Download Monopolisitic Competition PP

Monopolisitic Competition PP
Multiple Choice
Identify the choice that best completes the statement or answers the question.
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1. For the monopolistically competitive seafood market, the demand curve for any individual firm is ________,
and there ________ producers of seafood.
a. downward-sloping; are a few
b. upward-sloping; are many
c. vertical; are a few
d. downward-sloping; are many
e. downward-sloping; one or two
____
2. Suppose Susan owns a business that operates in a market characterized by monopolistic competition. Susan's
profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits are $1,800
per week. Susan decides that she needs more profits and therefore raises her price to $15. At the new price of
$15:
a. profits will increase.
b. profits will remain at $1,800.
c. marginal revenue will be greater than marginal cost.
d. marginal revenue will be less than marginal cost.
e. price will be less than marginal cost.
____
3. Suppose a monopolistically competitive firm can increase its profits by decreasing its output. Then it must be
the case that at the current output:
a. marginal revenue is less than zero.
b. price is less than marginal revenue.
c. price is less than marginal cost.
d. price is less than average total cost.
e. marginal revenue is less than marginal cost.
Figure 67-1: Monopolistic Competition I
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4. (Figure 67-1: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor
earning a loss in the short run?
a. Panel a
b. Panel b
c. Panel c
d. None of the panels show a loss in the short run.
e. Both panels b and c.
____
5. Monopolistically competitive firms have zero economic profits in the long run because of:
a. excess capacity.
b. price wars among firms.
c. easy entry and exit.
d. excessive advertising.
e. product differentiation.
____
6. In monopolistic competition:
a. firms advertise to increase demand for their product.
b. entry of new firms shifts the demand curve for existing firms to the right.
c. when some firms exit, the demand curve for the firms that remain in the industry shifts to
the left.
d. firms earn large economic profits in the long run.
e. demand for each firm’s product is perfectly elastic.
Figure 67-3: Monopolistic Competition V
____
7. (Figure 67-3: Monopolistic Competition V) In the figure, firms in the long run, will:
a. enter this market until all firms are earning a normal profit.
b. exit this market until all remaining firms are earning a normal profit.
c. enter this market, leading to excess profit for all the firms.
d. exit this market, leading to excess profit for all the remaining firms.
e. enter this market, leading to losses for all the firms.
Figure 67-7: Firms in Monopolistic Competition
____
8. (Figure 67-7: Firms in Monopolistic Competition) In panel A, economic profit per unit is amount:
a. KL.
b. LM.
c. MN.
d. NO.
e. FG.
Figure 67-9: The Restaurant Market
____
9. (Figure 67-9: The Restaurant Market) The figure shows curves facing a typical restaurant in a community.
Assume that many firms, differentiated products, and easy entry and easy exit characterize the market. If the
restaurant shown here were to raise its price above the profit-maximizing price, it would experience:
a. a reduction in total revenue.
b. an increase in total revenue.
c. no change in total revenue.
d. an increase in total profit.
e. an increase in profit per unit.
____ 10. The model of monopolistic competition can characterize the market for plumbing services in a city. Suppose
that the market is initially in long-run equilibrium, and then there is an increase in demand for plumbing
services. We expect that in the short run:
a. the price and output of plumbing services will fall.
b. the price and output of plumbing services will remain unchanged.
c. the price and output of plumbing services will rise.
d. the price of plumbing services will rise and the output will fall.
e. the price of plumbing services will fall and the output will rise.
____ 11. The model of monopolistic competition can characterize the market for plumbing services in a city. Suppose
that the market is initially in long-run equilibrium, and then there is an increase in demand for plumbing
services. We expect that in the long run, the economic profits of typical firms in the industry will be:
a. negative, as price will be less than average total cost.
b. positive, as price will exceed average total cost.
c. zero, as price will equal average total cost.
d. negative, as price will be equal to average total cost.
e. zero, as price will exceed average total cost.
____ 12. Which of the following is true?
a. Firms in both perfect competition and in monopolistic competition produce the quantity
where P > MC.
b. In the long run in perfect competition, economic profits = 0, and in monopolistic
competition in the long run, economic profits are positive.
c. In perfect competition, P = MC, and in monopolistic competition, MR = MC, but P > MC.
d. In both perfect competition and monopolistic competition, P equals minimum average
total cost in the long run.
e. In perfect competition, P = ATC in the long run, but in monopolistic competition, P >
ATC in the long run.
____ 13. A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning
positive economic profits. Which of the following must be true?
a. MR = MC and P = ATC.
b. MR = MC and P > ATC
c. MR > MC and P = ATC
d. P = MR = MC > ATC
e. P > ATC = MR = MC
____ 14. A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily
because:
a. there exist no barriers to entry or exit in the long run.
b. there are many sellers in the industry.
c. the firm sells a product distinct from products sold by competing firms.
d. the price is greater than the marginal revenue.
e. the firm earns a normal profit in the long run.
____ 15.
In the graph, which price and quantity refers to a potential long-run outcome in monopolistic competition?
a. P1 and Q3
b. P1 and Q1
c. P2 and Q2
d. P1 and Q4
e. P3 and Q1
____ 16. The profit-maximizing rule of ________ is adhered to by firms under ________.
a. MC > MR; monopolistic competition, but not perfect competition
b. MC = MR; both monopolistic competition and perfect competition
c. MC > MR; perfect competition, but not monopolistic competition
d. MC = MR; neither monopolistic competition or perfect competition.
e. MR > MC; both monopolistic competition and perfect competition
____ 17. The failure to produce enough to minimize average total cost is termed:
a. economic profits.
b. excess capacity.
c. advertising.
d. excess production.
e. product differentiation.
____ 18. The main characteristic that distinguishes monopolistic competition from perfect competition is:
a. easy entry and exit.
b. many firms.
c. differentiated products.
d. to maximize profits, a firm produces where MR = MC.
e. normal profit in the long run.
Figure 67-12: Monopolistic Competitor
____ 19. (Figure 67-12: Monopolistic Competitor) If this firm profit-maximizes, it will:
a. earn a positive economic profit.
b. earn a normal profit.
c. incur a loss.
d. shut down and incur a loss equal to its TFC.
e. just break even.
Monopolisitic Competition PP
Answer Section
MULTIPLE CHOICE
1. ANS:
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19. ANS:
MSC:
D
PTS:
Concept-Based
C
PTS:
Critical Thinking
E
PTS:
Concept-Based
B
PTS:
Concept-Based
C
PTS:
Fact-Based
A
PTS:
Concept-Based
A
PTS:
Concept-Based
E
PTS:
Critical Thinking
A
PTS:
Analytical Thinking
C
PTS:
Critical Thinking
C
PTS:
Critical Thinking
C
PTS:
Concept-Based
B
PTS:
Concept-Based
C
PTS:
Concept-Based
B
PTS:
Analytical Thinking
B
PTS:
Concept-Based
B
PTS:
Definitional
C
PTS:
Definitional
A
PTS:
Critical Thinking
1
DIF: M
REF: Module 67/31
1
DIF: M
REF: Module 67/31
1
DIF: M
REF: Module 67/31
1
DIF: M
REF: Module 67/31
1
DIF: E
REF: Module 67/31
1
DIF: M
REF: Module 67/31
1
DIF: E
REF: Module 67/31
1
DIF: D
REF: Module 67/31
1
DIF: D
REF: Module 67/31
1
DIF: M
REF: Module 67/31
1
DIF: M
REF: Module 67/31
1
DIF: D
REF: Module 67/31
1
DIF: M
REF: Module 67/31
1
DIF: D
REF: Module 67/31
1
DIF: M
REF: Module 67/31
1
DIF: D
REF: Module 67/31
1
DIF: E
REF: Module 67/31
1
DIF: E
REF: Module 67/31
1
DIF: M
REF: Module 67/31