1. A downward-sloping demand curve
a.
is a feature of all monopolistically competitive firms.
b.
means that the firm in question will never experience a zero profit.
c.
causes marginal revenue to exceed price.
d.
prohibits firms from earning positive economic profits in the long run.
2. Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because
a.
there are many other sellers in the market.
b.
there are very few other sellers in the market.
c.
the firm’s product is different from those offered by other firms in the market.
d.
the firm faces the threat of entry into the market by new firms.
3. For a monopolistically competitive firm,
a.
b.
c.
d.
4. For a monopolistically competitive firm, at the profit-maximizing quantity of output,
a.
price exceeds marginal cost.
b.
marginal revenue exceeds marginal cost.
c.
marginal cost exceeds average revenue.
d.
price equals marginal revenue.
5. Product differentiation causes the seller of a good to face what type of demand curve?
a.
downward sloping
b.
vertical
c.
horizontal
d.
Any of the above could be correct since product differentiation does not affect the shape of the demand curve.
6. A firm in a monopolistically competitive market faces a
a.
downward-sloping demand curve because the firm’s product is different from those offered by other firms.
b.
downward-sloping demand curve because there are only a few firms in the market.
c.
horizontal demand curve because there are many firms in the market.
d.
horizontal demand curve because firms can enter the market without restriction.
7. In the short run, a firm in a monopolistically competitive market operates much like a
a.
firm in a perfectly competitive market.
b.
firm in an oligopoly.
c.
monopolist.
d.
monopsonist.
8. Each firm in a monopolistically competitive market
a.
earns both short-run and long-run profits.
b.
faces a downward-sloping demand curve.
c.
cannot earn economic profit in the short run.
d.
sets price equal to marginal cost.
9. In a monopolistically competitive industry, firms set price
a.
equal to marginal cost since each firm is a price taker.
b.
below marginal cost since each firm is a price taker.
c.
above marginal cost since each firm is a price setter.
d.
always a fraction of marginal cost since each firm is a price setter.
10. A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive
market because the firm in the monopolistically competitive market
a.
chooses its profit-maximizing quantity where marginal revenue equals marginal cost.
b.
sells its product in a highly-concentrated market.
c.
faces a downward-sloping demand curve for its product.
d.
can earn profits in the long run.
11. A monopolistically competitive firm chooses
a.
the quantity of output to produce, but the market determines price.
b.
the price, but competition in the market determines the quantity.
c.
price, but output is determined by a cartel production quota.
d.
the quantity of output to produce and the price at which it will sell its output.
12. Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,
a.
marginal revenue will equal average total cost.
b.
price will exceed marginal cost.
c.
marginal cost will exceed average revenue.
d.
average variable cost will be declining.
13. In a monopolistically competitive industry, a firm’s demand curve also represent its
a.
marginal revenue.
b.
marginal cost.
c.
average revenue.
d.
profit.
14. A firm in a monopolistically competitive market is similar to a monopoly in the sense that
(i)
they both face downward-sloping demand curves.
(ii)
they both charge a price that exceeds marginal cost.
(iii)
free entry and exit determines the long-run equilibrium.
a.
(i) only
b.
(ii) only
c.
(i) and (ii) only
d.
(i), (ii), and (iii) only
15. A monopolistically competitive firm’s choice of output level is virtually identical to the choice made by
a.
a perfectly competitive firm.
b.
a duopolist.
c.
a monopolist.
d.
an oligopolist.
16. To maximize its profit, a monopolistically competitive firm
a.
takes the price as given and chooses its quantity, just as a competitive firm does.
b.
takes the price as given and chooses its quantity, just as a colluding oligopolist does.
c.
chooses its quantity and price, just as a competitive firm does.
d.
chooses its quantity and price, just as a monopoly does.
17. Because monopolistically competitive firms produce differentiated products, each firm
a.
faces a demand curve that is horizontal.
b.
faces a demand curve that is vertical.
c.
has no control over product price.
d.
has some control over product price.
18. A monopolistically competitive firm chooses its
a.
price and quantity just as a monopoly does.
b.
quantity but faces a horizontal demand curve just as a competitive firm does.
c.
price but can sell any quantity at the market price just as an oligopoly does.
d.
price and quantity based on the decisions of the other firms in the industry just as an oligopoly does.
19. When a monopolistically competitive firm raises its price,
a.
quantity demanded falls to zero.
b.
quantity demanded declines but not to zero.
c.
the market supply curve shifts outward.
d.
quantity demanded remains constant.
20. A monopolistically competitive firm chooses the quantity to produce where
a.
price equals marginal cost.
b.
demand equals marginal cost.
c.
marginal revenue equals marginal cost.
d.
Both a and c are correct.
21. The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at
which
a.
marginal revenue is equal to marginal cost.
b.
average total cost is equal to marginal revenue.
c.
average total cost is equal to price.
d.
average revenue exceeds average total cost.
22. A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?
a.
average revenue exceeds marginal revenue
b.
marginal revenue exceeds average revenue
c.
average revenue is equal to marginal revenue
d.
revenue is always maximized along with profit
23. A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?
a.
average revenue exceeds marginal revenue
b.
marginal revenue equals marginal cost
c.
price exceeds marginal cost
d.
All of the above are correct.
24. A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?
a.
marginal cost exceeds marginal revenue
b.
average revenue equals marginal cost
c.
price exceeds marginal cost
d.
All of the above are correct.
25. To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of
output at which
a.
price equals marginal cost.
b.
marginal revenue equals marginal cost.
c.
average total cost is minimized.
d.
All of the above are correct.
26. A monopolistically competitive firm faces the following demand schedule for its product:
Price ($)
30
27
24
21
18
15
12
9
6
3
Quantity
3
6
9
12
15
18
21
24
27
30
The firm has total fixed costs of $9 and a constant marginal cost of $3 per unit. The firm will maximize profit with
a.
9 units of output.
b.
15 units of output.
c.
21 units of output.
d.
30 units of output.
27. A monopolistically competitive firm faces the following demand curve for its product:
Price ($)
40
36
32
28
24
20
16
12
8
4
Quantity
4
10
16
22
28
34
40
46
52
58
The firm has total fixed costs of $100 and a constant marginal cost of $25 per unit. The firm will maximize profit with the
production of
a.
4 units of output.
b.
10 units of output.
c.
16 units of output.
d.
22 units of output.
28. A monopolistically competitive firm has the following cost structure:
Output
10
20
30
40
50
60
70
Total Cost($)
800
875
1,025
1,250
1,550
1,925
2,375
The firm faces the following demand curve:
Price ($)
50
42
34
26
18
10
2
Quantity
10
20
30
40
50
60
70
To maximize profit (or minimize losses), the firm will produce
a.
20 units.
b.
30 units.
c.
40 units.
d.
50 units.
29. A monopolistically competitive firm has the following cost structure:
Output
1
2
3
4
5
6
7
Total Cost($)
30
32
36
42
50
63
77
The firm faces the following demand curve:
Price ($)
20
18
15
12
9
7
4
Quantity
1
2
3
4
5
6
7
If the government forces this firm to produce at its efficient scale, it will
a.
produce 3 units and make $9.
b.
produce 4 units and make $6.
c.
produce 5 units and lose $5.
d.
produce 7 units and lose $49.
30. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is
charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total
cost equal to $18. From this information we can infer that
a.
the firm is currently maximizing its profit.
b.
the profits of the firm are negative.
c.
firms are likely to leave this market in the long run.
d.
All of the above are correct.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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
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
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.
$400
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
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.
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.
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.