Question 1

Figure 10-14 -Refer to Figure 10-14.What is the area that represents the firm's profit? A)profit = 0 B)P₄edP₂ C)P₄eaP₁ D)P₃baP₂

Accepted Answer

The area that represents the firm's profit is the rectangle bounded by the price (P1), the quantity sold (Q1), and the marginal cost (MC). In this case, the profit is equal to the price minus the marginal cost multiplied by the quantity sold, which is represented by the shaded rectangle P₄edP₂. This indicates that the optimal choice for the firm is to produce and sell Q1 units of output at a price of P1, where profit is maximized.

Question 2

Figure 10-14 
-Refer to Figure 10-14.If the diagram represents a typical firm in the market,what is likely to happen to its average cost of production in the long run?
A)It will probably fall since the firm must be cost efficient to remain competitive.
B)It will probably fall since the firm will be selling less than its current amount.
C)It will probably rise since the firm will be producing less than its current amount.
D)It will probably rise since its long-run demand is likely to be higher.

Accepted Answer

The answer of Figure 10-14 
-Refer to Figure 10-14.If the...

Question 3

Figure 10-15 Figure 10-15 illustrates a monopolistically competitive firm. -Refer to Figure 10-15.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁? A)The firm wants to maximise accounting profit rather than economic profit. B)The firm would suffer an economic loss at Q₁ while it would break even at Q₀. C)The firm's marginal revenue would be negative at Q₁. D)Demand is not sufficient for consumers to buy Q₁.

Accepted Answer

At Q₁, the average cost would be lower but the marginal cost would be higher than the price, resulting in an economic loss for the firm. Therefore, the firm would choose to produce at Q₀ where it would break even.

Question 4

A monopolistically competitive industry that earns economic profits in the short run will be able to expand its market share even if the market size remains constant.

Accepted Answer

The answer of A monopolistically competitive industry that earns economic...

Question 5

Long-run equilibrium under monopolistic competition is similar to long-run equilibrium under perfect competition in that
A)firms produce at the minimum point of their average cost curves.
B)price equals marginal cost.
C)firms break even.
D)price equals marginal revenue.

Accepted Answer

The answer of Long-run equilibrium under monopolistic competition is similar...

Question 6

If a monopolistically competitive firm breaks even,the firm is earning as much in this industry as it could in any other comparable industry.

Accepted Answer

The answer of If a monopolistically competitive firm breaks even,the...

Question 7

A monopolistically competitive firm can increase its profits beyond the long-run equilibrium break-even level by deliberately lowering its price to force some of its competitors out of the market.

Accepted Answer

The answer of A monopolistically competitive firm can increase its...

Question 8

A monopolistically competitive firm that is profitable in the short run will face competition that will eventually eliminate the firm's profits in the long run.But the firm can stave off competition and continue to earn economic profits if
A)it can successfully sue its competitors for copyright infringement.
B)it can move to another country where there is less competition.
C)it can lobby the government to establish a price floor for its product.
D)it can find new ways to differentiate its product.

Accepted Answer

Finding new ways to differentiate the product can allow the firm to maintain market power and prevent direct competition from eroding its profits. By creating a unique selling proposition, the firm can continue to offer something that competitors cannot replicate, allowing for a price premium and continued profits. The other options, such as legal action or government intervention, are not sustainable or feasible solutions for maintaining long-term profitability in a monopolistically competitive market. Moving to another country may provide temporary relief but does not address the underlying issue of competition.

Question 9

Figure 10-14 -Refer to Figure 10-14.What is the output price? A)P₄ B)P₃ C)P₂ D)P₁

Accepted Answer

The answer of Figure 10-14 
-Refer to Figure 10-14.What is...

Question 10

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?
A)P = ATC and MR = MC.
B)P = ATC and P = MC.
C)P > ATC and P > MR.
D)P > MR and MC = ATC.

Accepted Answer

In long-run equilibrium, a monopolistically competitive firm will produce where marginal revenue (MR) equals marginal cost (MC) to maximize profits. However, due to product differentiation, the firm will not be able to charge a price equal to its average total cost (ATC). Instead, the firm will charge a price above ATC but below the demand curve. Therefore, in long-run equilibrium, the price charged by the firm will be equal to average total cost (P = ATC) and MR will be equal to MC.

Question 11

A monopolistically competitive industry that earns economic profits in the short run will face a more elastic demand curve in the long run.

Accepted Answer

In the long run, other firms are likely to enter the market, increasing competition and making it more difficult for the monopolistically competitive firm to maintain its market power. This increased competition leads to a more elastic demand curve, as consumers have more substitutes and are therefore more responsive to price changes.

Question 12

Figure 10-14 
-Refer to Figure 10-14.If the diagram represents a typical firm in the market,what is likely to happen in the long run?
A)Some firms will exit the market causing the demand to increase for firms remaining in the market.
B)New firms will enter the market causing the demand to decrease for existing firms.
C)Inefficient firms will exit the market and new cost-efficient firms will enter the market.
D)Competition will be intensified as firms strive to make long-run profits.

Accepted Answer

In the long run, if a typical firm in a competitive market is making profits, new firms will be attracted to the market. This increases the supply of the product, which tends to lower the price. As the price decreases, the demand for the products of existing firms decreases because consumers have more options to choose from. This process continues until economic profits are zero, meaning that firms are making just enough profit to cover their opportunity costs.

Question 13

Figure 10-14 -Refer to Figure 10-14.What is the profit-maximising output level? A)Q₁ units B)Q₂ units C)Q₃ units D)Q₄ units

Accepted Answer

The answer of Figure 10-14 
-Refer to Figure 10-14.What is...

Question 14

Despite being in a market with ________,from the mid-1990s to the mid-2000s Starbucks was able to significantly differentiate its products from the products of its competitors.
A)few barriers to entry
B)significant barriers to entry
C)blocked entry
D)no barriers to entry

Accepted Answer

The answer of Despite being in a market with ________,from...

Question 15

When a monopolistically competitive firm breaks even in the long run,this is equivalent to earning a zero accounting profit.

Accepted Answer

The answer of When a monopolistically competitive firm breaks even...

Question 16

Figure 10-15 Figure 10-15 illustrates a monopolistically competitive firm. -Refer to Figure 10-15.Which of the following statements describes the firm depicted in the diagram? A)The firm is making no economic profit and will exit the industry. B)The firm is suffering an economic loss by producing at Q₀ but will break even it increases its output to Q₁. C)The firm achieves productive efficiency by producing at Q₀. D)The firm is in long-run equilibrium and is breaking even.

Accepted Answer

The firm is producing at the output level where marginal revenue (MR) equals marginal cost (MC), which is Q₀. At this output level, the firm is charging a price (P1) that is higher than the marginal cost (MC1), indicating that there is some degree of market power. However, there is still some competition as the price is lower than the average total cost (ATC). In the long run, other firms may enter the market, causing the demand curve to shift left and reducing the economic profit of this firm to zero. Therefore, the firm is in long-run equilibrium and is breaking even.

Question 17

If firms in a monopolistically competitive market are earning economic profits,which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium?
A)Demand decreases and becomes less elastic.
B)Demand decreases and becomes more elastic.
C)Demand increases and becomes less elastic.
D)Demand increases and becomes more elastic.

Accepted Answer

The answer of If firms in a monopolistically competitive market...

Question 18

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm
A)expands its marketing budget.
B)adopts new technologies that enable it to lower its cost of production.
C)expands its product offerings to appeal to a wider range of consumers.
D)reduces its price to expand its market.

Accepted Answer

In monopolistic competition, firms can earn economic profits in the short run due to product differentiation and some market power. However, in the long run, competitors will enter the market and reduce demand for the original firm's product, leading to a decrease in price and profits. The only way for a firm to continue earning economic profits in the long run is by adopting new technologies that lower its cost of production, allowing it to maintain its market power and differentiate its product while facing the competition with lower prices. The other options may help a firm to increase its revenue and market share, but not to sustain its economic profits.

Question 19

Which of the following will not happen as a consequence of a monopolistically competitive firm suffering economic losses in the short run?
A)The firm's demand curve will shift to the right if it stays in business in the long run.
B)The firm will exit the industry if it continues to suffer economic losses.
C)The firm will break even if its stays in business in the long run.
D)In the long run,the firm will be able to charge a price that is greater than its average total cost.

Accepted Answer

In the long run, a monopolistically competitive firm will be able to differentiate its product and create a loyal customer base, which will enable it to charge a price that is greater than its average total cost. However, it is not guaranteed that the firm's demand will shift to the right, nor is it guaranteed that the firm will break even or exit the industry. These outcomes will depend on the specific market conditions and competition the firm faces.

Question 20

Figure 10-14 -Refer to Figure 10-14.Economies of scale are exhausted at which output level? A)Q₁ units B)Q₂ units C)Q₃ units D)more than Q₁units

Accepted Answer

At output level Q₃, the average total cost (ATC) is at its minimum point, indicating that economies of scale have been exhausted. Beyond this output level, ATC starts increasing, indicating diseconomies of scale.

Quiz 10: Monopolistic Competition

Figure 10-14 -Refer to Figure 10-14.What is the area that represents the firm's profit?

Figure 10-14 -Refer to Figure 10-14.If the diagram represents a typical firm in the market,what is likely to happen to its average cost of production in the long run?

Figure 10-15 Figure 10-15 illustrates a monopolistically competitive firm. -Refer to Figure 10-15.It is possible to lower the average cost of production by expanding output beyond Q0 to Q1.Why wouldn't a firm expand its output to Q1?

A monopolistically competitive industry that earns economic profits in the short run will be able to expand its market share even if the market size remains constant.

Long-run equilibrium under monopolistic competition is similar to long-run equilibrium under perfect competition in that

If a monopolistically competitive firm breaks even,the firm is earning as much in this industry as it could in any other comparable industry.

A monopolistically competitive firm can increase its profits beyond the long-run equilibrium break-even level by deliberately lowering its price to force some of its competitors out of the market.

A monopolistically competitive firm that is profitable in the short run will face competition that will eventually eliminate the firm's profits in the long run.But the firm can stave off competition and continue to earn economic profits if

Figure 10-14 -Refer to Figure 10-14.What is the output price?

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

A monopolistically competitive industry that earns economic profits in the short run will face a more elastic demand curve in the long run.

Figure 10-14 -Refer to Figure 10-14.If the diagram represents a typical firm in the market,what is likely to happen in the long run?

Figure 10-14 -Refer to Figure 10-14.What is the profit-maximising output level?

Despite being in a market with ________,from the mid-1990s to the mid-2000s Starbucks was able to significantly differentiate its products from the products of its competitors.

When a monopolistically competitive firm breaks even in the long run,this is equivalent to earning a zero accounting profit.

Figure 10-15 Figure 10-15 illustrates a monopolistically competitive firm. -Refer to Figure 10-15.Which of the following statements describes the firm depicted in the diagram?

If firms in a monopolistically competitive market are earning economic profits,which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium?

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm

Which of the following will not happen as a consequence of a monopolistically competitive firm suffering economic losses in the short run?

Figure 10-14 -Refer to Figure 10-14.Economies of scale are exhausted at which output level?

Figure 10-15 Figure 10-15 illustrates a monopolistically competitive firm. -Refer to Figure 10-15.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?