Question 1

Figure 10.3 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. In the short run, the firm will _____.​ ​
Figure 10.3.
​

Accepted Answer

The answer of Figure 10.3 shows the demand, marginal revenue,...

Question 2

Figure 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. If the firm is producing at a profit-maximizing level of output, its total revenue is _____.​ ​
Figure 10.4

Accepted Answer

The profit-maximizing level of output is where marginal revenue equals marginal cost, which occurs at a quantity of 70 units in this case. At this quantity, the price charged is $80, so total revenue is $80 x 70 = $5,600. However, the firm incurs total costs of $900 at this quantity, so its total profit is $4,700 ($5,600 - $900). Therefore, the correct answer is B, $5,700.

Question 3

In long-run equilibrium, a monopolistically competitive firm will produce:​

Accepted Answer

In long-run equilibrium, a monopolistically competitive firm produces where its average total cost (ATC) curve is tangent to the demand curve, which is along the downward-sloping portion of the ATC curve, indicating excess capacity.

Question 4

Bubba's Baby Boutique is a monopolistically competitive firm. In the long run, it earns:​

Accepted Answer

In the long run, firms in monopolistic competition earn zero economic profit due to the presence of relatively easy entry and exit barriers. However, they may still earn normal profit to cover their implicit costs such as opportunity cost of resources. Therefore, Bubba's Baby Boutique will earn normal profit but zero economic profit in the long run.

Question 5

Suppose a monopolistically competitive firm is producing at an output level where marginal revenue is less than marginal cost. This firm should _____quantity and _____ price to increase profit or reduce losses.​

Accepted Answer

If marginal revenue is less than marginal cost, the firm is not maximizing profit. To increase profit or reduce losses, the firm should decrease the quantity of output it produces and increase the price it charges. This will allow the firm to move closer to its profit-maximizing level of output where marginal revenue equals marginal cost. Therefore, the correct answer is to decrease quantity and increase price.

Question 6

In the long run, economic profit earned by a monopolistically competitive firm:​

Accepted Answer

In the long run, economic profit for a monopolistically competitive firm is zero because there are no significant barriers to entry, allowing new firms to enter the market and drive profits down to a normal level.

Question 7

Due to the ease of entry of new firms into monopolistically competitive markets in the long run, existing firms in these markets:​

Accepted Answer

In the long run, new firms will enter the monopolistically competitive market, increasing competition and driving down demand for any individual firm's product. This leads to firms earning zero economic profit in the long run, as they are only able to cover their production costs.

Question 8

Suppose a monopolistically competitive firm is earning an economic profit. The marginal revenue from selling an additional unit is $30, and the marginal cost of producing that additional unit is $23. The firm should:​

Accepted Answer

If the marginal revenue from selling an additional unit is greater than the marginal cost of producing that unit, the firm should produce that unit and sell it. Since the marginal revenue of this firm's next unit is $30 and the marginal cost is $23, the firm can earn $7 of economic profit by producing and selling that unit. To increase its profits, the firm should keep increasing its output level as long as its marginal revenue is greater than its marginal cost. This means that the firm should reduce its price in order to increase the quantity demanded, and thus increase its profits. Therefore, the correct answer is B, as the firm should reduce its price and increase its output level.

Question 9

A profit-maximizing firm in monopolistic competition should shut down in the short run if:​

Accepted Answer

A profit-maximizing firm in monopolistic competition should shut down in the short run if the price is less than average variable cost. This is because the firm would not be able to cover its variable costs, leading to losses greater than its fixed costs if it continues to operate.

Question 10

Monopolistically competitive firms do not achieve allocative efficiency in the long run because:​

Accepted Answer

Monopolistically competitive firms do not achieve allocative efficiency in the long run because they set a price greater than their marginal cost. In other words, they have market power and can charge a price that is above the efficient level, resulting in a deadweight loss to society. Therefore, the correct choice is E, where price is greater than marginal cost.

Question 11

If there is an increase in the demand for restaurant meals in an economy in the short run, _____.​

Accepted Answer

An increase in demand for restaurant meals in the short run will lead to an increase in the revenue earned by each restaurant. As long as the increase in demand is not met with an increase in supply, the restaurant owners can charge higher prices and earn higher profits. Therefore, option E is the correct answer. Options A, B, C, and D are all incorrect as they do not correctly identify the likely outcome of an increase in demand for restaurant meals in the short run.

Question 12

Figure 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. At the profit-maximizing output level, the firm is: ​
Figure 10.4
​

Accepted Answer

The answer of Figure 10.4 shows the demand, marginal revenue,...

Question 13

Monopolistically competitive firms:​

Accepted Answer

Monopolistically competitive firms may earn short-run economic profit due to their ability to set prices above marginal cost, but in the long-run, other firms can enter the market and offer similar products, leading to increased competition and driving profits down to zero. Therefore, long-run economic profit is typically zero for monopolistically competitive firms.

Question 14

Figure 10.3 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. In the long run, _____.​ ​
Figure 10.3.
​

Accepted Answer

In the long run, economic profits will attract new firms to enter the market. As a result, the market supply will increase, causing the demand curve faced by the monopolistic competitor to shift leftward. This will reduce the quantity sold and increase the average total cost due to the diminishing returns to product differentiation. Ultimately, the economic profit will be driven to zero, representing a situation of long-run equilibrium in a monopolistically competitive market. Therefore, option D is the correct choice.

Question 15

In the short run, a monopolistically competitive firm continues to increase production _____ if it can at least cover its variable cost.​

Accepted Answer

In the short run, a monopolistically competitive firm will continue to increase production until marginal revenue (MR) equals marginal cost (MC). This is because at this point, the firm is maximizing its profit (or minimizing its loss if it is operating at a loss). Continuing to produce beyond this point would result in additional costs that exceed additional revenues, thus reducing profit.

Question 16

A monopolistically competitive firm is producing at an output level where marginal revenue is greater than marginal cost. This firm should _____ quantity and _____ price to increase profit or reduce losses.​

Accepted Answer

If the firm is producing where MR > MC, it can increase its profit by producing more. To do so without making a loss, it must decrease price to increase demand for its product. Therefore, the firm should increase quantity and decrease price to increase profit or reduce losses.

Question 17

In both monopolistic competition and a non-price-discriminating monopoly, _____.​

Accepted Answer

In both monopolistic competition and non-price-discriminating monopoly, the market structure is such that the firms have some degree of market power, but they cannot completely control the price. Therefore, the demand curve is downward sloping, but the marginal revenue curve lies below it because the firm must decrease the price of all units sold to sell an additional unit. As a result, the marginal revenue curve is flatter than the demand curve, and they intersect where the marginal revenue curve intersects the horizontal axis, which is at a lower quantity and price than the demand curve. Ultimately, this means that the monopoly or monopolistic competitor must sacrifice some revenue per unit sold to sell additional units, which is why the marginal revenue curve lies below the demand curve.

Question 18

Suppose a monopolistically competitive firm is in long-run equilibrium. The firm's demand curve is tangent to its average cost curve at Q = 25. Average cost is minimized at Q = 35, where average cost is $50. Which of the following is true?​

Accepted Answer

In long-run equilibrium, a monopolistically competitive firm produces where its demand curve is tangent to its average cost curve, which is at Q = 25 in this scenario. This is where the firm maximizes profit, as it covers all costs including normal profit.

Question 19

Figure 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. At the profit-maximizing output level, the total cost incurred by the firm in is approximately _____.​ ​
Figure 10.4
​

Accepted Answer

At the profit-maximizing output level, the firm will produce where MR=MC. This occurs at a quantity of 70 units. At this quantity, the marginal cost is approximately $70 and the marginal revenue is approximately $70 as well. The total cost at this quantity is approximately $4,940, which is where the MC curve intersects the ATC curve. Therefore, the answer is D) $4,940.

Question 20

In the long run, a monopolistically competitive firm will:​

Accepted Answer

In the long run, a monopolistically competitive firm will produce where price equals average total cost. This means that the firm will be earning zero economic profit, but it will also not be making a loss. The firm will be able to differentiate its product in order to create a loyal customer base, but it will face competition from other firms in the market. As a result, the firm will not be able to charge a price that is significantly above its cost. Therefore, the firm will have to produce at a level where its price just covers its costs.

Quiz 10: Monopolistic Competition and Oligopoly

Figure 10.3 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. In the short run, the firm will _____. Figure 10.3.

Figure 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. If the firm is producing at a profit-maximizing level of output, its total revenue is _____. Figure 10.4

In long-run equilibrium, a monopolistically competitive firm will produce:

Bubba's Baby Boutique is a monopolistically competitive firm. In the long run, it earns:

Suppose a monopolistically competitive firm is producing at an output level where marginal revenue is less than marginal cost. This firm should _quantity and _ price to increase profit or reduce losses.

In the long run, economic profit earned by a monopolistically competitive firm:

Due to the ease of entry of new firms into monopolistically competitive markets in the long run, existing firms in these markets:

Suppose a monopolistically competitive firm is earning an economic profit. The marginal revenue from selling an additional unit is $30, and the marginal cost of producing that additional unit is $23. The firm should:

A profit-maximizing firm in monopolistic competition should shut down in the short run if:

Monopolistically competitive firms do not achieve allocative efficiency in the long run because:

If there is an increase in the demand for restaurant meals in an economy in the short run, _____.

Figure 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. At the profit-maximizing output level, the firm is: Figure 10.4

Monopolistically competitive firms:

Figure 10.3 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. In the long run, _____. Figure 10.3.

In the short run, a monopolistically competitive firm continues to increase production _____ if it can at least cover its variable cost.

A monopolistically competitive firm is producing at an output level where marginal revenue is greater than marginal cost. This firm should _ quantity and _ price to increase profit or reduce losses.

In both monopolistic competition and a non-price-discriminating monopoly, _____.

Suppose a monopolistically competitive firm is in long-run equilibrium. The firm's demand curve is tangent to its average cost curve at Q = 25. Average cost is minimized at Q = 35, where average cost is $50. Which of the following is true?

Figure 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. At the profit-maximizing output level, the total cost incurred by the firm in is approximately _____. Figure 10.4

In the long run, a monopolistically competitive firm will: