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Exam 14: Monopolistic Competition and Product Differentiation

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Question 31

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A firm in monopolistic competition maximizes its profit by producing so that:

A) MC = ATC.
B) MC = AR.
C) MC = MR.
D) MC = P.

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Question 32

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The model of monopolistic competition characterizes the market for plumbing services. This market is initially in long-run equilibrium, but then there is an increase in the market demand for plumbing services. We expect that in the long run, the economic profits of typical firms will be:

A) typical of those earned by monopoly firms.
B) negative.
C) zero.
D) positive but less than the level typically earned by monopoly firms.

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Question 33

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Use the following to answer questions Figure: The Restaurant Market -(Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the restaurant market. For the restaurant shown here, the profit-maximizing price is:

Use the following to answer questions Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A long-run equilibrium is illustrated at the profit-maximizing price _____ in panel _____.

An industry characterized by many firms producing similar but differentiated products in a market with easy entry and exit is called:

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which of the following must be TRUE for this firm?

In the long run, monopolistically competitive firms tend to have:

The profit-maximizing rule MC = MR is followed by firms operating in:

When initially a monopolistically competitive industry earns economic profit, the result of competition among sellers is usually that:

In large shopping malls, the retail clothing market is most illustrative of:

Use the following to answer questions Figure: The Restaurant Market -The model of monopolistic competition characterizes a city's market for plumbing services. Suppose that the market is initially in long-run equilibrium, and then demand for plumbing services increases. In the short run, plumbing services' price will _____ and output will _____.

Use the following to answer questions Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) In panel (A) of the figure Firms in Monopolistic Competition, economic profit per unit is:

If a firm operating in monopolistic competition is producing a quantity that generates MC > MR, then the marginal decision rule tells us that profit:

Use the following to answer questions Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) In panel (C) of the figure Firms in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:

Use the following to answer questions Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. There will be a negative economic profit (or an economic loss) earned at the profit-maximizing price _____ in panel _____.

Product differentiation under monopolistic competition means that each firm:

Monopolistic competition is an industry structure characterized by:

A monopolistically competitive industry is characterized by a _____ number of firms producing _____ products; it has _____ entry.

Use the following to answer questions Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A positive economic profit is earned if the profit-maximizing price is _____ in panel _____.

Use the following to answer questions Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is _____ in panel _____.