Question 1

When a firm operates with excess capacity,

Accepted Answer

A)  additional production would lower the average total cost.
B)  additional production would increase the average total cost.
C)  it must be a perfectly competitive firm.
D)  it must be a monopolistically competitive firm.E) All of the above
F) A) and B)

Question 2

Because monopolistically competitive firms produce differentiated products,each firm

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 3

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

Accepted Answer

A)  firms will likely be subject to regulation.
B)  barriers to entry will be strengthened.
C)  some firms must exit the market.
D)  new firms will enter the market.E) None of the above
F) C) and D)

Question 4

In a monopolistically competitive market,

Accepted Answer

A)  the entry of new firms creates externalities.
B)  the absence of restrictions on entry by new firms ensures that there will be no deadweight loss.
C)  there are always too many firms in the market relative to the socially-optimal number of firms.
D)  firms cannot earn positive economic profits in the short run.E) All of the above
F) B) and D)

Question 5

The fact that there is a great deal of advertising of men's shaving products indicates that

Accepted Answer

A)  the market for those products is perfectly competitive.
B)  it costs firms very little to produce those products.
C)  those products are highly differentiated.
D)  firms are irrational in their decision to advertise.E) A) and B)
F) All of the above

Question 6

When advertising is used to relay information about price,each firm is able to enhance market power.

Accepted Answer

A) True 
 B)False

Question 7

A monopolistically competitive firm chooses

Accepted Answer

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.E) C) and D)
F) B) and C)

Question 8

A similarity between monopoly and monopolistic competition is that,in both market structures,

Accepted Answer

A)  strategic interactions among sellers are important.
B)  there are a small number of sellers.
C)  sellers are price makers rather than price takers.
D)  product differentiation is important.E) A) and C)
F) B) and D)

Question 9

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

Accepted Answer

A)  firms would respond by lowering their costs.
B)  firms would require a subsidy to stay in business
C)  new firms that enter the market would operate at efficient scale.
D)  the most efficient firms would not be affected.E) A) and B)
F) A) and C)

Question 10

In a monopolistically competitive industry,firms' demand curves also represent

Accepted Answer

A)  marginal revenue.
B)  marginal cost.
C)  average revenue.
D)  profit.E) All of the above
F) None of the above

Question 11

Among the following situations,the one that is least likely to apply to a monopolistically competitive firm is that in which

Accepted Answer

A)  profit is positive in the short run.
B)  total cost exceeds total revenue in the short run.
C)  profit is positive in the long run.
D)  total revenue equals total cost in the long run.E) B) and C)
F) B) and D)

Question 12

There is general disagreement among economists about the role of advertising but there is widespread agreement about the role of brand names on market efficiency.

Accepted Answer

A) True 
 B)False

Question 13

Which of these types of firms can earn a positive economic profit in the long run?

Accepted Answer

A)  Monopolies, but not competitive firms or monopolistically competitive firms
B)  Monopolies and monopolistically competitive firms, but not competitive firms
C)  Monopolies, monopolistically competitive firms, and monopolies
D)  No firms earn positive economic profit in the long run.Entry will reduce all firms' economic profit to zero in the long run.E) A) and B)
F) B) and D)

Question 14

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,

Accepted Answer

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 necessarily wish to enter the market in the long run.E) A) and B)
F) All of the above

Question 15

A monopolistically competitive firm is currently earning a positive economic profit.If other firms enter the market,we would expect that the added competition will cause this firm to adjust its

Accepted Answer

A)  output so that it will operate closer to its efficient scale.
B)  output so that it will operate further from its efficient scale.
C)  output so that it will no longer be at its efficient scale.
D)  output, but it might move either closer to or further from its efficient scale.E) A) and B)
F) A) and C)

Question 16

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,marginal cost must lie below average total cost.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that monopolistically competitive firms in a certain market are earning positive profits.In the transition from this initial situation to a long-run equilibrium,

Accepted Answer

A)  the number of firms in the market decreases.
B)  each existing firm experiences a decrease in demand for its product.
C)  each existing firm experiences a rightward shift of its marginal revenue curve.
D)  each existing firm experiences an upward shift in its average total cost curve.E) None of the above
F) All of the above

Question 18

The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York.This is an example of a brand name enhancing market efficiency for U.S.tourists visiting the Philippines.

Accepted Answer

A) True 
 B)False

Question 19

Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

Accepted Answer

Some people argue that celebrity endorse...

Question 20

Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale.If this law were to pass and be enforced,we would expect that monopolistically competitive firms would

Accepted Answer

A)  see their profits increase.
B)  break even.
C)  lose money.
D)  not really be affected by the law.E) B) and D)
F) A) and D)

Exam 17: Monopolistic Competition

A monopolistically competitive firm is currently earning a positive economic profit.If other firms enter the market,we would expect that the added competition will cause this firm to adjust its

Correct AnswerverifiedShow Answer

There is general disagreement among economists about the role of advertising but there is widespread agreement about the role of brand names on market efficiency.

Correct AnswerverifiedShow Answer

Suppose that monopolistically competitive firms in a certain market are earning positive profits.In the transition from this initial situation to a long-run equilibrium,

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A monopolistically competitive firm chooses

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

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Among the following situations,the one that is least likely to apply to a monopolistically competitive firm is that in which

Correct AnswerverifiedShow Answer

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,marginal cost must lie below average total cost.

Correct AnswerverifiedShow Answer

In a monopolistically competitive market,

Correct AnswerverifiedShow Answer

The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York.This is an example of a brand name enhancing market efficiency for U.S.tourists visiting the Philippines.

Correct AnswerverifiedShow Answer

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,

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Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

Correct AnswerverifiedSome people argue that celebrity endorse...View AnswerShow Answer

Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale.If this law were to pass and be enforced,we would expect that monopolistically competitive firms would

Correct AnswerverifiedShow Answer

When advertising is used to relay information about price,each firm is able to enhance market power.

Correct AnswerverifiedShow Answer

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

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Which of these types of firms can earn a positive economic profit in the long run?

Correct AnswerverifiedShow Answer

The fact that there is a great deal of advertising of men's shaving products indicates that

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In a monopolistically competitive industry,firms' demand curves also represent

Correct AnswerverifiedShow Answer

Because monopolistically competitive firms produce differentiated products,each firm

Correct AnswerverifiedShow Answer

A similarity between monopoly and monopolistic competition is that,in both market structures,

Correct AnswerverifiedShow Answer

When a firm operates with excess capacity,

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Some people argue that celebrity endorse...
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