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    Monopolistic Competition

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    Yasmine Jazz
    This document contains a chapter on monopolistic competition from an economics textbook. It includes 26 multiple choice questions that test understanding of key concepts about monopolistic competition, including that firms have downward-sloping demand curves, make positive profits in the short run but zero in the long run, and set price above marginal cost. It also addresses the inefficiencies that can arise from product differentiation and excess capacity in monopolistically competitive markets.

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    Monopolistic Competition

    Uploaded by

    Yasmine Jazz
    218 views11 pages
    This document contains a chapter on monopolistic competition from an economics textbook. It includes 26 multiple choice questions that test understanding of key concepts about monopolistic competition, including that firms have downward-sloping demand curves, make positive profits in the short run but zero in the long run, and set price above marginal cost. It also addresses the inefficiencies that can arise from product differentiation and excess capacity in monopolistically competitive markets.

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    Multiple questions about Monopolistic competition

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    This document contains a chapter on monopolistic competition from an economics textbook. It includes 26 multiple choice questions that test understanding of key concepts about monopolistic competition, including that firms have downward-sloping demand curves, make positive profits in the short run but zero in the long run, and set price above marginal cost. It also addresses the inefficiencies that can arise from product differentiation and excess capacity in monopolistically competitive markets.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    218 views11 pages

    Monopolistic Competition

    Uploaded by

    Yasmine Jazz
    This document contains a chapter on monopolistic competition from an economics textbook. It includes 26 multiple choice questions that test understanding of key concepts about monopolistic competition, including that firms have downward-sloping demand curves, make positive profits in the short run but zero in the long run, and set price above marginal cost. It also addresses the inefficiencies that can arise from product differentiation and excess capacity in monopolistically competitive markets.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    The passage discusses the characteristics and profit-maximization of firms operating under monopolistic competition. It addresses concepts such as differentiated products, demand curves, marginal revenue, and long-run equilibrium. The passage also contains examples and diagrams to illustrate these concepts.

    Under monopolistic competition, firms produce differentiated products and face downward-sloping demand curves. In the short run, each firm behaves like a monopoly but in the long run, free entry and exit will cause economic profits to go to zero. Firms price where marginal revenue equals marginal cost.

    A monopolistically competitive firm will produce the quantity of output where marginal revenue equals marginal cost to maximize its profits. This occurs at the point where the demand curve intersects the marginal cost curve.

    CA Chapter 16-02

    1. A downward-sloping demand curve


    a. is a feature of all monopolistically competitive firms.
    b. means that the firm in question will never experience a zero profit.
    c. causes marginal revenue to exceed price.
    d. prohibits firms from earning positive economic profits in the long run.
    2. In the short run, a firm in a monopolistically competitive market operates much like a
    a. firm in a perfectly competitive market.
    b. firm in an oligopoly.
    c. monopolist.
    d. monopsonist.
    3. When a monopolistically competitive firm raises its price,
    a. quantity demanded falls to zero.
    b. quantity demanded declines but not to zero.
    c. the market supply curve shifts outward.
    d. quantity demanded remains constant.
    4. A profit-maximizing firm in a monopolistically competitive market is characterized by
    which of the following?
    a. Average revenue exceeds marginal revenue
    b. Marginal revenue equals marginal cost
    c. Price exceeds marginal cost
    d. All of the above are correct.
    5. A monopolistically competitive firm faces the following demand schedule for its product:
    Price 10 9 8 7 6 5 4 3 2 1
    (dinars)
    Quantity 2 4 6 9 11 13 15 17 19 21
    The firm has total fixed costs of $20 and a constant marginal cost of $2 per unit. The firm
    will maximize profit with
    a. 6 units of output.
    b. 9 units of output.
    c. 11 units of output.
    d. 13 units of output.
    6. If "too much choice" is a problem for consumers, it would occur in which market
    structure(s)?
    a. Perfect competition.
    b. Monopoly.
    c. Monopolistic competition.
    d. Perfect competition and monopolistic competition.

    7. For a profit-maximizing monopolistically competitive firm, marginal revenue equals


    marginal cost in
    a. the short run but not in the long run.
    b. the long run but not in the short run.
    c. both the short run and the long run.
    d. neither the short run nor the long run.
    Figure 16-1
    10. Refer to Figure 16-1. Which of the graphs depicts a short-run equilibrium that will
    encourage the entry of other firms into a monopolistically competitive industry?
    a. Panel a.
    b. Panel b.
    c. Panel c.
    d. Panel d.
    11.Refer to Figure 16-1. Which of the panels depicts a firm in a monopolistically competitive
    market earning positive economic profits?
    a. Panel a.
    b. Panel b.
    c. Panel c.
    d. Panel d
    12. Which of the following conditions is characteristic of a monopolistically competitive firm in
    long-run equilibrium?
    a. P > demand and P = MR.
    b. ATC > demand and MR = MC.
    c. P > MC and demand = ATC.
    d. P < ATC and demand > MR.
    13. When a firm exits a monopolistically competitive market, the individual demand curves
    faced by all remaining firms in that market will
    a. shift in a direction that is unpredictable without further information.
    b. shift to the right.
    c. shift to the left.
    d. remain unchanged. It is the supply curve that will shift.
    14. Which of these types of firms can earn a positive economic profit in the long run?
    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 competitive firms
    d. No firms earn positive economic profit in the long run. Entry will reduce all firms’
    economic profit to zero in the long run.
    15. Suppose for some firm that average total cost is minimized at Q1 units of output. For a
    monopolistically competitive firm in long-run equilibrium, Q1
    a. is also the level of output at which marginal cost equals average total cost.
    b. exceeds the level of output at which there is a point of tangency between the
    demand curve and the average total cost curve.
    c. exceeds the level of output at which marginal revenue equals marginal cost.
    d. All of the above are correct.
    16. A monopolistically competitive firm faces the following demand curve for its product:
    Price
    (dinar) 10 9 8 7 6 5 4 3 2 1
    Quantity 2 4 6 8 10 12 14 16 18 20
    The firm has total fixed costs of 40 dinars and a constant marginal cost of 2 dinars per unit.
    We can conclude that
    a. firms will exit this market.
    b. firms will enter this market.
    c. this market is in long-run equilibrium.
    d. this firm is operating at its efficient scale.
    17. 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 output such that it
    a. will operate closer to its efficient scale.
    b. will operate further from its efficient scale.
    c. will no longer be at its efficient scale.
    d. might move either closer to or further from its efficient scale.
    Figure 16-2
    The figure is drawn for a monopolistically-competitive firm.
    Price

    MC

    140 ATC
    123.33

    Demand
    90

    56.67
    MR

    100 133.33 Quantity


    18. Refer to Figure 16-2. As the figure is drawn, the firm is in
    a. a short-run equilibrium but it is not in a long-run equilibrium.
    b. a long-run equilibrium but it is not in a short-run equilibrium.
    c. a short-run equilibrium as well as a long-run equilibrium.
    d. neither a short-run equilibrium nor a long-run equilibrium.
    19. Consider monopoly, monopolistic competition, and perfect competition. In which of these
    three market structures does a profit-maximizing firm charge a price that exceeds marginal
    cost?
    a. Monopoly only.
    b. Monopoly and monopolistic competition only.
    c. Monopoly, monopolistic competition, and perfect competition.
    d. The answer cannot be determined without knowing whether the market is in the
    long run or short run.

    20. Under which of the following market structures would consumers likely pay the highest
    price for a product?
    a. Perfect competition.
    b. Monopolistic competition.
    c. Oligopoly.
    d. Monopoly.
    21. Which of the following statements is correct?
    a. In the long run, both perfectly competitive firms and monopolistically competitive
    firms operate with excess capacity.
    b. A firm operates with excess capacity when, in the long run, its level of output is
    below the efficient scale.
    c. For any firm, efficient scale is the level of output at which the average-total-cost
    curve is tangent to the demand curve.
    d. All of the above are correct.
    22. Which of the following best describes the idea of excess capacity in monopolistic
    competition?
    a. Firms produce more output than is socially desirable.
    b. The output produced by a typical firm is less than what would occur at the
    minimum point on its ATC curve.
    c. Due to product differentiation, firms choose output levels where price equals
    average total cost.
    d. Firms keep some surplus output on hand in case there is a shift in the demand for
    their product.
    23. The deadweight loss that is associated with a monopolistically competitive market is a result
    of
    a. price falling short of marginal cost in order to increase market share.
    b. price exceeding marginal cost.
    c. the firm operating in a regulated industry.
    d. excessive advertising costs.
    24. Monopolistic competition is an inefficient market structure because
    a. marginal revenue equals marginal cost.
    b. it has a deadweight loss, just as monopoly does.
    c. long-run profits are zero due to free entry.
    d. All of the above are correct.
    25. Regulation of a firm in a monopolistically competitive market
    a. usually implies a very small administrative burden.
    b. will lower the firm's costs.
    c. is commonly used to enhance market efficiency.
    d. is unlikely to improve market efficiency.
    26. Although monopolistically competitive markets offer consumers a wide variety of
    differentiated products, there may still be insufficient variety if
    a. there are large fixed costs in the market.
    b. there are no barriers to entry in the market.
    c. the business-stealing externality is present in the market.
    d. the government does not impose regulations on the market.

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