Question 1

In monopolistically competitive markets, free entry and exit suggests that

Accepted Answer

In monopolistically competitive markets, free entry and exit lead to a situation where, in the long run, firms earn zero economic profits. This is because if firms are earning positive economic profits, new firms will enter the market, increasing competition and driving down profits. Conversely, if firms are incurring losses, some will exit the market, reducing competition and allowing the remaining firms to increase their profits back to zero.

Question 2

Figure 16-14 
-Refer to Figure 16-14. Which of the following represents the excess capacity of this firm?

Accepted Answer

Excess capacity refers to the unused or unutilized capacity of a firm. In this figure, LM represents the unused capacity as it is the vertical distance between the firm's capacity (PQ) and output level (MN). Therefore, C) LM is the best choice as it represents the excess capacity of the firm.

Question 3

In which of the following markets is economic profit driven to zero in the long run?

Accepted Answer

In monopolistic competition, there are many firms producing differentiated products, which allows for some price-setting power. However, this also means that new firms can enter the market with similar products, creating competition that drives economic profit to zero in the long run.

Question 4

The free entry and exit of firms in a monopolistically competitive market guarantees that

Accepted Answer

The answer of The free entry and exit of firms...

Question 5

Figure 16-14 
-Refer to Figure 16-14. The deadweight loss from production for this firm is represented by which of the following areas?

Accepted Answer

The deadweight loss from production is represented by the area BHJ, which is the triangle formed by the vertical distance between the supply curve and the demand curve at the quantity produced by the monopolist, multiplied by the horizontal distance between the quantity produced by the monopolist and the quantity that would be produced in a perfectly competitive market. Areas ABC and IJK do not represent the deadweight loss from production. Area BCIJ represents the total surplus in the market.

Question 6

As new firms enter a monopolistically competitive market, profits of existing firms

Accepted Answer

As new firms enter a monopolistically competitive market, competition increases, leading to a decline in profits of existing firms. This is because the market becomes more crowded, and consumers have more options to choose from, leading to a decrease in demand for existing firms' products. However, the entry of new firms also increases product diversity in the market, as these firms introduce new or differentiated products to compete with existing firms.

Question 7

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?

Accepted Answer

In the long-run, monopolistically competitive markets will see entry of new firms, which will increase competition and decrease demand for each existing firm. This will eventually drive economic profits to zero. As a result, existing firms will face a decrease in demand.

Question 8

A monopolistically competitive firm

Accepted Answer

The answer of A monopolistically competitive firm
...

Question 9

In a monopolistically competitive market,

Accepted Answer

In monopolistically competitive markets, there is typically free entry, but firms differentiate their products to some degree. This can mean that there may be too few or too many firms in the market, as firms try to capture a portion of the market by offering unique products or services. While there is no barrier to entry, the market may not always reach the ideal number of firms.

Question 10

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

In the long-run, a monopolistically competitive firm will produce where its demand curve is tangent to its ATC curve (ATC = demand), and where its marginal revenue equals its marginal cost (MR = MC). This will result in a price that is higher than the minimum ATC but lower than the price charged by a monopolist. Therefore, choice B is the characteristic of a monopolistically competitive firm in long-run equilibrium.

Question 11

If firms in a monopolistically competitive market are incurring economic losses, which of the following statements describes the changes that occur as the market adjusts to the long-run equilibrium?

Accepted Answer

In the long run, firms in a monopolistically competitive market will adjust to the point where they are making zero economic profit. This means that each firm's demand curve will shift to the left, and some firms will exit the market. The remaining firms will eliminate their excess capacity and produce at the point where marginal cost equals marginal revenue.

Question 12

In monopolistically competitive markets, economic losses

Accepted Answer

Economic losses suggest that some existing firms will exit the market in order to minimize their losses. This can lead to a reduction in the number of firms, resulting in less competition and potentially leading to higher prices and profits in the long run.

Question 13

Figure 16-14 
-Refer to Figure 16-14. The deadweight loss from production for this firm is represented by which of the following areas?

Accepted Answer

The deadweight loss from production is represented by the area between the marginal cost (MC) curve and the demand (D) curve, which in this case is the triangle BHJ. Therefore, the correct choice is C. 
A, B, and D are not the correct choices because they do not represent the area between the MC and D curves.

Question 14

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

In long-run equilibrium in a monopolistically competitive market, the firm produces at a point where price (P) equals marginal cost (MC) and where demand (D) equals average total cost (ATC). This ensures that the firm is earning zero economic profits. Therefore, the condition P > MC is satisfied, and demand = ATC. Option A is incorrect because P cannot be greater than demand in the long-run as firms will enter the market and drive down prices. Option B is incorrect because if ATC is greater than demand, the firm is incurring losses and will eventually exit the market. Option D is incorrect because if the price is less than ATC, the firm will also be incurring losses and will eventually exit the market.

Question 15

In which of the following market structures does free entry and exit play an important role in the long-run equilibrium outcome? (i) perfect competition
(ii) monopolistic competition
(iii) monopoly

Accepted Answer

The answer of In which of the following market structures...

Question 16

Figure 16-14 
-Refer to Figure 16-14. Which of the following best describes the profit-maximizing outcome for the firm depicted here?

Accepted Answer

The profit-maximizing outcome for this firm is in long run equilibrium, represented by the point where marginal cost intersects with the long run average total cost curve at its minimum point. At this point, the firm is earning zero economic profit, but is covering all of its production costs. This means that in the long run, there is no incentive for the firm to exit or enter the market.

Question 17

As firms exit a monopolistically competitive market, profits of remaining firms

Accepted Answer

The answer of As firms exit a monopolistically competitive market,...

Question 18

If firms in a monopolistically competitive market are earning positive profits, then

Accepted Answer

In monopolistically competitive markets, firms can earn positive profits in the short run due to differentiated products and some market power. However, in the long run, as new firms enter the market attracted by the profits, the demand for products becomes more elastic, and profits decrease. Thus, new firms will enter the market to compete with established firms, driving profits down.

Question 19

In monopolistically competitive markets, positive economic profits

Accepted Answer

The answer of In monopolistically competitive markets, positive economic profits
...

Question 20

Figure 16-14 
-Refer to Figure 16-14. If this firm were operating in a perfectly competitive market, it would charge a price equal to point

Accepted Answer

In a perfectly competitive market, the firm would charge a price equal to the market price, which is point G. However, in a monopolistically competitive market, the firm can charge a slightly higher price due to product differentiation. The profit-maximizing price for this firm in a monopolistically competitive market is at point C.

Quiz 16: Monopolistic Competition

In monopolistically competitive markets, free entry and exit suggests that

Figure 16-14 -Refer to Figure 16-14. Which of the following represents the excess capacity of this firm?

In which of the following markets is economic profit driven to zero in the long run?

The free entry and exit of firms in a monopolistically competitive market guarantees that

Figure 16-14 -Refer to Figure 16-14. The deadweight loss from production for this firm is represented by which of the following areas?

As new firms enter a monopolistically competitive market, profits of existing firms

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?

A monopolistically competitive firm

In a monopolistically competitive market,

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

If firms in a monopolistically competitive market are incurring economic losses, which of the following statements describes the changes that occur as the market adjusts to the long-run equilibrium?

In monopolistically competitive markets, economic losses

Figure 16-14 -Refer to Figure 16-14. The deadweight loss from production for this firm is represented by which of the following areas?

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

In which of the following market structures does free entry and exit play an important role in the long-run equilibrium outcome? (i) perfect competition (ii) monopolistic competition (iii) monopoly

Figure 16-14 -Refer to Figure 16-14. Which of the following best describes the profit-maximizing outcome for the firm depicted here?

As firms exit a monopolistically competitive market, profits of remaining firms

If firms in a monopolistically competitive market are earning positive profits, then

In monopolistically competitive markets, positive economic profits

Figure 16-14 -Refer to Figure 16-14. If this firm were operating in a perfectly competitive market, it would charge a price equal to point