Question 1

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 2

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 implies that products sold by different firms are not identical but differentiated, which allows firms to have some degree of market power and the ability to set prices slightly higher than their marginal costs. Therefore, the correct option is D as it contradicts this characteristic.

Question 3

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

This market is monopolistically competitive because there are many restaurants that offer similar but slightly differentiated products (different cuisines and flavors) and they compete on factors such as price, location, and taste preferences. However, each restaurant does have some control over their prices and output because they offer slightly different products.

Question 4

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 output effect is the revenue gained from selling one more unit at the new price, while the price effect is the loss in revenue from selling all units at the lower price.

Question 5

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 "one good thing" that happens when a monopolistically competitive firm lowers its price is the "output effect," which refers to the increase in quantity sold due to the lower price.

Question 6

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

Accepted Answer

The United States economy is largely based on a monopolistically competitive market structure in which firms differentiate their products to create a competitive advantage. This allows for greater choice and competition for consumers, making it more likely that they will patronize firms within this market structure. While oligopolies and monopolies also exist in the US economy, they are less prevalent and typically only occur in certain industries or product categories. Perfectly competitive markets are rare in the real world and do not accurately reflect the structure of most industries in the US.

Question 7

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, the firm faces a downward-sloping demand curve, which means that the price charged is higher than the marginal revenue earned due to the need to lower the price to increase sales. However, the price is still equal to or greater than average revenue since the firm has some degree of market power to influence the price. Therefore, option C correctly describes the relationship between price, marginal revenue, and average revenue for a monopolistically competitive firm.

Question 8

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 marginal revenue is the change in total revenue from selling one more unit. If the total revenue from the fifth unit is $50 and from the sixth unit is $54, the marginal revenue is $54 - $50 = $4.

Question 9

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 output effect is the revenue gained from selling one more unit at the new price, while the price effect is the loss in revenue from selling all previous units at the lower price. In this case, the output effect is $6.00 and the price effect is -$1.50.

Question 10

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 and the demand curve facing the firm is perfectly elastic, meaning that the firm can only sell its output at the market price. Therefore, the firm's marginal revenue curve is the same as its demand curve. In contrast, a monopolistically competitive firm faces a downward-sloping demand curve because its product is differentiated from its competitors. As such, the firm's marginal revenue curve lies below its demand curve. Therefore, the answer is B.

Question 11

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

Firms in monopolistic competition are not price takers, as they have some control over the price they charge due to product differentiation.

Question 12

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 marginal revenue is the additional revenue from selling one more unit. Selling the eighth pair at $90 increases total revenue from $700 (7 pairs at $100) to $720 (8 pairs at $90), so the marginal revenue is $20.

Question 13

Which of the following characterizes the market that Panera Bread competes in?
A)All "fast-casual" restaurants face horizontal demand curves.
B)"Fast-casual" restaurants sell identical products.
C)Barriers to entry are low.
D)There are a small number of firms.

Accepted Answer

The "fast-casual" restaurant market, like the one Panera Bread competes in, typically has low barriers to entry, allowing new competitors to enter the market relatively easily.

Question 14

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, which means that they can influence the price of their output by adjusting their level of production and advertising. However, this influence is limited by the degree of substitutability between their product and those of their competitors.

Question 15

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 this market structure, there are many firms that offer differentiated products, such as different movie selections and amenities like luxury seating or IMAX screens. Each firm has some control over the price of their products, but they also face competition from other movie theaters. The U.S. Postal Service operates in a government-regulated monopoly, Microsoft operates in an oligopoly, and automobile manufacturers may operate in monopolies or oligopolies depending on the specific brand and market.

Question 16

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 in which there are a large number of small firms that produce differentiated products. This means that while the products are not identical, they still have close substitutes. Because of this, firms have some control over the price of their product and the demand curve is downward sloping. However, barriers to entry are low, allowing new firms to enter and compete in the market, leading to a degree of competition.

Question 17

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

The answer of Figure 13-3
 
-Refer to Figure 13-3.The marginal...

Question 18

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 additional revenue generated by selling one more unit of a good. If marginal revenue is negative, it means that the revenue lost from lowering the price to sell one additional unit is greater than the additional revenue generated by selling that unit. This typically occurs when demand is price elastic and the firm must lower prices to sell additional units. Option A is incorrect because a zero marginal revenue does not imply that quantity demanded falls to zero. Option C is incorrect because a positive marginal revenue means that the revenue gained from selling one additional unit is greater than the revenue lost from lowering the price to sell additional units. Option D is only partially correct, as marginal revenue does increase as quantity sold increases, but it is incorrect to say that marginal revenue increases as price falls as this depends on the elasticity of demand.

Question 19

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

Monopolistic competition is characterized by a large number of firms selling similar but not identical products. Each firm has some degree of market power due to the differentiation of its product, but there are still many substitutes available. This leads to price competition and non-price competition, such as advertising and product differentiation, in order to capture market share.

Question 20

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, in order to sell more units of its product, it must lower the price. This means that the marginal revenue earned from selling an additional unit will be less than the price of that unit. Therefore, B is the correct answer.

Quiz 13: Monopolistic Competition: the Competitive Model in a

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

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

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

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?

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

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

For the monopolistically competitive firm,

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

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?

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

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

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 Panera Bread competes in?

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

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

Monopolistic competition is a market structure in which

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,

Which of the following statements is true about marginal revenue?

A monopolistically competitive market is described as one in which there are

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