Question 1

Is a monopolistically competitive firm allocatively efficient?

Accepted Answer

A)  No,because it does not produce at minimum average total cost.
B)  Yes,because it produces where marginal cost equals marginal revenue.
C)  No,because price is greater than marginal cost.
D)  Yes,because price equals average total cost.E) B) and D)
F) C) and D)

Question 2

In the long run,if price is less than average cost

Accepted Answer

A)  there is an incentive for firms to exit the market.
B)  there is profit incentive for firms to enter the market.
C)  the market must be in long-run equilibrium.
D)  there is no incentive for the number of firms in the market to change.E) None of the above
F) C) and D)

Question 3

Discuss the role of product differentiation and advertising in monopolistic competition.

Accepted Answer

Firms acquire market power through produ...

Question 4

Assuming that the total market size remains constant,a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

Accepted Answer

A)  new entrants into the market are more likely to have cutting edge products.
B)  as the firm raises its price in the long run,it will lose some customers to new entrants in the market.
C)  some of its customers have switched to purchasing the products of new entrants in the market.
D)  its costs of production rises.E) B) and C)
F) A) and B)

Question 5

________ describes the actions a firm takes to maintain the differentiation of its product over time.

Accepted Answer

A)  Product differentiation
B)  Brand management
C)  Aggressive marketing
D)  AdvertisingE) C) and D)
F) A) and C)

Question 6

Figure 10-7 y units and charging a price of P0. C) The firm should minimise its losses by producing Qy units and charging a price of P2. D) The firm should minimise its losses by producing Qy units and charging a price of P1." class="answers-bank-image d-inline" rel="preload" > Figure 10-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market.
-Refer to Figure 10-7.Which of the following statements describes the best course of action for the firm depicted in the diagram?

Accepted Answer

A)  The firm should exit the industry because its price is less than its average total cost.
B)  The firm should minimise its losses by producing Qy units and charging a price of P0.
C)  The firm should minimise its losses by producing Qy units and charging a price of P2.
D)  The firm should minimise its losses by producing Qy units and charging a price of P1.E) A) and D)
F) C) and D)

Question 7

Figure 10-12 
-Refer to Figure 10-12.The diagram depicts a firm

Accepted Answer

A)  in a constant cost industry.
B)  in an increasing cost industry.
C)  in long-run equilibrium.
D)  that is incurring short-run losses.E) B) and C)
F) C) and D)

Question 8

A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated.How do these problems affect the innovating firm?

Accepted Answer

A)  The firm is protected by a first-mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs.
B)  They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product.
C)  Because these design flaws were not anticipated,consumers tend to be more forgiving and are likely to remain loyal to the company and its products.
D)  The firm's cost increases as it improves the product,but it will not be able to raise its price for fear of alienating customers.Consequently,its profits will erode,although its market share remains secure.E) A) and B)
F) A) and C)

Question 9

Monopolistic competition is a market structure in which

Accepted Answer

A)  firms produce and sell products for which there are no close substitutes.
B)  the demand curve for a typical firm is horizontal.
C)  firms cannot influence the market price.
D)  barriers to entry are low.E) A) and B)
F) None of the above

Question 10

Figure 10-17 f units B) Qg units C) Qh units D) Qj units" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-17.What is the allocatively efficient output for the firm represented in the diagram?

Accepted Answer

A)  Qf units
B)  Qg units
C)  Qh units
D)  Qj unitsE) A) and B)
F) None of the above

Question 11

In theory,in the long run,monopolistically competitive firms earns zero profits.However,in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

Accepted Answer

A)  gradually increase the markup on the goods produced
B)  lower the price of its products to expand its market share
C)  identify new markets and develop products precisely for those markets
D)  find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segmentE) A) and C)
F) A) and D)

Question 12

A monopolistically competitive firm maximises profit where

Accepted Answer

A)  price = marginal revenue.
B)  price > marginal cost.
C)  marginal revenue > average revenue.
D)  total revenue > marginal cost.E) A) and B)
F) A) and C)

Question 13

Figure 10-6 
-Refer to Figure 10-6.Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 10-6.Dell will maximise profits if it produces ________ notebook computers per month.

Accepted Answer

A)  100 000
B)  200 000
C)  300 000
D)  Not enough information is given to determine the profit-maximising quantity.E) A) and B)
F) C) and D)

Question 14

Figure 10-17 f units and not Qg units,which has a lower average cost of production? A) Although its average cost of production is lower when the firm produces Qg units,to be able to sell its output the firm will have to charge a price below average cost,resulting in a loss. B) At Qg,average cost exceeds marginal cost so the firm will actually incur a loss. C) At Qg,marginal revenue is less than average revenue,which will result in a loss for the firm. D) The firm's goal is to charge a high price and make a small profit rather than charge a low price and make no profit." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-17.In the long run,why will the firm produce Qf units and not Qg units,which has a lower average cost of production?

Accepted Answer

A)  Although its average cost of production is lower when the firm produces Qg units,to be able to sell its output the firm will have to charge a price below average cost,resulting in a loss.
B)  At Qg,average cost exceeds marginal cost so the firm will actually incur a loss.
C)  At Qg,marginal revenue is less than average revenue,which will result in a loss for the firm.
D)  The firm's goal is to charge a high price and make a small profit rather than charge a low price and make no profit.E) A) and B)
F) B) and D)

Question 15

Figure 10-9 
-Refer to Figure 10-9.Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits?

Accepted Answer

A)  Panel A
B)  Panel B
C)  Panel C
D)  Panel A and Panel BE) A) and D)
F) All of the above

Question 16

Table 10-1
 
-Refer to Table 10-1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

Accepted Answer

A)  output effect = $3.00;price effect = $0.50
B)  output effect = $1.50;price effect = $2.00
C)  output effect = $5.50;price effect = -$2.00
D)  output effect = $4.00;price effect = -$0.50E) None of the above
F) All of the above

Question 17

If a monopolistically competitive firm has excess capacity,

Accepted Answer

A)  it has exhausted all economies of scale.
B)  it is producing beyond the minimum efficient scale.
C)  it is experiencing diseconomies of scale.
D)  it produces an output rate that places it on the negatively sloped portion of its average total cost curve.E) All of the above
F) None of the above

Question 18

Figure 10-14 4edP2 C) P4eaP1 D) P3baP2" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-14.What is the area that represents the firm's profit?

Accepted Answer

A)  profit = 0
B)  P4edP2
C)  P4eaP1
D)  P3baP2E) All of the above
F) B) and D)

Question 19

Which of the following is true for a firm with a downward-sloping demand curve for its product?

Accepted Answer

A)  Price,average revenue,and marginal revenue are all equal.
B)  Price,average revenue,and marginal revenue are all different.
C)  Price equals average revenue but is greater than marginal revenue.
D)  Price equals average revenue but is less than marginal revenue.E) All of the above
F) B) and C)

Question 20

The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair.It sells 8 pairs of jeans per day at a price of $90 per pair.The marginal revenue of the eighth pair of jeans is

Accepted Answer

A)  $20.
B)  $90.
C)  $100.
D)  $700.E) A) and C)
F) A) and D)

Exam 10: Monopolistic Competition

A monopolistically competitive firm maximises profit where

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Figure 10-14 -Refer to Figure 10-14.What is the area that represents the firm's profit?

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Which of the following is true for a firm with a downward-sloping demand curve for its product?

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A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated.How do these problems affect the innovating firm?

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Figure 10-9 -Refer to Figure 10-9.Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits?

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Figure 10-17 -Refer to Figure 10-17.What is the allocatively efficient output for the firm represented in the diagram?

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The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair.It sells 8 pairs of jeans per day at a price of $90 per pair.The marginal revenue of the eighth pair of jeans is

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Is a monopolistically competitive firm allocatively efficient?

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________ describes the actions a firm takes to maintain the differentiation of its product over time.

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In the long run,if price is less than average cost

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Figure 10-12 -Refer to Figure 10-12.The diagram depicts a firm

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In theory,in the long run,monopolistically competitive firms earns zero profits.However,in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

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If a monopolistically competitive firm has excess capacity,

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Figure 10-6 -Refer to Figure 10-6.Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 10-6.Dell will maximise profits if it produces ________ notebook computers per month.

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Figure 10-7 Figure 10-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. -Refer to Figure 10-7.Which of the following statements describes the best course of action for the firm depicted in the diagram?

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Discuss the role of product differentiation and advertising in monopolistic competition.

Correct AnswerverifiedFirms acquire market power through produ...View AnswerShow Answer

Figure 10-17 -Refer to Figure 10-17.In the long run,why will the firm produce Qf units and not Qg units,which has a lower average cost of production?

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Assuming that the total market size remains constant,a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

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Monopolistic competition is a market structure in which

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Table 10-1 -Refer to Table 10-1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

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Firms acquire market power through produ...
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Figure 10-17 -Refer to Figure 10-17.In the long run,why will the firm produce Q_f units and not Q_gunits,which has a lower average cost of production?

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