Question 1

A firm cannot control all of the factors that allow it to make economic profits. Which of the following is an example of an uncontrollable factor?

Accepted Answer

A)   product differentiation
B)   input prices
C)   producing at a lower average total cost than competing firms
D)   hiring competent managers

Question 2

Explain the differences between total revenue, average revenue, and marginal revenue.

Accepted Answer

Total revenue equals price × q...

Question 3

Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that monopolistically competitive markets are less efficient than perfectly competitive markets?

Accepted Answer

A)   In contrast to perfectly competitive markets, neither allocative efficiency nor productive efficiency are achieved in monopolistically competitive markets.
B)   In contrast to perfectly competitive markets, firms in monopolistically competitive markets earn economic profits in long-run equilibrium.
C)   In contrast to perfectly competitive markets, firms in monopolistically competitive markets do not produce where price equals average total cost in long-run equilibrium.
D)   In contrast to perfectly competitive markets, firms in monopolistically competitive markets can charge a price greater than average total cost in the short run.

Question 4

The key characteristics of a monopolistically competitive market structure include

Accepted Answer

A)   few sellers.
B)   sellers selling similar but differentiated products.
C)   high barriers to entry.
D)   sellers acting to maximize revenue.

Question 5

Unlike a perfectly competitive firm, a monopolistic competitor does not have a short-run shutdown point.

Accepted Answer

A) True 
 B)False

Question 6

Figure 13-4  Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 13-4. What is the area that represents the total fixed cost of production?

Accepted Answer

A)   0P1aQa
B)   P0adP3
C)   P1bdP3
D)   That information cannot be determined from the graph.

Question 7

After selling 1,000 three-ring binders, Tony DiFulvio realizes that the marginal revenue from selling the last binder was less than the marginal cost. From this we can conclude that

Accepted Answer

A)   Tony's business earns a short-run economic profit.
B)   Tony should shut down his business temporarily.
C)   Tony's profit fell after selling his 1,000th three-ring binder.
D)   Tony's profit would be greater if he sold an additional three-ring binder.

Question 8

If a typical monopolistically competitive firm is making short-run losses, then

Accepted Answer

A)   other more competitive firms will enter the market.
B)   as some firms leave, the remaining firms will experience an increase in the demand for their products.
C)   as some firms leave, the demand for the products of the remaining firms will become more elastic.
D)   the industry will eventually cease to exist.

Question 9

Which of the following describes the relative positions of the demand curve and the average total cost (ATC)  curve of a monopolistically competitive firm that earns a profit in the short run?

Accepted Answer

A)   In the short run, the firm's demand curve will lie above its ATC curve. The demand curve will be tangent to the ATC curve in the long run.
B)   In the short run, the firm's demand curve will lie below its ATC curve. The demand curve will be tangent to the ATC curve in the long run.
C)   In the short run, the firm's demand curve will cross its ATC curve at the ATC curve's lowest point. The demand curve will be above the ATC curve in the long run.
D)   In the short run, the firm's ATC curve will cross the demand curve at the profit maximizing level of output. The demand curve will be tangent to the ATC curve in the long run.

Question 10

Figure 13-6 
-A monopolistically competitive industry that earns economic profits in the short run will

Accepted Answer

A)   continue to earn economic profits in the long run.
B)   experience the entry of new rival firms into the industry in the long run.
C)   experience the exit of existing firms out of the industry in the long run.
D)   experience a rise in demand in the long run.

Question 11

You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants. Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce. What is likely to happen to your business in the long run?

Accepted Answer

A)   Your competitors are likely to change their menus to make their products more similar to yours.
B)   Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero.
C)   If your success continues, you will be likely to establish a franchise and expand your market size.
D)   If you continue to maintain consistent quality, you will be able to earn profits indefinitely.

Question 12

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

Accepted Answer

A)   The demand curve will shift to the left and became more elastic.
B)   The demand curve will shift to the left and became less elastic.
C)   The demand curve will shift to the right and became more elastic.
D)   The demand curve will shift to the right and became less elastic.

Question 13

Figure 13-13 
-Refer to Figure 13-13. Economies of scale are exhausted at which output level?

Accepted Answer

A)   Q1 units
B)   Q2 units
C)   Q3 units
D)   more than Q1 units

Question 14

Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss?

Accepted Answer

A)   The firm could exit the industry in the long run.
B)   If the firm does not exit the industry in the long run, its demand curve will shift to the left.
C)   If the firm does not exit the industry in the long run, its demand curve will shift to the right.
D)   If the firm remains in the industry in the long run, it will break even.

Question 15

Arturo runs a Taco Bell franchise. He is selling 250 Gordita Supremes per week at a price of $2.75. If he lowers the price to $2.70, he will sell 251 Gordita Supremes. What is the marginal revenue of the 251st Gordita Supreme? If selling the extra Gordita Supreme adds $0.20 to Arturo's costs, what will be the effect on his profit from selling 251 Gordita Supremes instead of 250?

Accepted Answer

The marginal revenue of the 251st Gordit...

Question 16

Figure 13-8  Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced-tea.
-Refer to Figure 13-8. What is the profit-maximizing output level?

Accepted Answer

A)   22 cases
B)   24 cases
C)   30 cases
D)   38 cases

Question 17

If a monopolistically competitive firm breaks even, the firm

Accepted Answer

A)   is earning an accounting profit and will have to pay taxes on that profit.
B)   is earning zero accounting and zero economic profit.
C)   should advertise its product to stimulate demand.
D)   should expand production.

Question 18

The table below shows the demand and cost data facing "Velvet Touches," a monopolistically competitive producer of velvet throw pillows.
  Use the data to answer the following questions.
a. Complete the Total Revenue (TR), Marginal Revenue (MR) and Marginal Cost (MC) columns above.
b. What are the profit-maximizing price and quantity for Velvet Touches?
c. Is the firm making a profit or a loss? How much is the profit or loss? Show your work.
d. Is this firm operating in the long run or in the short run? Explain your answer.
e. If the firm's profit or loss is typical of all firms in the market for throw pillows, what is likely to happen in the future? Will there be more firms or will some existing firms leave the industry? Explain your answer.
f. What will happen to the typical firm's profit or loss after all entry/exit adjustments?

Accepted Answer

a.

b. Q = 5; P = $22
c. Profit = $(110...

Question 19

Complete the following table.

Accepted Answer

The answer of Complete the following table.
 ...

Question 20

Advertising is the action of a firm that is intended to maintain the differentiation of its product over time.

Accepted Answer

A) True 
 B)False

Exam 13: Monopolistic Competition: the Competitive Model in a More Realistic Setting

Explain the differences between total revenue, average revenue, and marginal revenue.

Correct Answer
verified
Total revenue equals price × q...
View Answer

A firm cannot control all of the factors that allow it to make economic profits. Which of the following is an example of an uncontrollable factor?

Correct Answer
verified

Correct Answer
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a.
b. Q = 5; P = $22
c. Profit = $(110...
View Answer

If a monopolistically competitive firm breaks even, the firm

Correct Answer
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In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

Correct Answer
verified

Complete the following table.

Correct Answer
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Which of the following describes the relative positions of the demand curve and the average total cost (ATC) curve of a monopolistically competitive firm that earns a profit in the short run?

Correct Answer
verified

Correct Answer
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The key characteristics of a monopolistically competitive market structure include

Correct Answer
verified

Correct Answer
verified
The marginal revenue of the 251st Gordit...
View Answer

Advertising is the action of a firm that is intended to maintain the differentiation of its product over time.

Correct Answer
verified

Unlike a perfectly competitive firm, a monopolistic competitor does not have a short-run shutdown point.

Correct Answer
verified

Figure 13-8 Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced-tea. -Refer to Figure 13-8. What is the profit-maximizing output level?

Correct Answer
verified

Figure 13-13 -Refer to Figure 13-13. Economies of scale are exhausted at which output level?

Correct Answer
verified

If a typical monopolistically competitive firm is making short-run losses, then

Correct Answer
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Correct Answer
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Figure 13-4 Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-4. What is the area that represents the total fixed cost of production?

Correct Answer
verified

Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss?

Correct Answer
verified

Figure 13-6 -A monopolistically competitive industry that earns economic profits in the short run will

Correct Answer
verified

After selling 1,000 three-ring binders, Tony DiFulvio realizes that the marginal revenue from selling the last binder was less than the marginal cost. From this we can conclude that

Correct Answer
verified

Exam 13: Monopolistic Competition: the Competitive Model in a More Realistic Setting

Explain the differences between total revenue, average revenue, and marginal revenue.

Correct AnswerverifiedTotal revenue equals price × q...View AnswerShow Answer

A firm cannot control all of the factors that allow it to make economic profits. Which of the following is an example of an uncontrollable factor?

Correct AnswerverifiedShow Answer

Correct Answerverifieda. b. Q = 5; P = $22c. Profit = $(110...View AnswerShow Answer

If a monopolistically competitive firm breaks even, the firm

Correct AnswerverifiedShow Answer

In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

Correct AnswerverifiedShow Answer

Complete the following table.

Correct AnswerverifiedShow Answer

Which of the following describes the relative positions of the demand curve and the average total cost (ATC) curve of a monopolistically competitive firm that earns a profit in the short run?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The key characteristics of a monopolistically competitive market structure include

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe marginal revenue of the 251st Gordit...View AnswerShow Answer

Advertising is the action of a firm that is intended to maintain the differentiation of its product over time.

Correct AnswerverifiedShow Answer

Unlike a perfectly competitive firm, a monopolistic competitor does not have a short-run shutdown point.

Correct AnswerverifiedShow Answer

Figure 13-8 Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced-tea. -Refer to Figure 13-8. What is the profit-maximizing output level?

Correct AnswerverifiedShow Answer

Figure 13-13 -Refer to Figure 13-13. Economies of scale are exhausted at which output level?

Correct AnswerverifiedShow Answer

If a typical monopolistically competitive firm is making short-run losses, then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 13-4 Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-4. What is the area that represents the total fixed cost of production?

Correct AnswerverifiedShow Answer

Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss?

Correct AnswerverifiedShow Answer

Figure 13-6 -A monopolistically competitive industry that earns economic profits in the short run will

Correct AnswerverifiedShow Answer

After selling 1,000 three-ring binders, Tony DiFulvio realizes that the marginal revenue from selling the last binder was less than the marginal cost. From this we can conclude that

Correct AnswerverifiedShow Answer

Correct Answer
verified
Total revenue equals price × q...
View Answer

Correct Answer
verified

Correct Answer
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a.
b. Q = 5; P = $22
c. Profit = $(110...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The marginal revenue of the 251st Gordit...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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