Monopolistic Competition 4001
31. If “too much choice” is a problem for consumers, it would occur in which market structure(s)?
a. perfect competition
b. monopoly
c. monopolistic competition
d. perfect competition and monopolistic competition
32. In the short run, a firm operating in a monopolistically competitive market can earn
a. positive economic profits.
b. economic losses.
c. zero economic profits.
d. All of the above are possible.
4002 Monopolistic Competition
33. In the short run, a firm operating in a monopolistically competitive market
a. produces an efficient output level.
b. chooses the maximum price to maximize profits.
c. produces where marginal cost is minimized.
d. chooses a price that exceeds marginal revenue.
34. In the short run, a firm operating in a monopolistically competitive market
a. produces an output level where marginal revenue equals average total cost.
b. sets price equal to demand where marginal revenue equals marginal cost.
c. must earn zero economic profits.
d. maximizes revenues as well as profits.
Monopolistic Competition 4003
35. When a profit-maximizing firm in a monopolistically competitive market charges a price higher
than marginal cost,
a. the firm must be earning a positive economic profit.
b. the firm may be incurring economic losses
c. there is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity.
d. new firms will enter the market in the long run.
36. Which of the following conditions is characteristic of a monopolistically competitive firm in short–
run equilibrium?
a. P = AR
b. MR = MC
c. P > MC
d. All of the above are correct.
4004 Monopolistic Competition
37. Which of the following conditions is characteristic of a monopolistically competitive firm in short–
run equilibrium?
a. P > AR
b. MR > MC
c. P > MC
d. All of the above are correct.
38. Which of the following conditions is characteristic of a monopolistically competitive firm in short–
run equilibrium?
a. P > ATC
b. P = ATC
c. P < ATC
d. Any of the above could be correct.
Monopolistic Competition 4005
39. Which of the following conditions is characteristic of a monopolistically competitive firm in both
the short–run and the long run?
a. P > MC
b. MC = ATC
c. P < MR
d. All of the above are correct.
40. For a profit-maximizing monopolistically competitive firm, price exceeds marginal cost in
a. the short run but not in the long run.
b. the long run but not in the short run.
c. both the short run and the long run.
d. neither the short run nor the long run.
4006 Monopolistic Competition
41. For a profit-maximizing monopolistically competitive firm, marginal revenue equals marginal cost
in
a. the short run but not in the long run.
b. the long run but not in the short run.
c. both the short run and the long run.
d. neither the short run nor the long run.
42. For a profit-maximizing monopolistically competitive firm, marginal revenue exceeds marginal cost
in
a. the short run but not in the long run.
b. the long run but not in the short run.
c. both the short run and the long run.
d. neither the short run nor the long run.
Monopolistic Competition 4007
43. A firm operating in a monopolistically competitive market can earn economic profits in
a. the short run but not in the long run.
b. the long run but not in the short run.
c. both the short run and the long run.
d. neither the short run nor the long run.
44. When a market is monopolistically competitive, the typical firm in the market is likely to
experience a
a. positive profit in the short run and in the long run.
b. positive or negative profit in the short run and a zero profit in the long run.
c. zero profit in the short run and a positive or negative profit in the long run.
d. zero profit in the short run and in the long run.
4008 Monopolistic Competition
45. When a market is monopolistically competitive, the typical firm in the market can earn
a. losses in the short run and profits in the long run.
b. profits in the short run and the long run.
c. losses in the short run and zero profit in the long run.
d. zero profit in the short run and losses in the long run.
46. An important difference between the situation faced by a profit-maximizing monopolistically
competitive firm in the short run and the situation faced by that same firm in the long run is that in
the short run,
a. price may exceed marginal revenue, but in the long run, price equals marginal revenue.
b. price may exceed marginal cost, but in the long run, price equals marginal cost.
c. price may exceed average total cost, but in the long run, price equals average total cost.
d. there are many firms in the market, but in the long run, there are only a few firms in the
market.
Monopolistic Competition 4009
47. Which of the following is not a key feature of monopolistic competition?
a. Excess capacity
b. A markup of price over marginal cost
c. Positive economic profits for firms in the long run
d. Differentiated products among firms in the market
Figure 16-2. The figure is drawn for a monopolistically competitive firm.
48. Refer to Figure 16-2. The firm’s profit-maximizing level of output is
a. 16 units.
b. 24 units.
c. 32 units.
d. 48 units.
4010 Monopolistic Competition
49. Refer to Figure 16-2. In order to maximize profit, the firm will charge a price of
a. $16.
b. $24.
c. $32.
d. $36.
50. Refer to Figure 16–2. Suppose that average total cost is $36 when Q=24. What is the profit–
maximizing price and resulting profit?
a. P=$24, profit=$0
b. P=$36, profit=$144
c. P=$36, profit=$48
d. P=$36, profit=$0
Monopolistic Competition 4011
51. Refer to Figure 16–2. If the average total cost is $30 at the profit–maximizing quantity, then the
firm’s maximum profit is
a. $64.
b. $96.
c. $144.
d. $480.
52. Refer to Figure 16-2. If the average variable cost is $24 at the profit-maximizing quantity, and if
the firm’s fixed costs amount to $60, then the firm’s maximum profit is
a. $–60.
b. $196.
c. $228.
d. $288.
4012 Monopolistic Competition
53. Refer to Figure 16-2. If the average variable cost is $26 at the profit–maximizing quantity, and if
the firm’s profit is $40 at that quantity, then its fixed costs amount to
a. $12.
b. $152.
c. $200.
d. $240.
54. Refer to Figure 16-2. Suppose ATC = $36 when Q = 24. Then the
a. firm is in a long-run equilibrium when it produces 24 units of output.
b. firm is in a long–run equilibrium when it produces 32 units of output.
c. best the firm can do is sustain a loss of $48.
d. best the firm can do is earn a profit of $96.
Monopolistic Competition 4013
55. Refer to Figure 16-2. Suppose you were to add the ATC curve to the diagram to show the firm
in a situation of long–run equilibrium. You would draw the ATC curve
a. with its minimum at the point (Q = 24, P = $36).
b. with its minimum at the point (Q = 24, P = $24).
c. tangent to the demand curve at the point (Q = 24, P = $36).
d. tangent to the demand curve at the point (Q = 32, P = $32).
56. Refer to Figure 16-2. If the ATC=40 at the profit-maximizing level of output, which of the
following will occur in the long run in this industry?
a. Firms will exit this industry.
b. Firms will enter this industry.
c. This firm will continue to earn positive economic profits.
d. This firm will incur losses.
4014 Monopolistic Competition
Figure 16-3
This figure depicts a situation in a monopolistically competitive market.
57. Refer to Figure 16-3. What price will the monopolistically competitive firm charge in this
market?
a. $60
b. $70
c. $75
d. $80
Monopolistic Competition 4015
58. Refer to Figure 16-3. At the profit–maximizing level of output, what is this firm’s total cost of
production?
a. $1,200
b. $1,400
c. $1,600
d. $1,875
59. Refer to Figure 16-3. What is the profit-maximizing price, quantity, and resulting profit?
a. P=$60, Q=20 units, profit=$200
b. P=$80, Q=20 units, profit=$200
c. P=$75, Q=25 units, profit=$100
d. P=$60, Q=40 units, profit=$0
4016 Monopolistic Competition
60. Refer to Figure 16-3. How much consumer surplus will be derived from the purchase of this
product at the monopolistically competitive price?
a. $200
b. $312.50
c. $4000
d. $800
61. Refer to Figure 16-3. How much profit will the monopolistically competitive firm earn in this
situation?
a. $0
b. $80
c. $200
d. $400
Monopolistic Competition 4017
62. Refer to Figure 16-3. How much output will the monopolistically competitive firm produce in
this situation?
a. 20 units
b. 25 units
c. 40 units
d. 80 units
63. Refer to Figure 16-3. This firm is operating
a. in the short run and earning a positive economic profit.
b. in the short run and breaking even.
c. in the long run and earning a positive economic profit.
d. in the long run and incurring and economic loss.
64. Refer to Figure 16–3. Which of the following will occur in the long run in this industry?
a. Firms will exit this industry.
b. Firms will enter this industry.
c. This firm will continue to earn positive economic profits.
d. This firm will incur losses.
4018 Monopolistic Competition
Figure 16-4
65. Refer to Figure 16-4. The firm in this figure is monopolistically competitive. This firm
a. is operating in the long run.
b. is earning a short-run economic profit.
c. is incurring a short–run loss.
d. The answer cannot be determined from the information given.
Monopolistic Competition 4019
66. Refer to Figure 16-4. At the profit–maximizing, or loss–minimizing, output level, the firm in this
figure has total costs of approximately
a. $12,000.
b. $18,000.
c. $21,000.
d. $24,000.
67. Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, how many units
of output will the firm in this figure produce?
a. 20
b. 30
c. 40
d. This firm will choose not to produce.
4020 Monopolistic Competition
68. Refer to Figure 16-4. What price will the monopolistically competitive firm charge in this
market?
a. $400
b. $600
c. $700
d. $800
69. Refer to Figure 16-4. At the profit–maximizing, or loss-minimizing, output level, the firm in this
figure has total revenue of approximately
a. $12,000.
b. $21,000.
c. $24,000.
d. $27,300.