Question 1

A monopolistically competitive firm is operating at a short-run level of output where price is $21,average total cost is $15,marginal cost is $13,and marginal revenue is $13.In the short run this firm should:
A) reduce product price.
B) increase the level of output.
C) decrease the level of output.
D) make no change in the level of output.

Accepted Answer

The firm should continue producing at its current level of output because it is earning a positive economic profit. If the firm were to increase its output, marginal cost would exceed marginal revenue, reducing the firm's profit. If the firm were to decrease its output, its fixed costs would become spread out over fewer units of production, causing average total cost to increase and reducing profit. Therefore, the best choice is to make no change in the level of output.

Question 2

Refer to the above graph of a representative firm in monopolistic competition.What does line 1 represent?
A) Demand
B) Marginal cost
C) Marginal revenue
D) Average total cost

Accepted Answer

The answer of  Refer to the above graph of...

Question 3

Refer to the above graph of a representative firm in monopolistic competition.What does line 3 represent?
A) Demand
B) Marginal cost
C) Marginal revenue
D) Average total cost

Accepted Answer

The answer of  Refer to the above graph of...

Question 4

The monopolistically competitive seller's demand curve will become more elastic the:
A) larger the number of competitors.
B) greater the degree of product differentiation.
C) more significant the barriers to entry.
D) smaller the number of competitors.

Accepted Answer

The answer of The monopolistically competitive seller's demand curve will...

Question 5

The demand curve faced by a monopolistically competitive firm:
A) is more elastic than the monopolist's demand curve.
B) is less elastic than the monopolist's demand curve.
C) will shift outward as new firms enter the industry.
D) is more elastic than the demand curve faced by the purely competitive firm.

Accepted Answer

The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve because there are close substitutes available in the market. In a monopolistic competition market structure, firms sell differentiated products that are close substitutes, which makes their demand curve more elastic than a monopolist's demand curve.

Question 6

Which would make an individual firm's demand curve less elastic?
A) The purchase of more efficient machinery
B) A reduction in the price of the firm's product
C) Increased brand loyalty toward the firm's product
D) A reduction in advertising expenditures by the firm

Accepted Answer

Increased brand loyalty toward the firm's product makes the demand curve less elastic because consumers are more willing to pay for the product even if the price increases, thereby reducing the price sensitivity of demand. This means that the firm can increase the price without causing a significant decrease in the quantity demanded, effectively reducing the elasticity of demand for the firm's product.

Question 7

A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50.To maximize profits:
A) the firm should continue to produce this quantity.
B) the firm should increase output and decrease price.
C) the firm should decrease output and increase price.
D) the firm should produce the level of output where marginal revenue is $1.50.

Accepted Answer

The firm should produce the level of output where marginal revenue is equal to marginal cost to maximize profits.

Question 8

The downward-sloping demand curve of a monopolistic competitor:
A) reflects product differentiation.
B) becomes horizontal in the long run.
C) indicates collusion among the members of the product group.
D) ensures that the firm will produce at minimum average cost in the long run.

Accepted Answer

The downward-sloping demand curve of a monopolistic competitor reflects product differentiation, which means that the firm can charge a higher price for its unique product. This leads to a lower elasticity of demand and a steeper demand curve. In the long run, the curve might become more elastic as new rivals enter the market, but it is not horizontal. The curve does not indicate collusion, and it does not ensure that the firm will produce at minimum average cost in the long run.

Question 9

The marginal cost curve intersects the average total cost curve in monopolistic competition:
A) at the market price.
B) at the minimum average total cost.
C) to the left of the minimum average total cost.
D) to the right of the minimum average total cost.

Accepted Answer

The marginal cost curve intersects the average total cost curve at its minimum point, which is a characteristic of cost curves in both perfect and monopolistic competition.

Question 10

Refer to the above graph of a representative firm in monopolistic competition.What does line 2 represent?
A) Demand
B) Marginal cost
C) Marginal revenue
D) Average total cost

Accepted Answer

The answer of  Refer to the above graph of...

Question 11

The graph depicts a monopolistically competitive firm.  Refer to the above graph.This monopolistically competitive firm is:
A) making economic profit in the long run.
B) making economic profit in the short run
C) making a loss in the long run.
D) making a loss in the short run.

Accepted Answer

The answer of The graph depicts a monopolistically competitive firm....

Question 12

A major difference between pure competition and monopolistic competition is that under pure competition:
A) individual firms have more elastic demand curves.
B) the market demand curve is less elastic.
C) there are a smaller number of producers.
D) there are barriers to entry.

Accepted Answer

Under pure competition, there are a large number of small firms producing homogenous products, which means that individual firms have more elastic demand curves as any increase in price will cause consumers to switch to a competitor's product. In contrast, monopolistic competition involves differentiated products, and although there are still many producers, individual firms face a less elastic demand curve as they have more pricing power due to product differentiation.

Question 13

Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because:
A) there is free entry and exit.
B) product differentiation allows each firm some degree of monopoly power.
C) there are a few large firms in the industry and each acts as a monopolist.
D) mutual interdependence among all firms in the industry leads to collusion.

Accepted Answer

Monopolistically competitive firms have some degree of market power due to product differentiation, which allows them to charge higher prices. However, they still face competition from other firms producing similar products, so they cannot charge any price they want. As a result, they must lower their price to sell more units, which leads to a downward sloping demand curve. Since marginal revenue is the change in revenue from producing one more unit, it also decreases as more units are produced, leading to a downward sloping marginal revenue curve.

Question 14

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00,marginal cost is $5.00,marginal revenue is $6.00,and price is $12.00.In the short run,the firm should:
A) decrease the level of output.
B) increase the level of output.
C) make no change in the level of output.
D) increase product price.

Accepted Answer

In the short run, a monopolistically competitive firm should produce where marginal cost (MC) equals marginal revenue (MR), which in this case is at an output level where MC=$5.00 and MR=$6.00. However, the firm is currently pricing its product at $12.00, which is greater than its average total cost (ATC) of $10.00. This means that the firm is making a profit in the short run.

To maximize profits, the firm should increase its output as long as the additional revenue from selling another unit (MR) is greater than the additional cost of producing that unit (MC). In this case, since MR=$6.00 is greater than MC=$5.00, the firm should increase its output to capture more profit.

Therefore, the best choice is option B, increase the level of output.

Question 15

If monopolistically competitive firms in an industry are making an economic profit,then:
A) new firms will enter the industry and product demand will increase for the existing firms.
B) firms will exit the industry and product demand will decrease for the firms that remain.
C) firms will exit the industry and product demand will increase for the firms that remain.
D) new firms will enter the industry and product demand will decrease for the existing firms.

Accepted Answer

In a monopolistically competitive market, economic profits attract new firms to enter the industry, increasing competition and causing the demand for existing firms' products to decrease as consumers have more choices.

Question 16

In monopolistic competition,a firm has a limited degree of "price-making" ability.This means that the firm will:
A) always earn an economic profit.
B) set price equal to marginal cost.
C) set price above marginal cost.
D) produce at minimum average total cost.

Accepted Answer

In monopolistic competition, firms have some degree of market power, which allows them to set prices above marginal cost in order to earn economic profits. However, this power is limited due to the presence of close substitutes and the potential for entry by new competitors. Therefore, the firm might not always earn an economic profit and might not produce at minimum average total cost.

Question 17

Assume that in a monopolistically competitive industry,firms are earning economic profit.This situation will:
A) reduce the excess capacity in the industry as firms expand production.
B) attract other firms to enter the industry since the barriers to entry are low.
C) cause firms to standardize their product to limit the degree of competition.
D) make the industry allocatively efficient as each firm seeks to maintain its profits.

Accepted Answer

When firms in a monopolistically competitive industry are earning economic profit, it signals to other firms that there is potential for profit in the industry. This will attract new firms to enter the industry, increasing competition and decreasing the industry's economic profit over time. Since the barriers to entry are low, it is relatively easy for new firms to enter and compete. Therefore, option B is the correct answer. A, C, and D are incorrect because the industry will not necessarily reduce excess capacity or standardize products, and it is not guaranteed to be allocatively efficient.

Question 18

The graph depicts a monopolistically competitive firm.  Refer to the above graph representing an individual firm.In the short run,this monopolistically competitive firm will set price at:
A) $65 and produce 45 units of output.
B) $65 and produce 35 units of output.
C) $50 and produce 35 units of output.
D) $50 and produce 50 units of output.

Accepted Answer

The answer of The graph depicts a monopolistically competitive firm....

Question 19

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50,price is $4.00,marginal revenue is $2.50,and marginal cost is $2.50.This firm is operating:
A) with a profit in the short run.
B) with a loss in the short run.
C) at the break-even level of output in the short run.
D) at an efficient level of output in the short run.

Accepted Answer

The firm is producing at a level where price ($4.00) is less than the average total cost ($4.50), indicating that it is operating at a loss in the short run. The fact that marginal revenue ($2.50) is equal to marginal cost ($2.50) tells us that the firm is not maximizing its profits, but producing where MR=MC is still preferable to shutting down.

Question 20

The demand curve faced by a monopolistically competitive firm is:
A) vertical.
B) horizontal.
C) highly elastic.
D) highly inelastic.

Accepted Answer

The demand curve faced by a monopolistically competitive firm is highly elastic. This is because there are close substitutes for the product offered by the firm, and consumers are responsive to changes in price. As a result, the firm cannot raise its price without losing a significant number of customers, and it has to keep the price similar to its competitors.

Quiz 9: Monopolistic Competition and Oligopoly

A monopolistically competitive firm is operating at a short-run level of output where price is $21,average total cost is $15,marginal cost is $13,and marginal revenue is $13.In the short run this firm should:

Refer to the above graph of a representative firm in monopolistic competition.What does line 1 represent?

Refer to the above graph of a representative firm in monopolistic competition.What does line 3 represent?

The monopolistically competitive seller's demand curve will become more elastic the:

The demand curve faced by a monopolistically competitive firm:

Which would make an individual firm's demand curve less elastic?

A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50.To maximize profits:

The downward-sloping demand curve of a monopolistic competitor:

The marginal cost curve intersects the average total cost curve in monopolistic competition:

Refer to the above graph of a representative firm in monopolistic competition.What does line 2 represent?

The graph depicts a monopolistically competitive firm. Refer to the above graph.This monopolistically competitive firm is:

A major difference between pure competition and monopolistic competition is that under pure competition:

Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because:

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00,marginal cost is $5.00,marginal revenue is $6.00,and price is $12.00.In the short run,the firm should:

If monopolistically competitive firms in an industry are making an economic profit,then:

In monopolistic competition,a firm has a limited degree of "price-making" ability.This means that the firm will:

Assume that in a monopolistically competitive industry,firms are earning economic profit.This situation will:

The graph depicts a monopolistically competitive firm. Refer to the above graph representing an individual firm.In the short run,this monopolistically competitive firm will set price at:

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50,price is $4.00,marginal revenue is $2.50,and marginal cost is $2.50.This firm is operating:

The demand curve faced by a monopolistically competitive firm is: