Question 1

In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits

Accepted Answer

A)  must be less than ATC.
B)  must be more than ATC.
C)  may be either equal to ATC, less than ATC, or more than ATC.
D)  must be equal to ATC.E) C) and D)
F) A) and B)

Question 2

Monopolistic competition is characterized by firms

Accepted Answer

A)  producing differentiated products.
B)  making economic profits in the long run.
C)  producing at optimal productive efficiency.
D)  producing where price equals marginal cost.E) All of the above
F) A) and B)

Question 3

Monopolistic competition is characterized by excess capacity because

Accepted Answer

A)  firms are always profitable in the long run.
B)  firms charge a price that is greater than marginal cost.
C)  firms produce at an output level less than the least-cost output.
D)  the demand for the product is perfectly elastic in this type of industry.E) B) and C)
F) B) and D)

Question 4

Which of the following assumptions is part of the model of monopolistic competition?

Accepted Answer

A)  Firms make identical or homogeneous products.
B)  There is no mutual interdependence among firms.
C)  There are significant barriers to entry into the market.
D)  Firms have no control over their products' prices.E) B) and C)
F) A) and C)

Question 5

Product differentiation in a monopolistically competitive market always entails more costs than benefits.

Accepted Answer

A) True 
 B)False

Question 6

For a monopolistically competitive firm in long-run equilibrium,

Accepted Answer

A)  price will equal marginal cost.
B)  price will equal average total cost.
C)  marginal revenue will exceed marginal cost.
D)  price will equal the minimum average total cost.E) None of the above
F) A) and C)

Question 7

The demand curve of a monopolistically competitive producer is less elastic than that of a purely competitive producer.

Accepted Answer

A) True 
 B)False

Question 8

In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where

Accepted Answer

A)  ATC = P, MR = MC = P.
B)  ATC 
C)  ATC 
D)  ATC = P, MR = MC < P.E) B) and C)
F) A) and D)

Question 9

In the long run, the price charged by a monopolistically competitive firm seeking to maximize profit will

Accepted Answer

A)  be less than both MC and ATC.
B)  exceed ATC but equal MC.
C)  exceed MC but equal ATC.
D)  exceed both MC and ATC.E) A) and D)
F) All of the above

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is correct? Learning Objective: 13-04 Relate how the ability of monopolistic competition to deliver product differentiation helps to compensate for its failure to deliver economic efficiency.Test Bank: I Topic: Product Variety

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 firmsâ€™ ability to differentiate products.E) None of the above
F) All of the above

Question 12

Product differentiation is what allows monopolistically competitive firms to have some market power.

Accepted Answer

A) True 
 B)False

Question 13

In long-run equilibrium, both purely competitive and monopolistically competitive firms will

Accepted Answer

A)  produce at minimum average total cost.
B)  earn economic profits.
C)  achieve allocative efficiency.
D)  equate marginal cost and marginal revenue.E) C) and D)
F) A) and B)

Question 14

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

Accepted Answer

A)  former does not seek to maximize profits.
B)  latter recognizes that price must be reduced to sell more output.
C)  former sells similar, although not identical, products.
D)  former's demand curve is perfectly inelastic.E) A) and B)
F) A) and C)

Question 15

Nonprice competition refers to

Accepted Answer

A)  competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.
B)  price increases by a firm that are ignored by its rivals.
C)  advertising, product promotion, and changes in the real or perceived characteristics of a product.
D)  reductions in production costs that are not reflected in price reductions.E) A) and C)
F) C) and D)

Question 16

Other things equal, if more firms enter a monopolistically competitive industry,

Accepted Answer

A)  the demand curves facing existing firms would shift to the right.
B)  the demand curves facing existing firms would shift to the left.
C)  the demand curves facing existing firms would become less elastic.
D)  losses would necessarily occur.E) None of the above
F) All of the above

Question 17

Assume that in a monopolistically competitive industry, firms are earning economic profit.This situation will

Accepted Answer

A)  reduce the excess capacity in the industry as firms expand production.
B)  attract other firms to enter the industry, causing the existing firms' profits to shrink.
C)  cause firms to standardize their product to limit the degree of competition.
D)  make the industry allocatively efficient as each firm seeks to maintain its profits.E) All of the above
F) A) and B)

Question 18

That one thing that monopolistic competition provides, which is not assured in the other market structures, is product variety.

Accepted Answer

A) True 
 B)False

Question 19

Monopolistically competitive firms are similar to monopolies in that they have

Accepted Answer

A)  high barriers to entry in their industry.
B)  close substitutes for their products.
C)  inelastic demand for their products.
D)  marginal revenues that are less than price.E) None of the above
F) B) and C)

Question 20

In the long run, the economic profits for a monopolistically competitive firm will be

Accepted Answer

A)  the same as the profits for a monopolist.
B)  slightly less than the profits of a monopolist.
C)  the same as the profits for a purely competitive firm.
D)  slightly more than the profits of a purely competitive firm.E) A) and B)
F) A) and D)

Exam 13: Monopolistic Competition

For a monopolistically competitive firm in long-run equilibrium,

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A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

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Which of the following statements is correct? Learning Objective: 13-04 Relate how the ability of monopolistic competition to deliver product differentiation helps to compensate for its failure to deliver economic efficiency.Test Bank: I Topic: Product Variety

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In the long run, the economic profits for a monopolistically competitive firm will be

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Assume that in a monopolistically competitive industry, firms are earning economic profit.This situation will

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That one thing that monopolistic competition provides, which is not assured in the other market structures, is product variety.

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The demand curve of a monopolistically competitive producer is less elastic than that of a purely competitive producer.

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In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where

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Nonprice competition refers to

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Monopolistic competition is characterized by firms

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In the long run, the price charged by a monopolistically competitive firm seeking to maximize profit will

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In long-run equilibrium, both purely competitive and monopolistically competitive firms will

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Which of the following assumptions is part of the model of monopolistic competition?

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Monopolistically competitive firms are similar to monopolies in that they have

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In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits

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Monopolistic competition is characterized by excess capacity because

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Product differentiation in a monopolistically competitive market always entails more costs than benefits.

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

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Other things equal, if more firms enter a monopolistically competitive industry,

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Product differentiation is what allows monopolistically competitive firms to have some market power.

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