Question 1

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

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Question 2

In a monopolistically competitive market,

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In a monopolistically competitive market, free entry ensures that firms can enter as long as they can differentiate their products. However, the presence of product differentiation means that firms may not be perfect substitutes for each other, leading to incomplete competition. This can result in either too few or too many firms in the market, as each firm enjoys some market power due to its unique product. So, while there is free entry, the number of firms in the market may not always be ideal.

Question 3

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?

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Question 4

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,

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In monopolistically competitive markets, firms have some market power, which allows them to charge a price above their marginal cost. In long-run equilibrium, the firm will produce where marginal cost equals marginal revenue, but the price they charge will be higher than their marginal cost to maximize profits. Therefore, choice B, price exceeds marginal cost, is the best choice. Choices A, C, and D are not necessarily true in all cases of monopolistically competitive markets.

Question 5

A monopolistically competitive firm

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...

Question 6

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,

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In monopolistically competitive markets, firms differentiate their products to create a slight degree of market power, leading to a downward-sloping demand curve. In the long-run equilibrium, the firm will be producing where its demand curve is tangent to its ATC curve, which means that it is earning zero economic profits. At this point, average revenue will not equal marginal cost or exceed it, as the firm is not trying to maximize profits, but simply cover its costs in the long run. Therefore, the only statement that is true is that the firm's demand curve will be tangent to its average total cost curve.

Question 7

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

Accepted Answer

In long-run equilibrium, a monopolistically competitive firm produces where ATC is equal to demand (as there are no barriers to entry or exit in the long-run). This means that in the long-run, a monopolistically competitive firm earns zero economic profit. Therefore, the firm produces where MR (marginal revenue) is equal to MC (marginal cost). Thus, the correct answer is ATC = demand and MR = MC (option B). Option A is incorrect because P > MC in the short-run, but in the long-run, it must be equal to MC. Option C is incorrect because in long-run equilibrium, P must be equal to ATC. Option D is incorrect because in long-run equilibrium, demand must be equal to MR.

Question 8

In which of the following market structures does free entry and exit play an important role in the long-run equilibrium outcome?

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Question 9

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 selling similar but slightly differentiated products, leading to a competitive market. In the long run, new firms can enter the market with similar products, causing each firm to lose some of their market share, and this increased competition will drive economic profit to zero. In contrast, monopolies and oligopolies can maintain economic profit in the long run as they have stronger barriers to entry, and cartels may be able to maintain economic profit through collusion and cooperation.

Question 10

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

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Question 11

In a long-run equilibrium, a firm in a monopolistically competitive market operates

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In the long run equilibrium, a firm in a monopolistically competitive market produces where marginal revenue equals marginal cost (MR=MC) and charges a price that exceeds its marginal cost. This means that the firm operates on the declining portion of its average total cost curve, where its average total cost is minimized. This is because the firm is able to produce at a larger scale, which allows it to spread its fixed costs over a larger number of units, leading to a lower average total cost.

Question 12

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

Accepted Answer

Positive profits in a monopolistically competitive market indicate that there is demand for the products or services being offered. This creates an incentive for new firms to enter the market and compete with the existing firms, which will lead to a decrease in the profits of the existing firms. Therefore, it is likely that new firms will enter the market.

Question 13

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

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Question 14

When a firm's demand curve is tangent to its average total cost curve, the

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Question 15

In monopolistically competitive markets, economic losses

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In monopolistically competitive markets, economic losses indicate that firms are not earning enough revenue to cover their costs. This suggests that some existing firms will exit the market because they cannot sustain the losses over the long term. These firms may either shut down or merge with other firms to reduce competition and increase their market power. Thus, economic losses are a signal for firms to exit the market, which reduces the number of firms and increases the market power of the remaining firms.

Question 16

A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium has

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Question 17

In monopolistically competitive markets, positive economic profits

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...

Question 18

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, new firms will enter the market due to the economic profits being earned by existing firms. This will increase the number of firms in the market and shift the demand curve for each firm to the left, decreasing their demand and ultimately reducing their profits.

Question 19

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 20

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

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Quiz 16: Monopolistic Competition

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

In a monopolistically competitive market,

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?

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,

A monopolistically competitive firm

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,

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?

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

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

In a long-run equilibrium, a firm in a monopolistically competitive market operates

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

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

When a firm's demand curve is tangent to its average total cost curve, the

In monopolistically competitive markets, economic losses

A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium has

In monopolistically competitive markets, positive economic profits

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?

In monopolistically competitive markets, free entry and exit suggests that

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