Question 1

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.

Accepted Answer

If marginal revenue is negative, then selling one more unit of the good will actually result in a decrease in total revenue. This means that the revenue lost from receiving a lower price on all the units that could have been sold at the original price will be greater than any additional revenue from selling one more unit of the good.

Question 2

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Accepted Answer

Monopolistically competitive markets have relatively low barriers to entry, allowing new firms to enter and compete with existing firms. This is because there is some degree of product differentiation and firms are not producing identical products, which creates some room for new firms to carve out their own niche within the market. Additionally, there are usually no significant economies of scale that would make it difficult for new firms to enter and compete.

Question 3

One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?

Accepted Answer

The answer of One of the assumptions of monopolistic competition...

Question 4

Suppose that if a local McDonald's restaurant reduces the price of a Big Mac from $4.00 to $3.25,the number of Big Macs it sells per day will increase from 4 to 5.Explain the output effect and the price effect resulting from this change.Using a graph,illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac.What is the total change in revenue received which results from this price decrease?

Accepted Answer

The answer of Suppose that if a local McDonald's restaurant...

Question 5

Table 10-2
  Eco Energy is a monopolistically competitive producer of a sports beverage called Power On.Table 10-2 shows the firm's demand and cost schedules.
-Refer to Table 10-2.What is the output (Q)that maximises 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

Accepted Answer

Without access to Table 10.2, the correct answer cannot be determined. However, the choice provided as correct (B) suggests that at a price of $50 for 6 cases, profit is maximized according to the data in the referenced table.

Question 6

Complete the following table.

Accepted Answer

The answer of Complete the following table.
 ...

Question 7

A monopolistically competitive firm maximises profit where
A)price = marginal revenue.
B)price > marginal cost.
C)marginal revenue > average revenue.
D)total revenue > marginal cost.

Accepted Answer

A monopolistically competitive firm will not produce at the point where price equals marginal revenue because it has some market power and can raise its price without losing all of its customers. However, it cannot price too high, as there are close substitutes for its product. Therefore, the firm will produce where price is greater than marginal cost, but not so much so that it loses too many customers. This is the point where the firm maximises its profit.

Question 8

What is the profit-maximising rule for a monopolistically competitive firm?
A)to produce a quantity that maximises market share
B)to produce a quantity that maximises 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

Accepted Answer

A monopolistically competitive firm maximizes profit by producing a quantity where marginal revenue (the additional revenue from selling one more unit) equals marginal cost (the additional cost of producing one more unit). This is the point where the firm is producing the optimal amount to generate the highest amount of profit. Producing a quantity that maximizes market share or total revenue may not lead to maximum profit. Producing a quantity where price equals marginal cost is the profit-maximizing condition for a perfectly competitive firm, not a monopolistically competitive one.

Question 9

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-maximising output.

Accepted Answer

The answer of Unlike a perfectly competitive firm,for a monopolistically...

Question 10

For a downward-sloping demand curve,marginal revenue decreases as quantity sold increases.

Accepted Answer

Marginal revenue is the additional revenue earned from selling one more unit of a good or service. For a downward-sloping demand curve, in order to sell more units, the price must be lowered, which in turn decreases the marginal revenue.

Question 11

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.

Accepted Answer

In monopolistic competition, there are numerous firms selling products that are differentiated from each other. Therefore, if one firm raises its price, customers can easily switch to a substitute product offered by a competitor. Therefore, a firm cannot raise its price without losing any customers, even if it produces a highly desirable product relative to its competitors.

Question 12

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.
A)$270
B)$20
C)$4
D)$2.50

Accepted Answer

When the firm reduces the price to $9, it gains 5 additional units of output, so its total revenue increases from ($10 x 25) = $250 to ($9 x 30) = $270. 
Therefore, the marginal revenue per unit of output from selling the 30th unit is ($270 - $250) / (30 - 25) = $4.

Question 13

Which of the following statements is true?
A)The marginal revenue of a monopolistically competitive firm will be positive at high prices and negative at low prices.
B)Because the demand curve for a monopolistically competitive firm is downward sloping,its marginal revenue will be negative.
C)The marginal revenue of a monopolistically competitive firm will be always be positive.
D)The marginal revenue of a monopolistically competitive firm will be positive at low prices and negative at high prices.

Accepted Answer

The answer of Which of the following statements is true?
A)The...

Question 14

Firms in monopolistic competition compete by selling similar,but not identical products.

Accepted Answer

Monopolistic competition refers to a market structure where there are many firms selling differentiated goods, meaning that their products are similar but not identical. This differentiation often occurs through branding, packaging, quality differences, or other marketing strategies. This allows firms to compete for customers based on features other than price, such as product design, convenience, or customer service.

Question 15

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

Accepted Answer

The answer of What are the most important differences between...

Question 16

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.

Accepted Answer

When a monopolistically competitive firm cuts its price, it may experience a gain in revenue due to increased sales (substitution effect), but it will not necessarily experience a loss in revenue due to the income effect. The income effect refers to the change in quantity demanded resulting from a change in real income (purchasing power). In the case of a price cut, the consumer's real income increases, which could potentially offset the revenue loss from the price cut. However, the overall effect on revenue will depend on the specific situation and market conditions.

Question 17

There are many cattle ranchers in the world,and there are also many McDonald's restaurants in the world.Why,then,does a McDonald's restaurant face a downward-sloping demand curve while a cattle rancher faces a horizontal demand curve?

Accepted Answer

The answer of There are many cattle ranchers in the...

Question 18

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

Accepted Answer

The answer of Explain the differences between total revenue,average revenue,and...

Question 19

Monopolistically competitive firms face a perfectly elastic demand curve.

Accepted Answer

Monopolistically competitive firms face a downward sloping demand curve, which means that as they increase their prices, they will sell less of their product, but not all consumers will switch to competitors. Therefore, they have some market power but not as much as a monopoly.

Question 20

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market,but by separate curves for a firm in a monopolistically competitive market?

Accepted Answer

The answer of Why are demand and marginal revenue represented...

Quiz 10: Monopolistic Competition

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.

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?

Table 10-2 Eco Energy is a monopolistically competitive producer of a sports beverage called Power On.Table 10-2 shows the firm's demand and cost schedules. -Refer to Table 10-2.What is the output (Q) that maximises profit,and what is the price (P) charged?

Complete the following table.

A monopolistically competitive firm maximises profit where

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

Unlike a perfectly competitive firm,for a monopolistically competitive firm