Page 1
1.
Since a monopolistically competitive firm faces a downward-sloping demand curve, its
price will be _____ revenue.
A)
equal to marginal
B)
less than marginal
C)
greater than marginal
D)
equal to total
2.
The demand curve for a firm operating in a monopolistically competitive industry is:
A)
U-shaped.
B)
upward sloping.
C)
downward sloping.
D)
vertical.
3.
The demand curve for a firm in monopolistic competition is _____ facing a perfectly
competitive firm.
A)
downward sloping, unlike the horizontal demand curve
B)
horizontal, unlike the downward-sloping demand curve
C)
horizontal, the same as that
D)
downward sloping, the same as that
4.
The profit-maximizing rule MC = MR is followed by firms operating in:
A)
monopolistic competition but not perfect competition.
B)
perfect competition but not monopolistic competition.
C)
either monopolistic competition or perfect competition, depending on the costs of
production.
D)
both monopolistic competition and perfect competition.
5.
Product differentiation under monopolistic competition means that each firm:
A)
charges the same price.
B)
maximizes profit where MC = P.
C)
faces a downward-sloping demand curve.
D)
always receives economic profits.
6.
Product differentiation under monopolistic competition means that each firm:
A)
charges a slightly different price.
B)
has a pure monopoly.
C)
maximizes profit where MC = P.
D)
faces a horizontal demand curve.
Page 2
7.
In a monopolistically competitive industry:
A)
a firm maximizes profits when MR = MC yet P > MC.
B)
people would be better off if output were reduced.
C)
output could be increased without an increase in total cost.
D)
to maximize profits, firms set MR = MC, and people would be better off if output
were reduced.
8.
A monopolistically competitive firm has a downward-sloping demand curve for its
product, primarily because:
A)
there are no barriers to entry or exit in the long run.
B)
there are many sellers in the industry.
C)
its product is differentiated.
D)
the price is greater than the marginal revenue.
9.
The demand curve for a firm operating in a monopolistically competitive market is
BEST described as:
A)
U-shaped.
B)
upward sloping.
C)
downward sloping.
D)
horizontal.
10.
The _____ demand curve for a firm operating in a monopolistically competitive market
_____ facing a perfectly competitive firm.
A)
downward-sloping; is the same as the demand curve
B)
downward-sloping; differs from the horizontal demand curve
C)
horizontal; differs from the downward-sloping demand curve
D)
horizontal; is the same as the demand curve
11.
If a monopolistically competitive firm is producing the profit-maximizing level of
output and is earning an economic profit in the short run:
A)
price is less than average total costs.
B)
price is less than marginal cost.
C)
marginal revenue is less than marginal cost.
D)
marginal revenue equals marginal cost.
Page 3
12.
Suppose a monopolistically competitive firm is making a profit, but it can increase its
profits by increasing output. At the current level of output:
A)
marginal revenue is greater than marginal cost.
B)
price is less than marginal cost.
C)
price is less than average total cost.
D)
marginal revenue is less than marginal cost.
13.
Suppose Susan owns a business that operates in a market characterized by monopolistic
competition. Susan’s profit-maximizing price is $12, her profit-maximizing output is
900 units per week, and her profits are $1,800 per week. Susan decides that she needs
more profits and therefore raises her price to $15. At the new price of $15:
A)
profits will increase.
B)
profits will remain at $1,800.
C)
marginal revenue will be greater than marginal cost.
D)
marginal revenue will be less than marginal cost.
14.
Suppose a monopolistically competitive firm can increase its profits by decreasing its
output. At the current output:
A)
marginal revenue is less than zero.
B)
price is less than marginal revenue.
C)
marginal revenue is less than marginal cost.
D)
price is less than average total cost.
15.
To maximize profit, a monopolistically competitive firm should produce the level of
output at which:
A)
marginal revenue equals marginal cost.
B)
price equals marginal cost.
C)
price equals total cost.
D)
marginal revenue equals price.
Use the following to answer question 16:
Figure: Monopolistic Competition
Page 4
16.
(Ref 32-1 Figure: Monopolistic Competition) Use Figure 32-1: Monopolistic
Competition. The firm in the figure is producing at the output level that maximizes
profits (minimizes losses). The shaded rectangle depicts the level of:
A)
profit.
B)
loss.
C)
fixed cost.
D)
variable cost.
17.
The price for a firm under monopolistic competition is _____ revenue.
A)
equal to marginal
B)
greater than marginal
C)
less than marginal
D)
greater than total
18.
A firm in monopolistic competition maximizes its profit by producing at a quantity
where:
A)
MC = ATC.
B)
MC = AR.
C)
MC = MR.
D)
MC = P.
19.
If a firm operating in monopolistic competition is producing a quantity that generates
MC > MR, then the marginal decision rule tells us that profit:
A)
can be increased by increasing production.
B)
can be increased by decreasing production.
C)
can be increased by decreasing the price.
D)
is maximized only if MC = P.
20.
If a firm operating in monopolistic competition is producing a quantity that generates
MC < MR, then the marginal decision rule tells us that profit:
A)
can be increased by increasing production.
B)
can be increased by decreasing production.
C)
can be increased by increasing the price.
D)
is maximized only if MC = P.
Page 5
21.
If a firm operating in monopolistic competition is producing a quantity that generates
MC = MR, then the marginal decision rule tells us that profit:
A)
is maximized.
B)
can be increased by decreasing production.
C)
can be increased by decreasing the price.
D)
is maximized only if MC = P.
Use the following to answer questions 22-23:
Figure: Profit Maximization for a Firm in Monopolistic Competition
22.
(Ref 32-2 Figure: Profit Maximization for a Firm in Monopolistic Competition) Use
Figure 32-2: Profit Maximization for a Firm in Monopolistic Competition. Suppose that
an innovation reduces a firm’s costs from ATC to ATC. Before the innovation reduced
the cost, the firm’s economic profit at the profit-maximizing quantity was:
A)
$0.
B)
$30.
C)
$750.
D)
$4,500.
23.
(Ref 32-2 Figure: Profit Maximization for a Firm in Monopolistic Competition) Use
Figure 32-2: Profit Maximization for a Firm in Monopolistic Competition. Suppose that
an innovation reduces a firm’s costs from ATC to ATC. After the innovation reduces the
cost, the firm’s economic profit at the new profit-maximizing quantity is:
A)
$0.
B)
$30.
C)
$1,500.
D)
$3,000.
Page 6
24.
In the short run, a monopolistically competitive firm produces at the optimal level of
output and is earning positive economic profits. Which expression must be true for this
firm?
A)
MR = MC and P = ATC.
B)
MR = MC and P > ATC.
C)
MR > MC and P = ATC.
D)
P = MR = MC > ATC.
25.
A monopolistically competitive firm is operating in the short run at the optimal level of
output and is earning negative economic profits. Which expression must be true for this
firm?
A)
ATC > P > MR = MC.
B)
ATC = P > MR = MC.
C)
ATC > P = MR = MC.
D)
ATC > P > MR > MC.
26.
A gas station operates in a monopolistically competitive market and is in short-run
equilibrium. Suppose that a fixed cost for this firm decreases. As a result, the firm’s
price will _____, the firm’s output will _____, and the firm’s economic profit will
_____.
A)
increase; increase; increase
B)
increase; increase; decrease
C)
stay the same; stay the same; increase
D)
decrease; stay the same; increase
27.
To maximize profits, a firm in monopolistic competition should produce such that
marginal cost:
A)
equals average total cost.
B)
is greater than marginal revenue.
C)
equals marginal revenue.
D)
equals price.
28.
If a firm operating in monopolistic competition is producing a quantity at which _____,
then the marginal decision rule tells us that profit _____.
A)
MC > MR; can be increased by increasing production
B)
MC < MR; can be increased by decreasing production
C)
MC < MR; can be increased by increasing production
D)
MC > MR; is maximized
Page 7
29.
If a firm operating in monopolistic competition is producing a quantity at which MC <
MR, then profit can be _____ by _____.
A)
increased; decreasing production
B)
increased; increasing production
C)
increased; increasing the price
D)
maximized; decreasing production
30.
A firm operating in a monopolistically competitive market is producing a quantity at
which MC = MR. Profit:
A)
can be increased by increasing production.
B)
is maximized.
C)
can be increased by decreasing the price.
D)
is maximized only if MC = P.
31.
If a monopolistically competitive firm is in long-run equilibrium, price:
A)
equals average total cost.
B)
equals marginal cost.
C)
equals marginal revenue.
D)
is greater than average total cost.
32.
In the long run, monopolistically competitive firms:
A)
produce at the level that minimizes average total cost.
B)
set marginal revenue equal to price.
C)
cannot earn an economic profit.
D)
produce such that marginal cost equals price.
33.
Monopolistically competitive firms have zero economic profits in the long run because
of:
A)
excess capacity.
B)
price wars among firms.
C)
easy entry and exit.
D)
excessive advertising.
34.
Toby operates a small deli downtown. The deli industry is monopolistically competitive.
In the long run, Toby will produce where:
A)
marginal revenue equals marginal cost.
B)
price equals minimum average total cost.
C)
price equals marginal cost.
D)
price equals marginal revenue.
Page 8
35.
Suppose the dry-cleaning market is monopolistically competitive and economically
profitable this year. In the long run, the demand for any one firm’s dry-cleaning services
will _____ as more firms enter the industry, causing economic profits to _____.
A)
decrease; become economic losses
B)
decrease; fall to zero
C)
not change; fall
D)
increase; increase
36.
If monopolistically competitive firms are earning positive economic profits in the short
run, then in the long run:
A)
firms will leave the industry.
B)
the demand curves faced by existing firms will move to the right.
C)
economic profits will increase.
D)
economic profits will be reduced to zero.
37.
When a monopolistically competitive firm is making zero economic profits, it is
producing so that the average total cost curve is tangent to the demand curve. At this
output:
A)
the firm is maximizing profits, and marginal cost must equal marginal revenue.
B)
the firm is not maximizing profits, and a slight increase or decrease in output will
lead to positive profits.
C)
since economic profits are zero, the condition that marginal revenue equals
marginal cost is irrelevant.
D)
the condition that marginal revenue equals marginal cost continues to be relevant,
but the marginal revenue and marginal cost curves need not intersect directly below
the point of tangency between the average total cost curve and the demand curve.
38.
Toby operates a small deli downtown. The deli industry is monopolistically competitive.
If some delis leave the industry, Toby’s _____ curve will shift to the _____.
A)
marginal cost; left
B)
marginal cost; right
C)
demand; left
D)
demand; right
39.
In monopolistic competition:
A)
firms may advertise to increase demand for their product.
B)
entry of new firms shifts the demand curve for existing firms to the right.
C)
when some firms exit, the demand curve for the firms that remain in the industry
shifts to the left.
D)
firms earn large economic profits in the long run.
Page 9
40.
The model of monopolistic competition characterizes the market for plumbing services
in a city. Suppose that the market is in long-run equilibrium. For a typical plumbing
firm, price:
A)
equals average total cost.
B)
exceeds average total cost.
C)
is less than average total cost.
D)
is greater than the average for all other firms in the market.
41.
The model of monopolistic competition characterizes the market for plumbing services
in a city. This market is initially in long-run equilibrium, but then there is an increase in
market demand for plumbing services. We expect that in the long run:
A)
firms will leave the plumbing market.
B)
there will be a short-run increase in the number of firms, but then the number will
return to the original level.
C)
new firms will enter the plumbing market.
D)
firms will shut down, but they will not leave the industry.
42.
In the long run, monopolistically competitive firms tend to have:
A)
high economic profits.
B)
zero economic profits.
C)
negative economic profits.
D)
substantial economic losses.
43.
In the long run, if a monopolistically competitive firm produces the optimal level of
output:
A)
P = ATC = MR = MC.
B)
P > ATC > MR = MC.
C)
P = ATC > MR > MC.
D)
P = ATC > MR = MC.
Page 10
Use the following to answer question 44:
Figure: Possible Long-Run Outcome
44.
(Figure 32-3: Possible Long-Run Outcome) Use Figure 32-3: Possible Long-Run
Outcome. In the figure, which price and quantity refer to a potential long-run profit
maximizing outcome for a firm producing in a monopolistically competitive market?
A)
P1 and Q3
B)
P1 and Q1
C)
P2 and Q2
D)
P1 and Q4
45.
In the short run, a monopolistically competitive firm produces at the optimal level of
output and is earning positive economic profits. In the long run, the _____ of firms
shifts the firm’s demand and marginal revenue curves _____, which _____ the firm’s
level of output and _____ the price it can charge until price equals average total cost.
A)
entry; leftward, decreases; decreases
B)
entry; leftward, decreases; increases
C)
entry; downward, decreases; decreases
D)
exit; rightward, increases; increases
46.
In a long-run equilibrium, firms in a monopolistically competitive industry sell at a
price:
A)
equal to marginal cost.
B)
less than marginal cost.
C)
greater than marginal cost.
D)
less than marginal revenue.
Page 11
47.
General Snacks is a typical firm in monopolistic competition. If the market is in
long-run equilibrium, then the price General Snacks charges for its snack goods:
A)
equals average total cost.
B)
exceeds average total cost.
C)
is less than average total cost.
D)
is more than the average for all other firms in the market.
48.
General Snacks is a typical firm in monopolistic competition. Initially, the market is in
long-run equilibrium, and then there is an increase in the market demand for snacks. In
the long run, the economic profits of typical firms in the industry will be:
A)
typical of those earned by monopoly firms.
B)
positive but less than the level typically earned by monopoly firms.
C)
zero.
D)
negative.
49.
In the long run, monopolistically competitive firms:
A)
always earn high economic profits.
B)
tend to earn zero economic profits.
C)
usually incur negative economic profits.
D)
usually incur substantial economic losses.
Use the following to answer questions 50-58:
Figure: Firms in Monopolistic Competition
Page 12
50.
(Ref 32-4 Figure: Firms in Monopolistic Competition) Use Figure 32-4: Firms in
Monopolistic Competition. In panel (A) of the figure, the profit-maximizing quantity of
output is determined by the intersection at point:
A)
K.
B)
P.
C)
N.
D)
O.
51.
(Ref 32-4 Figure: Firms in Monopolistic Competition) Use Figure 32-4: Firms in
Monopolistic Competition. In panel (B) of the figure, the profit-maximizing quantity of
output is determined by the intersection at point:
A)
Q.
B)
R.
C)
S.
D)
T.
52.
(Ref 32-4 Figure: Firms in Monopolistic Competition) Use Figure 32-4: Firms in
Monopolistic Competition. In panel (C) of the figure, the profit-maximizing quantity of
output is determined by the intersection at point:
A)
U.
B)
V.
C)
W.
D)
X.
53.
(Ref 32-4 Figure: Firms in Monopolistic Competition) Use Figure 32-4: Firms in
Monopolistic Competition. In panel (A) of the figure, economic profit per unit is the
vertical distance between points:
A)
K and L.
B)
L and O.
C)
M and N.
D)
N and O.
54.
(Ref 32-4 Figure: Firms in Monopolistic Competition) Use Figure 32-4: Firms in
Monopolistic Competition. In panel (C) of the figure, economic loss per unit is the
vertical distance between points:
A)
X and T.
B)
U and W.
C)
V and W.
D)
V and T.
Page 13
55.
(Ref 32-4 Figure: Firms in Monopolistic Competition) Use Figure 32-4: Firms in
Monopolistic Competition. A positive economic profit will be earned if the
profit-maximizing price is _____ in panel _____.
A)
F; (A)
B)
G; (A)
C)
H; (B)
D)
I; (C)
56.
(Ref 32-4 Figure: Firms in Monopolistic Competition) Use Figure 32-4: Firms in
Monopolistic Competition. Zero economic profit will be earned if the profit-maximizing
price is _____ in panel _____.
A)
F; (A)
B)
G; (A)
C)
H; (B)
D)
I; (C)
57.
(Ref 32-4 Figure: Firms in Monopolistic Competition) Use Figure 32-4: Firms in
Monopolistic Competition. There will be a negative economic profit (or an economic
loss) earned at the profit-maximizing price _____ in panel _____.
A)
G; (A)
B)
H; (B)
C)
I; (C)
D)
J; (C)
58.
(Ref 32-4 Figure: Firms in Monopolistic Competition) Use Figure 32-4: Firms in
Monopolistic Competition. A long-run equilibrium is illustrated at the
profit-maximizing price _____ in panel _____.
A)
F; (A)
B)
G; (A)
C)
H; (B)
D)
I; (C)
Page 14
Use the following to answer questions 59-65:
Figure: Profits in Monopolistic Competition
59.
(Ref 32-5 Figure: Profits in Monopolistic Competition) Use Figure 32-5: Profits in
Monopolistic Competition. In panel (A) of the figure, the profit-maximizing quantity of
output is determined by the intersection at point:
A)
G.
B)
F.
C)
H.
D)
C.
60.
(Ref 32-5 Figure: Profits in Monopolistic Competition) Use Figure 32-5: Profits in
Monopolistic Competition. In panel (B) of the figure, the profit-maximizing quantity of
output is determined by the intersection at point:
A)
J.
B)
K.
C)
L.
D)
M.
61.
(Ref 32-5 Figure: Profits in Monopolistic Competition) Use Figure 32-5: Profits in
Monopolistic Competition. In panel (C) of the figure, the profit-maximizing quantity of
output is determined by the intersection at point:
A)
P.
B)
S.
C)
R.
D)
Q.
Page 15
62.
(Ref 32-5 Figure: Profits in Monopolistic Competition) Use Figure 32-5: Profits in
Monopolistic Competition. A positive economic profit is earned if the
profit-maximizing price is _____ in panel _____.
A)
E; (B)
B)
B; (A)
C)
A; (A)
D)
N; (C)
63.
(Ref 32-5 Figure: Profits in Monopolistic Competition) Use Figure 32-5: Profits in
Monopolistic Competition. A zero economic profit is earned if the profit-maximizing
price is _____ in panel _____.
A)
A; (A)
B)
B; (A)
C)
N; (C)
D)
E; (B)
64.
(Ref 32-5 Figure: Profits in Monopolistic Competition) Use Figure 32-5: Profits in
Monopolistic Competition. A negative economic profit (or economic loss) is earned if
the profit-maximizing price is _____ in panel _____.
A)
E; (B)
B)
B; (A)
C)
N; (C)
D)
O; (C)
65.
(Ref 32-5 Figure: Profits in Monopolistic Competition) Use Figure 32-5: Profits in
Monopolistic Competition. A long-run equilibrium is illustrated at the
profit-maximizing price _____ in panel _____.
A)
A; (A)
B)
E; (B)
C)
B; (A)
D)
N; (C)
Page 16
Use the following to answer questions 66-71:
Figure: The Restaurant Market
66.
(Ref 32-6 Figure: The Restaurant Market) Use Figure 32-6: The Restaurant Market. The
figure shows curves facing a typical restaurant. Assume that many firms, differentiated
products, and easy entry and exit characterize the restaurant industry. The restaurant
shown here will maximize profits at quantity:
A)
Q1.
B)
Q2.
C)
Q3.
D)
Not enough information is given to answer the question.
67.
(Ref 32-6 Figure: The Restaurant Market) Use Figure 32-6: The Restaurant Market. The
figure shows curves facing a typical restaurant. Assume that many firms, differentiated
products, and easy entry and exit characterize the restaurant market. For the restaurant
shown here, the profit-maximizing price is:
A)
P1.
B)
P2.
C)
P3.
D)
Not enough information is given to answer the question.
Page 17
68.
(Ref 32-6 Figure: The Restaurant Market) Use Figure 32-6: The Restaurant Market. The
figure shows curves facing a typical restaurant. Assume that many firms, differentiated
products, and easy entry and exit characterize the restaurant market. For the restaurant
shown here, the profit per unit is represented by the vertical distance between the points:
A)
a and e.
B)
f and d.
C)
b and f.
D)
b and d.
69.
(Ref 32-6 Figure: The Restaurant Market) Use Figure 32-6: The Restaurant Market. The
figure shows curves facing a typical restaurant. Assume that many firms, differentiated
products, and easy entry and exit characterize the restaurant market. If the restaurant
shown here were to raise its price above the profit-maximizing price, its total revenue
would:
A)
decrease.
B)
increase.
C)
not change.
D)
Not enough information is given to answer the question.
70.
(Ref 32-6 Figure: The Restaurant Market) Use Figure 32-6: The Restaurant Market. The
figure shows curves facing a typical restaurant. Assume that many firms, differentiated
products, and easy entry and exit characterize the market. In the long run:
A)
restaurants will leave the market.
B)
restaurants will enter the market.
C)
restaurants will neither enter nor exit the market.
D)
Not enough information is given to answer the question.
71.
(Ref 32-6 Figure: The Restaurant Market) Use Figure 32-6: The Restaurant Market. The
figure shows curves facing a typical restaurant. Assume that many firms, differentiated
products, and easy entry and exit characterize the restaurant market. In long-run
equilibrium, the economic profit earned by the typical restaurant in the community will
be:
A)
negative.
B)
zero.
C)
equal to the level shown in the figure.
D)
Not enough information is given to answer the question.
Page 18
72.
The model of monopolistic competition characterizes a city’s market for plumbing
services. Suppose that the market is initially in long-run equilibrium, and then overall
demand for plumbing services increases. In the short run, the price for plumbing
services will _____ and total output in the market will _____.
A)
fall; fall
B)
not change; not change
C)
rise; rise
D)
rise; fall
Page 19
Use the following to answer questions 73-77:
Figure: The Market for Gas Stations
116. (Ref 32-7 Figure: The Market for Gas Stations) Use Figure 32-7: The Market for
Gas Stations. Assume that the market for gas stations is characterized by many firms,
differentiated products, easy entry, and easy exit. The typical gas station will maximize
profits at a quantity of:
A) Q1.
B) Q2.
C) Q3.
D) Not enough information is given to answer the question.
Ans: B
Refer To: Ref 32-7 Figure: The Market for Gas Stations
bloomslevel: Applying
modulename: Module 32
levelofdifficulty: Moderate
questiontype: Multiple Choice
sequence: 15116
topic: Understanding Monopolistic Competition
Page 20
73.
(Ref 32-7 Figure: The Market for Gas Stations) Use Figure 32-7: The Market for Gas
Stations. Assume that the market for gas stations is characterized by many firms,
differentiated products, easy entry, and easy exit. For the typical gas station, the
profit-maximizing price would be:
A)
P1.
B)
P2.
C)
P3.
D)
Not enough information is given to answer the question.
74.
(Ref 32-7 Figure: The Market for Gas Stations) Use Figure 32-7: The Market for Gas
Stations. The figure shows curves facing a typical gas station in a large town. The
market is characterized by many firms, differentiated products, easy entry, and easy exit.
If the gas station shown here were to raise its price above the profit-maximizing price,
the outcome would be _____ in total revenue.
A)
a reduction
B)
an increase
C)
no change
D)
Not enough information is given to answer the question.
75.
(Ref 32-7 Figure: The Market for Gas Stations) Use Figure 32-7: The Market for Gas
Stations. The figure shows curves facing a typical gas station in a large town. The
market is characterized by many firms, differentiated products, easy entry, and easy exit.
If the gas station here is typical, then in the long run, we would expect to observe:
A)
a few gas stations leaving the market.
B)
new gas stations entering the market.
C)
neither entry nor exit.
D)
many gas stations leaving the market.
76.
(Ref 32-7 Figure: The Market for Gas Stations) Use Figure 32-7: The Market for Gas
Stations. The figure shows curves facing a typical gas station in a large town. The
market is characterized by many firms, differentiated products, easy entry, and easy exit.
If the gas station here is typical, prices charged by firms in the market are likely to:
A)
fall in the long run.
B)
rise in the long run.
C)
remain unchanged.
D)
rise dramatically in the long run.
Page 21
77.
(Ref 32-7 Figure: The Market for Gas Stations) Use Figure 32-7: The Market for Gas
Stations. This market is characterized by many firms, differentiated products, easy
entry, and easy exit. In long-run equilibrium, the economic profit earned by the typical
gas station will be:
A)
equal to the level shown in the figure.
B)
negative.
C)
zero.
D)
Not enough information is given to answer the question.
78.
The model of monopolistic competition characterizes the market for plumbing services.
This market is initially in long-run equilibrium, but then there is an increase in the
market demand for plumbing services. We expect that in the long run, the economic
profits of typical firms will be:
A)
typical of those earned by monopoly firms.
B)
negative.
C)
zero.
D)
positive but less than the level typically earned by monopoly firms.
79.
General Snacks is a typical firm in a market characterized by monopolistic competition.
Initially, the market is in long-run equilibrium, and then there is an increase in the
market demand for snacks. In the short run the price of snacks will _____ and the
market output of snacks will _____.
A)
fall; fall
B)
remain unchanged; remain unchanged
C)
rise; fall.
D)
rise; rise
80.
General Snacks is a typical firm in a market characterized by the model of monopolistic
competition. Initially, the market is initially in long-run equilibrium, and then there is an
increase in the market demand for snacks. We expect that:
A)
in the long run, new firms will enter the market.
B)
there will be a short-run increase in the number of firms, but in the long run, the
number of firms will return to the original level.
C)
firms will leave the market in the long run.
D)
firms will shut down, but they will not leave the industry in the long run.
Page 22
Use the following to answer questions 81-84:
Figure: Monopolistic Competition II
81.
(Ref 32-8 Figure: Monopolistic Competition II) Use Figure 32-8: Monopolistic
Competition II. Panel(s) _____ in the figure show(s) a monopolistic competitor earning
a loss in the short run.
A)
(a)
B)
(b)
C)
(c)
D)
(b) and (c)
82.
(Ref 32-8 Figure: Monopolistic Competition II) Use Figure 32-8: Monopolistic
Competition II. Which panel(s) in the figure show(s) a monopolistic competitor earning
a profit in the short run?
A)
panel (a) only
B)
panel (b) only
C)
panel (c) only
D)
panels (a) and (c)
83.
(Ref 32-8 Figure: Monopolistic Competition II) Use Figure 32-8: Monopolistic
Competition II. Which panel(s) in the figure show(s) a monopolistic competitor
producing where price is greater than marginal revenue?
A)
panel (a) only
B)
panel (b) only
C)
panel (c) only
D)
panels (a), (b), and (c)
Page 23
84.
(Ref 32-8 Figure: Monopolistic Competition II) Use Figure 32-8: Monopolistic
Competition II. Which panel(s) in the figure show(s) a monopolistic competitor in
long-run equilibrium?
A)
panel (a) only
B)
panel (b) only
C)
panel (c) only
D)
panels (a), (b), and (c)
Use the following to answer questions 85-86:
Figure: Monopolistic Competition III
85.
(Ref 32-9 Figure: Monopolistic Competition III) Use Figure 32-9: Monopolistic
Competition III. The figure shows the demand, marginal revenue, marginal cost, and
average total cost curves for Pat’s Pizza Parlor, a monopolistic competitor in the
food-to-go industry. Pat’s Pizza Parlor’s profit at the profit-maximizing quantity will be:
A)
$0.
B)
$350.
C)
$700.
D)
$900.
Page 24
86.
(Ref 32-9 Figure: Monopolistic Competition III) Use Figure 32-9: Monopolistic
Competition III. The figure shows the demand, marginal revenue, marginal cost, and
average total cost curves for Pat’s Pizza Parlor, a monopolistic competitor in the
food-to-go industry. In the long run, the demand curve for Pat’s Pizza Parlor will shift to
the _____ as competitors _____ the market.
A)
right; enter
B)
right; leave
C)
left; enter
D)
left; leave
87.
Toby operates a small deli downtown. The deli industry is monopolistically competitive.
Toby is producing the quantity that minimizes his average total cost. Assuming that
Toby is maximizing profits, his:
A)
marginal cost is less than his average total cost.
B)
marginal cost is less than his marginal revenue.
C)
price equals his average total cost.
D)
price is more than his average total cost.
88.
Toby operates a small deli downtown. The deli industry is monopolistically competitive.
Toby, along with every other deli in town, is producing the quantity that minimizes
average total cost. Assuming the delis are maximizing profits, the:
A)
number of delis will eventually decrease.
B)
number of delis will eventually increase.
C)
delis’ prices equal their average total costs.
D)
delis have excess capacity.
Use the following to answer question 89:
Figure: Monopolistic Competition IV
Page 25
89.
(Ref 32-10 Figure: Monopolistic Competition IV) Use Figure 32-10: Monopolistic
Competition IV. The firm in the figure is producing at the output level that maximizes
profits (minimizes losses). The shaded rectangle represents the firm’s:
Figure: Monopolistic Competition IV
A)
profit.
B)
loss.
C)
fixed cost.
D)
variable cost.
Use the following to answer questions 90-91:
Figure: Monopolistic Competition V
90.
(Ref 32-11 Figure: Monopolistic Competition V) Use Figure 32-11: Monopolistic
Competition V. The figure illustrates a firm in the _____; in the _____, the demand and
marginal revenue curves will shift to the _____.
A)
short run; long run; right
B)
long run; short run; left
C)
short run; long run; left
D)
long run; short run; right
Page 26
91.
(Ref 32-11 Figure: Monopolistic Competition V) Use Figure 32-11: Monopolistic
Competition V. In the figure, in the long run firms will:
A)
enter this market until all firms earn zero economic profit.
B)
exit this market until all remaining firms earn zero profit.
C)
enter this market, leading to excess profit for all the firms.
D)
exit this market, leading to excess profit for all the remaining firms.
Use the following to answer questions 92-93:
Figure: Monopolistic Competition VI
92.
(Ref 32-12 Figure: Monopolistic Competition VI) Use Figure 32-12: Monopolistic
Competition VI. The figure illustrates a firm in the _____; in the _____, the demand and
marginal revenue curves will shift to the _____.
A)
short run; long run; right
B)
long run; short run; left
C)
short run; long run; left
D)
long run; short run; right
93.
(Ref 32-12 Figure: Monopolistic Competition VI) Use Figure 32-12: Monopolistic
Competition VI. In the figure, in the long run firms will:
A)
enter this market until all firms earn a zero economic profit.
B)
exit this market until all remaining firms earn a zero economic profit.
C)
enter this market, leading to excess profit for all of the firms.
D)
exit this market, leading to excess profit for all of the remaining firms.
Page 27
Use the following to answer questions 94-102:
Figure: Profit Maximization in Monopolistic Competition
94.
(Ref 32-13 Figure: Profit Maximization in Monopolistic Competition) Use Figure
32-13: Profit Maximization in Monopolistic Competition. In panel (A) of the figure, the
profit-maximizing price and quantity are _____ and _____.
A)
S; M
B)
P; M
C)
P; Q
D)
T; Q
95.
(Ref 32-13 Figure: Profit Maximization in Monopolistic Competition) Use Figure
32-13: Profit Maximization in Monopolistic Competition. A firm in monopolistic
competition will maximize profits by producing so that:
A)
P = MC.
B)
MR = MC.
C)
P = MR.
D)
P – ATC (i.e., economic profit per unit) is maximized.
Page 28
96.
(Ref 32-13 Figure: Profit Maximization in Monopolistic Competition) Use Figure
32-13: Profit Maximization in Monopolistic Competition. In the short run, a firm in
monopolistic competition may earn economic profits. The profits in panel (A) of the
figure are:
A)
P – S.
B)
(P – S) * M.
C)
(P – S) * Q.
D)
(P – T) * Q.
97.
(Ref 32-13 Figure: Profit Maximization in Monopolistic Competition) Use Figure
32-13: Profit Maximization in Monopolistic Competition. If other firms see economic
profits in the industry, they will enter it, and the demand curve for firms already in the
industry will shift to the _____; in the long run, this will result in an economic profit
_____ zero and a price _____ ATC.
A)
right; equal to; equal to
B)
right; greater than; greater than
C)
left; less than; less than
D)
left; equal to; equal to
98.
(Ref 32-13 Figure: Profit Maximization in Monopolistic Competition) Use Figure
32-13: Profit Maximization in Monopolistic Competition. In monopolistic competition,
long-run equilibrium is characterized by:
A)
P > MR.
B)
P < MR.
C)
P = MR.
D)
profit maximization, which occurs where P = MR = MC.
99.
(Ref 32-13 Figure: Profit Maximization in Monopolistic Competition) Use Figure
32-13: Profit Maximization in Monopolistic Competition. In panel (A) of the figure, if
the firm raises its price above P, it will _____ customers.
A)
lose all of its
B)
still have some
C)
not lose any
D)
gain many new
Page 29
100.
(Ref 32-13 Figure: Profit Maximization in Monopolistic Competition) Use Figure
32-13: Profit Maximization in Monopolistic Competition. When the demand curve for a
firm in monopolistic competition shifts, the marginal revenue curve:
A)
must also shift.
B)
shifts in the opposite direction.
C)
will stay the same.
D)
will shift, but the profit-maximizing quantity will not change.
101.
(Ref 32-13 Figure: Profit Maximization in Monopolistic Competition) Use Figure
32-13: Profit Maximization in Monopolistic Competition. In panel (B) of the figure, the
long-run equilibrium will result in:
A)
no economic profits.
B)
no accounting profits.
C)
a tangency of the ATC curve with the MR curve.
D)
no economic profits and a tangency of the ATC curve with the MR curve.
102.
(Ref 32-13 Figure: Profit Maximization in Monopolistic Competition) Use Figure
32-13: Profit Maximization in Monopolistic Competition. In panel (B) of the figure, the
profit-maximizing price is P2 and the ATC curve is tangent to the new demand curve.
The portion of the ATC that lies to the right of the tangency and continues down to the
intersection of MC with ATC indicates:
A)
that the firm is incurring an economic loss.
B)
that the firm is earning an economic profit.
C)
overutilization.
D)
excess capacity.
103.
A monopolistically competitive industry has some of the characteristics of perfect
competition, including:
A)
many firms making economic profit in the long run.
B)
easy entry and exit.
C)
identical products.
D)
easy entry and exit and identical products.
Page 30
104.
Which statement is true?
A)
For choosing the profit-maximizing quantity, the short-run decision-making
process of a firm in perfect competition is the same as that of a firm in
monopolistic competition since they produce so that P > MC.
B)
In the long run in perfect competition, economic profits equal zero, and in
monopolistic competition in the long run, economic profits are very large.
C)
In perfect competition, P = MC, and in monopolistic competition, MR = MC, but P
> MC and there is excess capacity.
D)
In both perfect competition and monopolistic competition, P equals minimum
average total cost in the long run.
105.
The price in long-run equilibrium for a monopolistically competitive firm is _____ and
output is _____, compared with that of a perfectly competitive firm with an identical
production function and cost curves.
A)
higher; higher
B)
higher; lower
C)
lower; higher
D)
lower; lower
106.
The profit-maximizing rule, expressed as _____, is adhered to by firms operating in
_____ markets.
A)
MC > MR; monopolistically competitive but not perfectly competitive
B)
MC = MR; both monopolistically competitive and perfectly competitive
C)
MC > MR; perfectly competitive but not monopolistically competitive
D)
MC = MR; perfectly competitive but not monopolistically competitive
107.
The failure to produce enough to minimize average total cost is termed:
A)
economic profits.
B)
excess capacity.
C)
advertising.
D)
excess production.
108.
The main characteristic that distinguishes monopolistic competition from perfect
competition is:
A)
easy entry and exit.
B)
many firms.
C)
differentiated products.
D)
that in perfect competition, to maximize profits, a firm will produce where MR =
MC.
Page 31
109.
Monopolistic competition in an industry results in:
A)
overutilization of plants.
B)
chronic excess capacity.
C)
less advertising than in perfect competition.
D)
lower prices than in perfect competition.
110.
Long-run equilibrium in perfect competition and in monopolistic competition are similar
because in both models, firms _____ in the long run.
A)
produce at the minimum point of the average total cost curve
B)
set price equal to marginal cost
C)
make zero economic profits
D)
have excess capacity
111.
The broccoli market is perfectly competitive. This means that the price of broccoli is
_____ than if the market were monopolistically competitive, and total broccoli output in
the market is _____ than if it were monopolistically competitive.
A)
lower; higher
B)
lower; lower
C)
higher; lower
D)
higher; higher
112.
A monopolistically competitive firm has excess capacity in the long run. This means
that it:
A)
produces less than the output at which average total costs are minimized.
B)
produces less than the output at which price and marginal cost are equal.
C)
could produce more by moving to a larger plant.
D)
doesn’t maximize profits.
113.
The restaurant industry is characterized by excess capacity. This means that:
A)
restaurants are producing more than their profit-maximizing level.
B)
the profit-maximizing level is less than the level that minimizes average total costs.
C)
restaurants are producing less than their profit-maximizing level.
D)
the quantity of restaurant meals supplied exceeds the quantity of restaurant meals
demanded.
Page 32
114.
Firms in the monopolistically competitive movie industry face excess capacity, which
means that there are _____ movies than the output at which _____ cost is minimized.
A)
fewer; marginal
B)
more; average total
C)
fewer; average total
D)
more; marginal
Use the following to answer questions 115-117:
Figure: Comparing Long-Run Equilibriums
115.
(Ref 32-14 Figure: Comparing Long-Run Equilibriums) Use Figure 32-14: Comparing
Long-Run Equilibriums. Which statement is false?
A)
The firm in panel (a) produces where price equals marginal cost and average total
cost.
B)
The firm in panel (b) produces where price equals marginal cost.
C)
The firm in panel (b) produces where price equals average total cost.
D)
The firm in panel (a) produces where price equals average total cost.
116.
(Ref 32-14 Figure: Comparing Long-Run Equilibriums) Use Figure 32-14: Comparing
Long-Run Equilibriums. Which statement is true?
A)
Firms in the market structure shown in panel (a) cannot have profits in the long
run, but those in panel (b) can.
B)
Both panels show markets that have few interdependent firms.
C)
Both panels show markets that produce identical products.
D)
Both panels show markets that have many firms.
Page 33
117.
(Ref 32-14 Figure: Comparing Long-Run Equilibriums) Use Figure 32-14: Comparing
Long-Run Equilibriums. Which statement is false?
A)
Firms in panel (a) cannot have profits in the long run, but those in panel (b) can.
B)
Both panels show markets in which firms are covering all of their implicit and
explicit costs.
C)
Firms in the market shown in panel (a) produce identical products, whereas those
in panel (b) produce similar but differentiated products.
D)
Both firms show markets that have many firms.
118.
Monopolistic competition in an industry will result in _____ because firms produce
_____.
A)
overutilization of plants; the minimum-cost output
B)
less advertising than in perfect competition; the minimum-cost output
C)
lower prices than in perfect competition; more than the minimum-cost output
D)
chronic excess capacity; less than the minimum-cost output
119.
When the profit-maximizing level of output is less than the output associated with the
minimum possible average total cost of production, a firm is said to have:
A)
economic profits.
B)
excess capacity.
C)
advertising.
D)
excess production.
120.
Which statement is true?
A)
All markets should be oligopolies because that is the most efficient market
structure.
B)
Monopolistic competition results in excess capacity since, in the long run, the point
where MR = MC is to the right of the minimum of the ATC curve.
C)
In monopolistic competition, firms earn large economic profits in the long run.
D)
In monopolistic competition, firms earn zero economic profits in the long run.
121.
In contrast with perfect competition, in monopolistic competition:
A)
entry and exit are easy.
B)
there are many firms.
C)
products are differentiated.
D)
a firm will produce where MR = MC in order to maximize profits.
Page 34
122.
Firm A and firm B have identical cost curves and operate in markets with similar market
demand curves. Firm A operates in perfect competition, and firm B operates in
monopolistic competition. In the long run, firm A will charge _____ and produce _____
than will firm B.
A)
less; less
B)
more; more
C)
more; less
D)
less; more
123.
Monopolistically competitive firms produce less than the output at which average total
cost is minimized in the long run. As a result, there is:
A)
irrational capacity.
B)
excess capacity.
C)
product differentiation.
D)
zero economic profit.
124.
The excess capacity in monopolistic competition may be viewed as:
A)
the cost of product diversity.
B)
efficient.
C)
the reason P = MR = MC in monopolistic competition.
D)
the advantage of monopolistic competition over monopoly.
125.
Because monopolistically competitive firms charge a price that is greater than marginal
cost:
A)
monopolistic competition is efficient.
B)
monopolistic competition is inefficient.
C)
the marginal benefit to society of an additional unit of output is below its marginal
cost.
D)
monopolistic competition is inefficient and the marginal benefit to society of an
additional unit of output is below its marginal cost.
126.
Which statement is true?
A)
Monopolistic competition and perfect competition are both inefficient.
B)
Monopolistic competition is efficient because of product differentiation.
C)
The inefficiency of monopolistic competition is arguably a small price to pay for
the wide range of product choices it offers.
D)
The inefficiency of monopolistic competition is a result of advertising expenses.
Page 35
127.
In long-run equilibrium, a firm in monopolistic competition is similar to a monopoly
because it:
A)
earns no economic profit.
B)
charges a price equal to marginal cost.
C)
charges a price greater than marginal cost.
D)
charges a price equal to average total cost.
128.
The problem of wasteful duplication in monopolistic competition is due to:
A)
excess capacity.
B)
a lack of physical and human capital.
C)
barriers to entry.
D)
the lack of close substitutes for products produced by monopolistically competitive
firms.
129.
Excess capacity is a problem in monopolistic competition because, if there were fewer
firms in the industry:
A)
there would be more choices for consumers.
B)
average total costs would be higher and profits would be lower.
C)
average total costs would be lower and the prices paid by consumers could be
lower.
D)
there would be less need for government regulation.
130.
Which statement is true of firms in both perfect competition and monopolistic
competition?
A)
The long-run price is equal to marginal revenue, marginal cost, and average total
cost.
B)
Long-run economic profits are equal to zero.
C)
The long-run level of output is at the point where average total cost is minimized.
D)
Price is equal to marginal cost, ensuring that the efficient level of output is
produced.
131.
In long-run equilibrium in perfect competition, marginal cost is:
A)
greater than price.
B)
equal to price.
C)
less than price.
D)
related to price but not in a predictable way.
Page 36
132.
In long-run equilibrium in monopolistic competition, marginal cost is:
A)
greater than price.
B)
equal to price.
C)
less than price.
D)
related to price but not in a predictable way.
133.
In long-run equilibrium in perfect competition, price is:
A)
greater than average total cost.
B)
equal to average total cost at an output below the point where average total cost is
minimized.
C)
equal to average total cost at its minimum.
D)
equal to average total cost at an output above the point where average total cost is
minimized.
134.
In long-run equilibrium in monopolistic competition, price is:
A)
greater than average total cost.
B)
equal to average total cost at an output below where average total cost is
minimized.
C)
equal to average total cost at its minimum.
D)
equal to average total cost at an output above where average total cost is
minimized.
Page 37
Use the following to answer questions 135-140:
135.
(Ref 32-15 Table: Spring Water) Use Table 32-15: Spring Water. The table shows the
demand and cost data for a firm in a monopolistically competitive industry producing
drinking water from underground springs. The profit-maximizing output is _____ cases.
A)
5
B)
6
C)
7
D)
8
136.
(Ref 32-15 Table: Spring Water) Use Table 32-15: Spring Water. The table shows the
demand and cost data for a firm in a monopolistically competitive industry producing
drinking water from underground springs. The profit-maximizing price is:
A)
$16.
B)
$3.
C)
$5.
D)
$10.
Page 38
137.
(Ref 32-15 Table: Spring Water) Use Table 32-15: Spring Water. The table shows the
demand and cost data for a firm in a monopolistically competitive industry producing
drinking water from underground springs. At the profit-maximizing output, profit is:
A)
$9.00.
B)
$10.00.
C)
$60.00.
D)
$7.00.
138.
(Ref 32-15 Table: Spring Water) Use Table 32-15: Spring Water. The table shows the
demand and cost data for a firm in a monopolistically competitive industry producing
drinking water from underground springs. At the profit-maximizing output, profit per
unit is:
A)
$1.17.
B)
$8.83.
C)
$10.00.
D)
$11.75.
139.
(Ref 32-15 Table: Spring Water) Use Table 32-15: Spring Water. The table shows the
demand and cost data for a firm in a monopolistically competitive industry producing
drinking water from underground springs. If the industry were in perfect competition,
the profit-maximizing output would be _____ cases.
A)
6
B)
5
C)
7
D)
8
140.
(Ref 32-15 Table: Spring Water) Use Table 32-15: Spring Water. The table shows the
demand and cost data for a firm in a monopolistically competitive industry producing
drinking water from underground springs. If the industry were in perfect competition,
the profit-maximizing price in the long run would be:
A)
$10.00.
B)
$6.50.
C)
$8.38
D)
$8.29
141.
A monopolistically competitive firm will earn maximum profit if it produces at the
lowest possible average total cost.
A)
True
B)
False
Page 39
142.
The conditions for profit maximization and the analysis of short-run equilibrium are
identical for monopoly and for a monopolistically competitive firm.
A)
True
B)
False
143.
Short-run equilibrium in monopolistic competition differs from that of monopoly
because the monopolistic competitor can make losses in the short run, while in a
monopoly, profits will always be zero or positive.
A)
True
B)
False
144.
Toby operates a small deli in a monopolistically competitive restaurant industry. In
long-run equilibrium, the profit-maximizing price of the three-meat sandwich is $3.
Price also equals his average total cost. Toby’s minimum average total cost is less than
$3.
A)
True
B)
False
145.
In long-run equilibrium, monopolistic competitors produce at the minimum point on the
average total cost curve.
A)
True
B)
False
146.
A monopolistically competitive firm may have positive or negative profits in the short
run but will have zero profits in the long run.
A)
True
B)
False
147.
Firms in monopolistic competition and in perfect competition have excess capacity.
A)
True
B)
False
148.
Since a monopolistically competitive firm has the same long-run profits as a perfectly
competitive firm, both types of industries are efficient.
A)
True
B)
False
Page 40
149.
Since a monopolistic competitor charges a price higher than marginal cost, there is a
deadweight loss associated with monopolistic competition.
A)
True
B)
False
150.
Your friend Stan owns a coffee shop in a monopolistically competitive industry. One
day, Stan tells you (an economist) that he is earning an economic profit and is setting his
price equal to his marginal cost. Is Stan producing the profit-maximizing amount of
coffee? What should he do?
151.
A monopolistically competitive firm is operating in the short run at the optimal level of
output and is earning positive economic profits. Describe how this industry will adjust
in the long run.
152.
A monopolistically competitive firm is operating in the short run at the optimal level of
output and earns negative economic profits. Describe how this industry will adjust in the
long run.
153.
Your friend Angelina is the owner of a boutique clothing store in a monopolistically
competitive clothing market. The market is in long-run equilibrium. Over coffee,
Angelina tells you that she is considering raising the price of her clothing to increase her
profits. What is your advice?
154.
Consider the demand curve for a firm in perfect competition, a firm in monopolistic
competition, and a monopolist. Which is likely to be the least elastic, and which is likely
to be the most elastic? Explain.
155.
Which industry type, perfect competition or monopolistic competition, produces less
deadweight loss? Which industry type is preferred by society? Explain.
156.
Monopolistic competitors:
A)
have some ability to set price.
B)
must accept the price as given and therefore are price takers.
C)
produce goods that are standardized and hard to differentiate.
D)
eventually produce at their minimum ATC at the profit-maximizing level.
Page 41
157.
Monopolistic competitors sell products that are _____ substitutes, and as a result, each
firm has a _____ demand curve.
A)
imperfect; downward-sloping
B)
perfect; horizontal
C)
imperfect; horizontal
D)
perfect; downward-sloping
Use the following to answer question 158:
Figure: Monopolistic Competitor
158.
(Ref 32-16 Figure: Monopolistic Competitor) Use Figure 32-16: Monopolistic
Competitor. If the firm shown in the figure maximizes its returns, it will:
A)
earn a positive economic profit.
B)
break even.
C)
incur a loss.
D)
incur a loss equal to its MR.
159.
Consumers’ differing tastes are one reason monopolistic:
A)
firms encounter large barriers to entry.
B)
competitors earn a positive economic profit in the long run.
C)
competitors set price at MC.
D)
competitors are similar to monopolists.
160.
In the long run, monopolistic competitors will:
A)
earn zero economic profits.
B)
produce at the minimum of their ATC curves.
C)
set price where MC = MR.
D)
collude with other firms.
Page 42
161.
Monopolistically competitive firms:
A)
engage in collusive activity to maximize profit.
B)
are very similar to perfect competitors in producing at the minimum ATC.
C)
earn a positive economic profit if price is greater than ATC.
D)
will set price where MC > MR.
162.
In the long run, perfect competitors and monopolistic competitors are similar in that
they:
A)
set price where MR < MC.
B)
produce an output level at which P = ATC.
C)
produce a product that is standardized and hard to differentiate.
D)
earn a positive economic profit.
163.
Both monopolists and monopolistic competitors:
A)
make positive economic profits in the long run.
B)
have high barriers to entry.
C)
charge a price that is greater than the marginal cost of production.
D)
produce a product for which there are no substitutes.
164.
Perfect competitors and monopolistic competitors both earn _____ economic profit in
the long run, but perfect competitors produce at the _____ of the ATC curve, while
monopolistic competitors produce _____ of the ATC curve.
A)
zero; minimum point; on the downward-sloping portion
B)
positive; minimum point; on the upward-sloping portion
C)
negative; minimum point; at the minimum point
D)
zero; downward-sloping portion; at the minimum point
165.
A monopolistic competitor will advertise to:
A)
reduce excess capacity.
B)
increase demand for its product.
C)
collude more effectively with other firms.
D)
produce on the upward-sloping portion of its ATC curve.
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Use the following to answer questions 166-167:
Figure: Monopolistic Competitor
166.
(Ref 32-17 Figure: Monopolistic Competitor) Use Figure 32-17: Monopolistic
Competitor. The firm shown in the figure may engage in advertising because:
A)
it does not know any better.
B)
its price is greater than its MC.
C)
its profits are negative.
D)
this will decrease its excess capacity levels.
167.
(Ref 32-17 Figure: Monopolistic Competitor) Use Figure 32-17: Monopolistic
Competitor. If the firm shown in the figure produces at its profit-maximizing level, it
will produce:
A)
with excess capacity since its P is greater than MR.
B)
without excess capacity since P is greater than ATC.
C)
with excess capacity since that output level is on the downward-sloping portion of
the ATC curve.
D)
without excess capacity since that output level is on the downward-sloping portion
of the MR curve.
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