1. In the short run, a monopolistically competitive firm produces at the optimal
ID: 1165469 • Letter: 1
Question
1. In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which expression must be TRUE for this firm?
Select one:
a. MR = MC and P > ATC.
b. MR > MC and P = ATC.
c. P = MR = MC > ATC.
d. MR = MC and P = ATC.
2. A(n) _____ market has a single firm and _____, whereas a(n) _____ market has _____ firm(s) and _____.
Select one:
a. monopolistic; barriers to entry; monopolistically competitive; many; easy entry and exit
b. oligopolistic; no barriers to entry; monopolistic; many; easy entry and exit
c. monopolistic; barriers to entry; oligopolistic; few; no barriers to entry
d. monopolistically competitive; barriers to entry; monopolistic; one; barriers to entry
3. Product differentiation under monopolistic competition means that each firm:
Select one:
a. always receives economic profits.
b. maximizes profit where MC = P.
c. faces a downward-sloping demand curve.
d. charges the same price.
4. A monopolistically competitive industry has some of the characteristics of perfect competition, including:
Select one:
a. easy entry and exit and identical products.
b. easy entry and exit.
c. many firms making economic profit in the long run.
d. identical products.
5. A common example of monopolistic competition is the market for:
Select one:
a. gasoline for cars.
b. cable TV service.
c. mandarin oranges.
d. automobiles.
6.
Table: Spring Water
Reference: Ref 15-12 Table: Spring Water
Table: Spring Water. The table shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. The profit-maximizing price is:
Select one:
a. $5.
b. $10.
c. $16.
d. $3.
7. An example of monopolistic competition is the _____ industry.
Select one:
a. soft-drink
b. automobile
c. airline
d. restaurant
8. Because most communities have a large number of similar but not identical substitutes, the market for chiropractors is BEST considered to be:
Select one:
a. a monopoly.
b. an oligopoly.
c. monopolistically competitive.
d. perfect competition.
9. The demand curve for a firm in monopolistic competition is _____ facing a perfectly competitive firm.
Select one:
a. downward sloping, unlike the horizontal demand curve
b. horizontal, unlike the downward-sloping demand curve
c. horizontal, the same as that
d. downward sloping, the same as that
10. Because of the lack of substitutes, the market for a newly developed and freshly patented prescription drug is BEST considered to be:
Select one:
a. in monopolistic competition.
b. in perfect competition.
c. a monopoly.
d. an oligopoly.
(Cases) Price Total
Revenue Marginal
Revenue Marginal
Cost Average
Total
Cost Total Cost 0 $16 $0 $25 $15 $10 1 $15 $15 35.00 $35 $13 $6 2 $14 $28 20.50 $41 $11 $4 3 $13 $39 15.00 $45 $9 $2 4 $12 $48 11.75 $47 $7 $3 5 $11 $55 10.00 $50 $5 $3 6 $10 $60 8.83 $53 $3 $5 7 $9 $63 8.29 $58 $1 $9 8 $8 $64 8.38 $67
Explanation / Answer
Ans1) the correct option is a. MR = MC and P > ATC. At profit maximisation MR = MC. There will be positive economic profits as long as price is greater than average total cost
Ans2) The correct option is a. monopolistic; barriers to entry; monopolistically competitive; many; easy entry and exit. In monopoly there is only one firm and there are barriers to entry where as in monopolistic competition there are many buyers and sellers and no barriers to entry.
Ans3) the correct option is c. faces a downward-sloping demand curve. In monopolistic competition firms are not price takers but in perfect competition firms are price takers and set price equal to marginal cost.
Ans4) the correct option is b. easy entry and exit. In the long run firms in perfect competition and monopolistic competition earn zero economic profit because there are no batteries to enter or exit.
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