curve facing each restaurant owner becomes more elastic.
D)While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic.

Question 71

Figure 11.6

Refer to Figure 11.6.What is the monopolistic competitor's profit maximizing output?

A)Q₁ units
B)Q₂ units
C)Q₃ units
D)Q₄ units

Question 72

A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except

A)new rivals entering the market.
B)a decrease in demand for its product.
C)demand for the firm's product becomes more elastic.
D)a decrease in the number of rival products.

Question 73

Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

A)new entrants into the market are more likely to have cutting edge products.
B)as the firm raises its price in the long run, it will lose some customers to new entrants in the market.
C)some of its customers have switched to purchasing the products of new entrants in the market.
D)its costs of production rises.

Question 74

If a typical monopolistically competitive firm is making short-run losses, then

A)other more competitive firms will enter the market.
B)as some firms leave, the remaining firms will experience an increase in the demand for their products.
C)as some firms leave, the demand for the products of the remaining firms will become more elastic.
D)the industry will eventually cease to exist.

Question 75

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

A)The demand curve will shift to the left and became more elastic.
B)The demand curve will shift to the left and became less elastic.
C)The demand curve will shift to the right and became more elastic.
D)The demand curve will shift to the right and became less elastic.

Question 76

Figure 11.6

Refer to Figure 11.6.What is the productively efficient output for the firm represented in the diagram?

A)Q₁ units
B)Q₂ units
C)Q₃ units
D)Q₄ units

Question 77

Figure 11.5

Figure 11.5 shows cost and demand curves for a monopolistically competitive producer of iced-tea.
Refer to Figure 11.5.to answer the following questions.
a.What is the profit-maximizing output level?
b.What is the profit-maximizing price?
c.At the profit-maximizing output level, how much profit will be realized?
d.Does this graph most likely represent the long run or the short run? Why?

Question 78

Why do most firms in monopolistic competition typically make zero profit in the long run?

A)because firms produce differentiated products
B)because the lack of entry barriers would compete away profits
C)because firms do not produce at their minimum efficient scale
D)because the total market is not large enough to accommodate so many firms

Question 79

Figure 11.6

Refer to Figure 11.6.The firm represented in the diagram

A)makes zero economic profit.
B)makes zero accounting profit.
C)should exit the industry.
D)should expand its output to take advantage of economies of scale.

Question 80

Figure 11.7

Figure 11.7 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
Refer to Figure 11.7.If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run?

A)Some firms will exit the market causing the demand to increase for firms remaining in the market.
B)The firms that are making losses will be purchased by their more successful rivals.
C)Inefficient firms will exit the market and new cost efficient firms will enter the market.
D)Firms will have to raise their prices to cover costs of production.