Question 1

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below.  What will be the economic profit (or loss) for this monopolistically competitive firm at the profit-maximizing level of output?

Accepted Answer

A)  $56
B)  $60
C)  $20
D)  $40E) B) and C)
F) All of the above

Question 2

Which of the following statements is correct?

Accepted Answer

A)  There is a trade-off between product variety and allocative efficiency.
B)  Product variety and allocative efficiency are complementary; increasing one enhances the other.
C)  There is no relationship between product variation and allocative efficiency.
D)  Greater excess capacity reduces firms' ability to differentiate products.E) All of the above
F) B) and C)

Question 3

The larger the number of firms and the smaller the degree of product differentiation, the

Accepted Answer

A)  greater the divergence between the demand and the marginal revenue curves of the monopolistically competitive firm.
B)  larger will be the monopolistically competitive firm's fixed costs.
C)  less elastic is the monopolistically competitive firm's demand curve.
D)  more elastic is the monopolistically competitive firm's demand curve.E) A) and C)
F) B) and D)

Question 4

Refer to the above graph for a monopolistically competitive firm. A successful advertising campaign by the firm will cause its demand curve to shift from

Accepted Answer

A)  A to B and become more elastic.
B)  A to B and become less elastic.
C)  B to A and become more elastic.
D)  B to A and become less elastic.E) B) and C)
F) A) and D)

Question 5

Refer to the data. Suppose that firms in this industry split up such that there were 100 firms, each with a 1 percent market share. The four-firm concentration ratio and the Herfindahl index respectively would be

Accepted Answer

A)  100 percent and 10,000.
B)  4 percent and 4.
C)  100 percent and 16.
D)  4 percent and 100.E) None of the above
F) B) and D)

Question 6

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating

Accepted Answer

A)  with positive profits.
B)  with a loss.
C)  at the break-even point.
D)  at a nonoptimal level of output.E) None of the above
F) A) and C)

Question 7

Product differentiation in monopolistic competition involves a trade-off between

Accepted Answer

A)  productive efficiency and allocative efficiency.
B)  monopoly power and ease of entry.
C)  consumer choice and productive efficiency.
D)  short-run profits and long-run efficiency.E) B) and C)
F) None of the above

Question 8

Monopolistically competitive sellers produce efficiently because they obtain only normal profits in the long run.

Accepted Answer

A) True 
 B)False

Question 9

The larger the number of firms and the less the degree of product differentiation, the greater will be the elasticity of a monopolistically competitive seller's demand curve.

Accepted Answer

A) True 
 B)False

Question 10

A monopolistically competitive firm has a

Accepted Answer

A)  highly elastic demand curve.
B)  highly inelastic demand curve.
C)  perfectly inelastic demand curve.
D)  perfectly elastic demand curve.E) All of the above
F) A) and B)

Question 11

Dequam likes product variety, while Natasha is most concerned about paying the lowest price possible for a good. This suggests that

Accepted Answer

A)  Dequam cares more about allocative efficiency, while Natasha cares more about productive efficiency.
B)  Dequam cares more about productive efficiency, while Natasha cares more about allocative efficiency.
C)  Dequam prefers monopolistically competitive industries, while Natasha prefers purely competitive industries.
D)  Dequam prefers purely competitive industries, while Natasha prefers monopolistically competitive industries.E) A) and C)
F) C) and D)

Question 12

An industry having a four-firm concentration ratio of 30 percent

Accepted Answer

A)  approximates pure competition.
B)  is an oligopoly.
C)  is a pure monopoly.
D)  is monopolistically competitive.E) B) and C)
F) All of the above

Question 13

Which of the following is not a basic characteristic of monopolistic competition?

Accepted Answer

A)  the use of trademarks and brand names
B)  recognized mutual interdependence
C)  product differentiation
D)  a relatively large number of sellersE) C) and D)
F) A) and C)

Question 14

Answer the question on the basis of the following demand and cost data for a specific firm.  If columns (1) and (3) of the demand data shown are this firm's demand schedule, the profit-maximizing level of output will be

Accepted Answer

A)  12 units.
B)  8 units.
C)  10 units.
D)  9 units.E) A) and D)
F) B) and D)

Question 15

Answer the question on the basis of the following short run demand and cost data for a specific firm.  In the long run, the number of firms in this monopolistic competitive industry will most likely

Accepted Answer

A)  decrease.
B)  increase.
C)  stay the same.
D)  The answer cannot be determined from the given data.E) A) and D)
F) None of the above

Question 16

The excess capacity problem associated with monopolistic competition implies that fewer firms could produce the same industry output at a lower total cost.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

A)  standardized product
B)  a relatively small number of firms
C)  absence of nonprice competition
D)  relatively easy entryE) A) and B)
F) B) and D)

Question 18

In the long run, economic theory predicts that a monopolistically competitive firm will

Accepted Answer

A)  earn an economic profit.
B)  realize all economies of scale.
C)  equate price and marginal cost.
D)  have excess production capacity.E) A) and B)
F) A) and C)

Question 19

"In monopolistically competitive markets neither allocative nor productive efficiency is realized." Explain.

Accepted Answer

In monopolistic competition, neither pro...

Question 20

The amount of excess capacity in pure competition tends to become larger the more elastic the individual firm's demand curve becomes.

Accepted Answer

A) True 
 B)False

Exam 13: Monopolistic Competition

The amount of excess capacity in pure competition tends to become larger the more elastic the individual firm's demand curve becomes.

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"In monopolistically competitive markets neither allocative nor productive efficiency is realized." Explain.

Correct AnswerverifiedIn monopolistic competition, neither pro...View AnswerShow Answer

Refer to the above graph for a monopolistically competitive firm. A successful advertising campaign by the firm will cause its demand curve to shift from

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Dequam likes product variety, while Natasha is most concerned about paying the lowest price possible for a good. This suggests that

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Answer the question on the basis of the following short run demand and cost data for a specific firm. In the long run, the number of firms in this monopolistic competitive industry will most likely

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Monopolistically competitive sellers produce efficiently because they obtain only normal profits in the long run.

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Refer to the data. Suppose that firms in this industry split up such that there were 100 firms, each with a 1 percent market share. The four-firm concentration ratio and the Herfindahl index respectively would be

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Which of the following is a characteristic of monopolistic competition?

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The larger the number of firms and the less the degree of product differentiation, the greater will be the elasticity of a monopolistically competitive seller's demand curve.

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Which of the following is not a basic characteristic of monopolistic competition?

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A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating

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A monopolistically competitive firm has a

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Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. What will be the economic profit (or loss) for this monopolistically competitive firm at the profit-maximizing level of output?

Correct AnswerverifiedShow Answer

An industry having a four-firm concentration ratio of 30 percent

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Which of the following statements is correct?

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The excess capacity problem associated with monopolistic competition implies that fewer firms could produce the same industry output at a lower total cost.

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Product differentiation in monopolistic competition involves a trade-off between

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The larger the number of firms and the smaller the degree of product differentiation, the

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In the long run, economic theory predicts that a monopolistically competitive firm will

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Answer the question on the basis of the following demand and cost data for a specific firm. If columns (1) and (3) of the demand data shown are this firm's demand schedule, the profit-maximizing level of output will be

Correct AnswerverifiedShow Answer

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In monopolistic competition, neither pro...
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