Q&A Hero

Q: One thing that makes monopolistic competition similar to perfect competition is that, in the a. long run, both are guaranteed positive economic profit. b. short run, both are guaranteed positive economic profit. c. short run, neither can earn positive economic profit. d. long run, both will earn zero economic profit. e. long run, both could earn positive economic profit, but monopolistic competitors will earn more than perfect competitors.

Q: A generic product would be best described as one that is a. perfectly differentiated. b. completely undifferentiated. c. heavily advertised. d. sold in a monopoly market. e. produced only in a perfectly competitive industry.

Q: Perfect competition and monopolistic competition are similar because, under both market structures a. there are zero economic profits in the long run. b. production takes place at minimum average total cost. c. there are just a few firms. d. the concentration ratio is relatively high. e. differentiated products are produced.

Q: In a monopolistically competitive industry, price a. will be lower than the competitive price due to cost savings. b. will exceed the monopoly price due to the destructiveness of competitive forces. c. cannot be predicted exactly because it is likely to lie between the competitive and monopoly prices. d. is contingent on the behavior of other firms because they are mutually interdependent. e. is most likely a bit higher than the competitive market price because of the cost of variety.

Q: Both perfectly competitive and monopolistically competitive industries have many firms, in fact so many that, in the long run a. only one firm can survive in the industry, leading to monopoly. b. costs must increase due to diseconomies of scale. c. costs must decrease due to economies of scale. d. economic profit is competed away. e. economic profit can continue.

Q: A monopolistically competitive firm usually charges more than a perfectly competitive firm because a. it is part of a group of firms that has formally agreed to control the price and the output of a product. b. its primary goal is to reap monopoly profits by replacing competition with cooperation. c. producing homogenous output is more expensive than producing differentiated output. d. producing differentiated output is more expensive than producing homogenous output. e. it has a monopoly, but potential entrants exist in the form of contestable markets.

Q: The difference between price and marginal cost is a. marginal revenue. b. per-unit profit. c. average total revenue. d. markup. e. nothing in the long run; they must be the same.

Q: One could argue correctly that a. all firms in any industry can earn short-run but not necessarily long-run positive economic profit. b. all firms in any industry can earn long-run but not necessarily short-run positive economic profit. c. all firms in any industry can earn both short-run and long-run positive economic profit. d. no firm in any industry can earn long-run positive economic profit because all price changes made by any firm will be followed by all of the other firms. e. all firms in any industry can earn short-run positive profit if economies of scale exist.

Q: Market power is best described as when the firms demand curve isa. positively sloped. b. a horizontal line. c. a vertical line.d. downward-sloping.e. above the industry demand curve.

Q: The demand curve for a monopolistically competitive firm is downward-sloping because ofa. high barriers to entry. b. product differentiation. c. the lack of firms in the industry.d. government regulation.e. identical cost curves for each firm.

Q: You operate a monopolistically competitive firm and you notice that your company is making an economic profit. Which of the following is most likely to happen? a. Other firms in your industry will raise their prices. b. Other firms will enter your industry and your demand curve will shift left. c. Other firms will enter your industry and your demand curve will shift right. d. Your firm will be forced to exit the industry. e. Government regulators will investigate your firm for excessive economic profit.

Q: The entry of new firms into a monopolistically competitive industry causes the a. market demand curve to shift right. b. market demand curve to shift left. c. existing firms demand curve to shift right. d. existing firms demand curve to shift left. e. market supply curve to shift left.

Q: We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firmsa. demand curves downward. b. demand curves upward. c. marginal revenue curves upward.d. cost curves upward.e. cost curves downward.

Q: Entry of new firms will continue in a monopolistically competitive industry until a. marginal cost equals 0 (zero). b. marginal revenue equals 0 (zero). c. marginal revenue equals marginal cost. d. economic profit equals 0 (zero). e. economic profit is negative.

Q: As new firms enter a monopolistically competitive industry, it can be expected that a. market price will rise. b. the output of existing firms will rise. c. profits of existing firms will fall. d. market demand will rise. e. the profits of existing firms will rise.

Q: If monopolistically competitive firms are making positive economic profits, then new firms woulda. reduce their costs. b. charge higher prices. c. make demand more inelastic.d. leave the industry.e. begin to enter the industry.

Q: If positive economic profit exists in monopolistic competition, there is a. incentive for new firms to enter. b. a motive for existing firms to increase prices. c. proof that advertising works. d. a motive for existing firms to decrease prices. e. product differentiation.

Q: Profit-maximizing, monopolistically competitive firms a. consider the actions of their competitors when determining price. b. consider the actions only of the price leader in their market when determining price. c. consider only marginal cost and marginal revenue, which determine the level of outputand the level of output determines price. d. consider only average total cost and average variable cost, which determine the level of outputand the level of output determines price. e. take their price from the industry price, as do perfectly competitive firms.

Q: An increase in marginal cost causes a profit-maximizing, monopolistically competitive firm toa. keep price and output the same. b. raise price and decrease output. c. lower price and increase output.d. raise price and raise output.e. lower price and lower output.

Q: If the price that determined where marginal revenue equaled marginal cost were below the bottom of the average variable cost curve, then the profit-maximizing, monopolistically competitive firm would a. produce an output amount where marginal cost equals marginal revenue and make a small profit. b. produce an output amount that corresponded to the place where marginal cost equals marginal revenue and break even. c. produce an output amount that corresponded to the place where marginal cost equals marginal revenue, but make a small loss. d. shut down because it would cost more to produce and sell output than it would to shut down and lose all fixed costs. e. produce an output amount that corresponded to the place where average total cost equals average variable cost and incur a small loss.

Q: Which of the following is true for a profit-maximizing firm operating in a competitive market, monopolistic competition, and monopoly? a. Firms earn positive economic profits in the long run. b. Firms earn zero economic profits in the long run. c. Profits are maximized when marginal cost equals marginal revenue. d. Price equals marginal revenue. e. Entry into the industry is impossible.

Q: Costume jewelry is produced in a monopolistically competitive market. A profit-maximizing producer finds that marginal revenue equals marginal cost equals $4.50 when output is 700 rings. An economist studying this information can conclude that a. the producer is charging a price of $4.50. b. economic profit is $3,150. c. the producer charges a price greater than $4.50. d. new firms will not want to enter this market. e. this producer should produce more than 700 rings.

Q: Which of the following best describes the relationship between price and marginal revenue for monopolistic competitors? a. They are always equal. b. They are equal only when there are relatively few firms in the industry. c. Price is below marginal revenue, as a general rule, regardless of the number of firms in the monopolistically competitive industry. d. Price is above marginal revenue, as a general rule, regardless of the number of firms in the monopolistically competitive industry. e. At low levels of output, price is above marginal revenue. At high levels of output, price is below marginal revenue as long as the number of firms is not too many because, if it is too large, the monopolistically competitive industry will become perfectly competitive.

Q: The correct level of output for a profit-maximizing, monopolistically competitive firm always matches the point where a. total revenue equals total cost. b. marginal revenue equals marginal cost. c. price equals average total cost. d. price equals marginal cost. e. average revenue equals marginal revenue.

Q: Firms in a monopolistically competitive market structure maximize their profit by producing an output where a. price equals average total cost. b. marginal cost equals average variable cost. c. average revenue equals marginal revenue. d. marginal revenue equals marginal cost. e. total revenue equals total cost.

Q: The marginal revenue of a monopolistically competitive firm will always be a. less than the price. b. more than the price. c. the same as the price. d. identical to the marginal cost curve. e. identical to the average total cost curve.

Q: Both competitive and monopolistically competitive firms a. can maximize profit by raising price. b. cannot control or set their own price. c. can maximize profit by producing to the point where marginal cost equals marginal revenue. d. can enforce price arrangements vigorously in court. e. sell products that are identical.

Q: If there are exactly 20 firms in the monopolistically competitive industry that are identical to the firm shown, in the long run, we would expect that a. total industry economic profit would be exactly equal to 20 times the profit of each individual firm. b. total industry economic profit would be greater than 20 times the profit of each individual firm. c. industry costs would rise. d. new firms would desire to enter the industry, but would not be able to because of high entry barriers. e. total industry economic profit would be zero.

Q: Refer to the following graph to answer the following questions: To maximize profit, the monopolistically competitive firm shown will charge a price per unit ofa. 0 (zero). b. $20.17. c. $18.17.d. $16.87.e. $15.87.

Q: Refer to the following graph to answer the following questions: Profit-maximizing output for the monopolistically competitive firm is ________ units.a. 0 (zero) b. 20 c. 25d. 30e. 35

Q: Refer to the following graph to answer the following questions: The maximum short-run economic profit earned by this monopolistic competitive firm isa. $20.b. $66.c. $272.d. none; this firm must shut down or lose all of its fixed cost.e. inconclusive; the maximum short-run profit cant be determined from the information given.

Q: The greeting card industry is a. most likely a competitive market and has low markups. b. most likely a monopoly and has high markups. c. most likely monopolistically competitive and has substantial markups. d. most likely an oligopoly with low markups. e. characterized by firms that advertise and are mutually interdependent.

Q: Caskets are produced in a monopolistic competitive market. One producer, Final Boxes, sells 20 caskets a week at a price of $550 each. Its average total cost is $600. From this information, we know that a. new casket firms will want to enter. b. this producer is losing $1,000 a week. c. this producer is making an economic profit of $500. d. this producer is setting marginal revenue equals marginal cost. e. this producer should increase production.

Q: Fast-food restaurants are a good illustration ofa. oligopolistic competition. b. perfect competition. c. monopoly.d. monopolistic competition.e. oligopoly.

Q: If a monopolistically competitive firm is incurring losses, then at the profit-maximizing output amount a. price is above the average total cost curve. b. price is below the average total cost curve. c. price is equal to marginal revenue. d. price is less than marginal revenue. e. average total cost equals marginal cost.

Q: The fast-food, bottled water, and cereal markets are all examples of a. perfectly competitive markets. b. monopolies. c. monopolistically competitive markets. d. oligopolies. e. homogeneously competitive markets.

Q: Profit-maximizing, monopolistically competitive firms a. are guaranteed an economic profit in the short run. b. never lose money. c. produce only those goods for which they can acquire a barrier to entry, such as a patent (hence the term monopolistically). d. necessarily earn long-run economic profits. e. cannot be guaranteed an economic profit in any period and might incur losses.

Q: A monopolistically competitive firm a. faces a downward-sloping demand curve and a steeper downward-sloping marginal revenue curve. b. faces a vertical demand curve and identical marginal revenue curve. c. produces a product that is undifferentiated by style, location, or quality. d. faces an upward-sloping demand curve. e. faces a downward-sloping demand and a horizontal marginal revenue curve.

Q: The theory of monopolistic competition predicts that, in long-run equilibrium, a monopolistically competitive firm will a. produce the output level at which price equals long-run average cost. b. produce the output at which short-run average total cost equals marginal cost. c. produce the output level at which price equals long-run marginal cost. d. operate at minimum long-run average cost. e. operate where price equals long-run average fixed cost.

Q: In the long run, the positive economic profits of Wings N Things, a monopolistic competitor, are a. not driven out because competition is not perfect. b. not driven out because the demand curve slopes downward. c. eliminated due to the entry of firms into the industry. d. eliminated due to the departure of firms from the industry. e. not driven out because firms cannot enter the industry.

Q: If all firms in the industry are the same as the monopolistically competitive firm shown, the long run will reflect a. firms leaving the industry. b. all firms earning positive economic profits. c. some firms earning positive economic profit and others experiencing economic loss. d. competition from new firms that enter the industry. e. all firms earning economic profit of exactly $300 per day.

Q: In the long run, which of the following is true for the profit-maximizing firm? a. The firms demand curve shifts leftward. b. The firms average total cost curve shifts upward. c. Profit is $1,200 per day. d. Profit is $1,500 per day. e. The firms average total cost curve shifts downward, while the marginal cost curve shifts upward.

Q: In the long run, the demand curve for the monopolistically competitive firm would a. shift leftward. b. remain the same, causing the entry of new firms to be impossible. c. shift rightward. d. move closer to the marginal revenue curve, but the marginal revenue curve would be held constant. e. shift rightward, causing the entry of new firms into the industry.

Q: Refer to the following graph to answer the following questions:The maximum long-run economic profit earned by this monopolistic competitive firm isa. 0 (zero). b. $600 per day. c. $1,200 per day.d. $1,800 per day.e. $20 per hour.

Q: Refer to the following graph to answer the following questions:The short-run profit-maximizing output for the monopolistic competitive firm is ________ units per day.a. 0 (zero) b. 200 c. 400d. 600e. 800

Q: Monopolistically competitive firms a. eventually become perfectly competitive. b. follow the price leader. c. earn long-run economic profits. d. necessarily earn short-run economic profits. e. compete away economic profit to zero.

Q: In the long run, in monopolistic competition a. the demand curve is tangent to the marginal cost curve. b. price equals marginal cost. c. price equals minimum average total cost. d. firms have an incentive to leave. e. economic profits are zero.

Q: Monopolistically competitive firms that are earning zero economic profit would most likelya. reduce their costs. b. charge higher prices.c. make demand more inelastic.d. leave the industry.e. remain in the industry.

Q: If monopolistically competitive firms are making zero economic profit, then these firms woulda. leave the industry. b. charge higher prices. c. make demand more inelastic.d. remain in the industry.e. begin to collude illegally.

Q: If monopolistically competitive firms are incurring losses, existing firms woulda. reduce their costs. b. charge higher prices. c. make demand more inelastic.d. leave the industry.e. begin to collude illegally.

Q: In the long run, surviving firms in monopolistic competition earn a. higher than normal economic profit. b. zero economic profit. c. less than normal profits. d. significant economic losses. e. praise from the government for achieving allocative efficiency.

Q: In the long run, both monopolistic competition and competitive markets result ina. a wide variety of brand-name choices for consumers.b. an inefficient allocation of resources.c. zero economic profit for firms.d. excess capacity.e. insufficient capacity.

Q: In long-run equilibrium for both a competitive market and monopolistic competitiona. accounting profit is zero. b. price equals marginal revenue. c. long-run average cost is minimized.d. economic profit is zero.e. productive efficiency is achieved.

Q: Refer to the following graph to answer the following questions:The short-run equilibrium for a monopolistically competitive firm is at price equals $29, average total cost equals $22, and marginal cost equals marginal revenue equals $18. Which of the following is true?a. Per-unit profit is $11.b. More firms will be attracted into the industry.c. The firm could increase the price and increase profits.d. The firm could decrease the price and increase profits.e. The firm is operating in the upward-sloping portion of average total cost (ATC).

Q: Refer to the following graph to answer the following questions:If all firms in a monopolistically competitive industry have demand and cost curves like those shown, we would expect, in the long run, thata. all firms will leave the industry.b. a certain percentage of existing firms will exit the industry.c. firms in the industry will earn negative economic profits.d. new firms will enter the industry.e. enough new firms will enter the industry that it will become perfectly competitive.

Q: The descriptor monopolistic in the term monopolistic competition best describes a. high barriers to entry. b. product differentiation resulting in a downward-sloping demand curve for the firms product. c. production of a unique product. d. a single producer. e. a few small firms.

Q: Which of the following statements best describes the price, output, and profit conditions of monopolistic competition? a. Price will equal marginal cost at the profit-maximizing level of output, and profits will be positive in the long run. b. Price will always equal average variable cost in the short run, and either profits or losses may result in the long run. c. Marginal revenue will equal marginal cost in the short run at a profit-maximizing level of output; in the long run, economic profit will be zero. d. Marginal revenue will equal average total cost in the short run, and long-run economic profits are generally positive but could be zero. e. Output is equal to the amount for which marginal revenue equals price.

Q: The shape and/or slope of the marginal revenue curve under monopolistic competition is a. U-shaped. b. horizontal. c. vertical. d. upward-sloping. e. downward-sloping and steeper than the demand curve.

Q: Monopolistic competition is like monopoly in that a. price changes are dictated by changes in supply. b. both industries represent price-taking firms. c. both industries represent price-making firms. d. both industries have high barriers to entry. e. neither industry has high barriers to entry.

Q: A monopolistically competitive firm usually charges less than a monopoly firm because a. it is part of a group of firms that has formally agreed to control the price and the output of a product. b. its primary goal is to reap monopoly profits by replacing competition with cooperation. c. producing homogenous output is more expensive than producing differentiated output. d. it faces some degree of competition due to low barriers to entry. e. it has a monopoly, but potential entrants exist in the form of contestable markets.

Q: If the marginal revenue curve lies above the demand curve for a firm, then a. this is not a firm that exists in any traditional industries. b. both curves are upward-sloping. c. both curves are parallel. d. this must be a monopolistically competitive firm. e. both curves are downward-sloping.

Q: If a firm has substantial market power, it must be operating in an industry that would be classified as a. a monopoly. b. perfectly competitive. c. monopolistically competitive. d. perfectly competitive or monopolistically competitive. e. perfectly competitive or monopolistic.

Q: Which of the following is the most accurate description of industries? a. A monopolistically competitive industry is more competitive than any other industry form. b. Monopolies are more competitive than monopolistically competitive firms. c. Monopolistically competitive firms are located between monopoly and perfect competition. d. All firms can make a long-run economic profit, but only perfect competitors can make a short-run profit. e. All firms engage in short-run loss minimization by selecting the point where marginal revenue equals price.

Q: Which of the following market structures describes an industry in which all firms produce differentiated output and there are few barriers to entry?a. perfect competition b. monopoly c. oligopolyd. a cartele. monopolistic competition

Q: If barriers to entry are high and products are somewhat differentiated, then a. the industry is probably perfectly competitive. b. the industry is probably monopolistically competitive. c. the industry is probably a differentiated monopsony. d. economic profit might be sustainable. e. the situation cannot exist.

Q: Monopolistic competition a. is the same as monopoly. b. is more similar to perfect competition than to monopoly. c. is just like monopoly, but with more market power. d. is a combination of oligopoly and monopoly. e. cannot legally exist in the United States because of antitrust laws.

Q: Fantasias Ice Cream distinguishes itself from other firms through great service by attractive servers. Fantasias Ice Cream faces competition from firms that produce similar but not identical products. Based on this information, Fantasias Ice Cream a. is probably in a perfectly competitive industry. b. probably has a horizontal demand curve. c. is probably in a monopolistically competitive industry. d. is probably in an oligopoly industry. e. has a monopoly.

Q: Which of the following best describes DiGiornos incentive for quality control versus that of the generic brands of pizza? a. Their incentives are identical. b. Generic brands have more incentive for high quality and high-quality control. c. DiGiorno has more incentive for high quality and high-quality control. d. Generic brands purposefully have lower quality because they charge a lower price and need to maintain consumer perception that they should expect lower quality at the lower price. e. DiGiorno tries to match the same quality as the generic brands.

Q: At one time, Heinz made its own brand of soups. The company also produced those same soups to be sold as store brands. The Heinz soups and store-brand soups were differentiated only by their label. If Harris Pilton bought Heinz soup because she said, Everyone knows the store-brand soup is nasty, this indicatesa. consumer cooperation. b. product homogeneity. c. product differentiation.d. a cartel exists.e. monopolization by Heinz.

Q: A convenience store is generally able to charge and obtain a higher price for its candy bars than Walmart because the convenience store a. differentiates based on style. b. differentiates based on location. c. differentiates based on quality. d. advertises that its candy bars are identical to those sold at Walmart. e. differentiates based on high barriers to entry, such as patents.

Q: You shop at the local drugstore because it is convenient. This situation is best described as a. differentiation by style or type. b. differentiation by a cartel. c. monopolistic competition with differentiation by location. d. a market with horizontal demand. e. perfect competition because there are so many drugstores in the area.

Q: Shopping at the clothing store Abercrombie & Fitch instead of Ann Taylor best illustratesa. differentiation by style or type. b. differentiation by location. c. differentiation by quality.d. homogeneous products.e. high barriers to entry.

Q: The movie Youve Got Mail features a successful small bookstore competing with a new book superstore around the block. The big superstore offers deep discounts, while the small independent bookstore has better service and a more knowledgeable staff. The movie best illustrates which of the following? a. Small producers cant compete based on costs. b. Large producers offer differentiated products and compete most effectively through product differentiation. c. Small producers offer differentiated products and compete most effectively through product differentiation. d. The big superstore bookstore best illustrates a perfectly competitive firm. e. The small independent bookstore best illustrates a monopoly firm.

Q: Which of the following is always associated with monopolistic competition? a. identical products b. economic profits in the short run c. demand curve that lies below the marginal revenue curve d. demand curves that become more inelastic as new entry occurs e. product differentiation

Q: Product differentiation a. refers to firms attempts to make their products look the same as other products in the industry. b. refers to firms attempts to make real or apparent differences in essentially substitutable products look different in the minds of consumers. c. refers to the advantage big firms have in research and development. d. is a common characteristic of a perfectly competitive market structure. e. is employed only in a monopoly market structure.

Q: Which of the following statements best describes firms under monopolistic competition? a. There is little price or quality competition. b. The firms compete using quality, location, and style. c. Firms do not compete using advertising. d. There is little competition between firms. e. There are a few firms that collude to set the highest price.

Q: If a monopoly firm suddenly lost its barriers to entry and faced new competition, yet consumers thought that the former monopolys products were somewhat different than its new competitors, then a. the industry has probably become perfectly competitive. b. long-run profit for this firm will likely exist. c. the industry has probably become a monopolistically competitive industry. d. the industry is probably cooperating to maximize joint profits. e. the industry has probably become a monopoly.

Q: We could state correctly that the minimum characteristic necessary to distinguish among price-making firms is a. product differentiation. b. price discrimination. c. the level of the concentration ratio. d. the number of firms in the industry. e. whether they produce industrial or consumer products.

Q: If all monopolistically competitive firms had identical cost curves, then a. the industry would remain monopolistically competitive because of product differentiation. b. long-run profit for each firm would be positive. c. short-run profit for each firm would be negative. d. excessive brand proliferation would result. e. the industry would become perfectly competitive.

Q: Which of the following is the best example of a monopolistic competitor?a. a corn farmer b. a weight-loss program c. the U.S. Postal Serviced. a gas statione. a localized cement company