Question 1

In monopolistic competition if there is profit, there is:

Accepted Answer

In monopolistic competition, profits attract new firms to enter the market, increasing competition and potentially reducing profits over time.

Question 2

Which of the following is true for a firm operating under perfect competition, monopolistic competition, and monopoly?

Accepted Answer

In all market structures, firms maximize profits by producing where marginal cost equals marginal revenue.

Question 3

Monopolistic competitive firms in the long run earn:

Accepted Answer

In the long run, monopolistic competitive firms earn zero pure economic profits due to the freedom of entry and exit in the market. Although they may earn some accounting profits, they are not able to sustain them in the long run with competition pushing down prices and reducing their market share.

Question 4

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

Accepted Answer

In the long-run, a monopolistically competitive firm will produce where price equals long-run average cost (LRAC). This is because in the long-run firms are able to adjust their output levels and prices in response to market conditions, resulting in firms earning normal profit. At this level of output, the firm is not overutilizing its insufficient capacity nor is it operating at minimum LRAC.

Question 5

Which of the following is always associated with monopolistic competition?

Accepted Answer

Monopolistic competition is characterized by product differentiation, where firms produce similar but not identical products. This differentiation creates a degree of market power, allowing firms to set prices above marginal cost in the short run. However, this market power erodes over time due to the entry of new firms, and economic profits are competed away in the long run. The demand curve for each firm is downward-sloping and relatively elastic, with marginal revenue lying below the demand curve.

Question 6

Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

Accepted Answer

In monopolistic competition, firms have some price-setting power, so the price is typically greater than marginal cost (MC) and marginal revenue (MR).

Question 7

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

Accepted Answer

The firm is making an economic profit because the price ($80) is greater than the average total cost ($65). The economic profit per unit is $15 ($80 - $65), and with 100 units sold, the total economic profit is $1,500 (100 units * $15 profit per unit).

Question 8

Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

Accepted Answer

Firms in monopolistically competitive markets maximize their profit where marginal cost equals marginal revenue. This is because in such markets, firms have some degree of market power to influence their prices, and maximizing profit requires balancing the additional revenue earned from selling one more unit of output (marginal revenue) against the additional cost of producing that unit (marginal cost).

Question 9

Which of the following statements best describes firms under monopolistic competition?

Accepted Answer

Firms under monopolistic competition can earn positive economic profit in the short run, but in the long run, new firms will enter the market, increasing competition and reducing profits. This process continues until economic profits are eliminated and firms are only earning a normal rate of return. Therefore, statement C is the most accurate description of firms under monopolistic competition.

Question 10

Compared to monopoly, the market results with monopolistic competition are usually expected to be:

Accepted Answer

In monopolistic competition, there are many firms, leading to more competition and typically lower prices compared to a monopoly, where a single firm dominates the market and can set higher prices.

Question 11

Which of the following statements best describes firms under monopolistic competition?

Accepted Answer

Firms under monopolistic competition compete using a variety of methods, including quality, location, advertising, and price. This competition results in a range of product differentiation within the market, with each firm offering slightly different products or services to attract customers.

Question 12

Which of the following is true in long-run equilibrium for both perfect competition and monopolistic competition?

Accepted Answer

The answer of Which of the following is true in...

Question 13

In the long-run, surviving firms in monopolistic competition earn:

Accepted Answer

In monopolistic competition, firms have some degree of market power but face competition from other firms. This means that in the long run, other firms are likely to enter the market and compete away any excess profits. Therefore, surviving firms in monopolistic competition earn zero pure economic profits in the long run.

Question 14

We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms':

Accepted Answer

The entry of new firms increases competition in the market, reducing the market power of existing firms. This results in a decrease in the demand for the products of existing firms, which causes their demand curves to shift downward.

Question 15

In the long run, a monopolistic competitive firm will operate at a price which:

Accepted Answer

A monopolistic competitive firm will operate at a price higher than minimum long-run average cost because it needs to have some market power to differentiate its product and attract customers. Therefore, it will not operate at the perfectly competitive price level, which is equal to minimum long-run average cost, nor at the level of marginal cost, which would not allow it to cover all its costs and make a profit.

Question 16

In the long run in monopolistic competition,

Accepted Answer

In the long run in monopolistic competition, economic profits are zero due to the presence of low barriers to entry allowing for new firms to enter the market and compete away any profits. Therefore, there is no incentive for firms to leave the market. While P may be above MC and minimum ATC in the short run, in the long run firms will adjust their output and prices to achieve zero economic profits. The demand curve will also not necessarily be tangent to the MC curve in the long run.

Question 17

A monopolistic competitive firm is inefficient because the firm:

Accepted Answer

Monopolistically competitive firms produce at a level where average total cost is not minimum, which means they are producing at a level where they could produce at a lower cost if they produced more. This inefficiency leads to higher costs and lower productivity, ultimately lowering the firm's profits. Therefore, choice B is the best answer.

Question 18

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

Accepted Answer

The producer's price of $500 is below its average total cost of $600, indicating that it is incurring losses of $100 per unit sold. With 20 units sold per week, the producer is losing $2,000 per week. This suggests that new firms are unlikely to enter the market, as they would also face losses. The producer is not making an economic profit (answer C), setting MR = MC (answer D), or producing at the optimal level (answer E).

Question 19

Monopolistic competition is inefficient because:

Accepted Answer

In monopolistic competition, firms have excess capacity in the long run which is considered as inefficiency. This is because firms operate at a lower production level than the one that minimizes their average total cost. As a result, the economy is not producing as much as it could if resources were being allocated efficiently.

Question 20

Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?

Accepted Answer

In monopolistic competition, firms have some market power, which allows them to charge prices above marginal cost. However, there are also low barriers to entry, which means that other firms can enter the market and compete away any economic profits in the long run. In the short run, firms will produce where marginal revenue equals marginal cost to maximize profits. However, in the long run, economic profits will be zero as other firms enter the market and drive down prices. Thus, option C is the best description of the price, output, and profit conditions of monopolistic competition.

Quiz 10: Monopolistic Competition and Oligopoly

In monopolistic competition if there is profit, there is:

Which of the following is true for a firm operating under perfect competition, monopolistic competition, and monopoly?

Monopolistic competitive firms in the long run earn:

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

Which of the following is always associated with monopolistic competition?

Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

Which of the following statements best describes firms under monopolistic competition?

Compared to monopoly, the market results with monopolistic competition are usually expected to be:

Which of the following statements best describes firms under monopolistic competition?

Which of the following is true in long-run equilibrium for both perfect competition and monopolistic competition?

In the long-run, surviving firms in monopolistic competition earn:

We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms':

In the long run, a monopolistic competitive firm will operate at a price which:

In the long run in monopolistic competition,

A monopolistic competitive firm is inefficient because the firm:

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

Monopolistic competition is inefficient because:

Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?