1. If firms in a monopolistically competitive market are earning positive profit
ID: 1250803 • Letter: 1
Question
1.
If firms in a monopolistically competitive market are earning positive profits,
A) firms will likely be subject to regulation.
B) barriers to entry will be strengthened.
C) some firms must exit the market.
D) new firms will enter the market.
2.
Panel c in the set of figures shown is consistent with a firm in a monopolistically competitive market that is
A) earning profit and is in both short-run and long-run equilibrium.
B) earning economic profit and is in short-run equilibrium, but not long-run equilibrium.
C) earning profit and is in long-run equilibrium, but not short-run equilibrium.
D) earning a negative profit and is not in equilibrium.
3.
When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,
A) its marginal revenue will exceed its marginal cost.
B) its average revenue will equal its marginal cost.
C) it will be earning positive economic profits.
D) its demand curve will be tangent to its average-total-cost curve.
4.
Monopolistic competition differs from perfect competition because in monopolistically competitive markets
A) each of the sellers offers a somewhat different product.
B) strategic interactions between firms is vitally important.
C) there are barriers to entry.
D) all firms can eventually earn economic profits.
5.
The free entry and exit of firms in a monopolistically competitive market guarantees that
A) economic losses can persist into the long run, but not economic profits.
B) both economic profits and economic losses can persist into the long run.
C) economic profits can persist into the long run, but not economic losses.
D) both economic profits and economic losses disappear in the long run.
6.
Panel (a) shows a profit-maximizing monopolistically competitive firm that is
A) All answers are correct
B) earning a zero profit.
C) charging a price that is equal to average total cost.
D) in long-run equilibrium.
7.
Since a firm in a monopolistically competitive market faces a
A) perfectly elastic demand curve, it will always operate with excess capacity.
B) downward-sloping demand curve, it will always operate at efficient scale.
C) perfectly inelastic demand curve, it will always operate at efficient scale.
D) downward-sloping demand curve, it will always operate with excess capacity.
8.
In a monopolistically competitive market,
A) firms can enter or exit the market without restriction.
B) each firm takes the price of its product as given.
C) each firm produces a product that is essentially identical to the products of other firms in the market.
D) there are only a few sellers.
9.
The fact that there is a great deal of advertising of men’s shaving products indicates that
A) it costs firms very little to produce those products.
B) the market for those products is perfectly competitive.
C) those products are highly differentiated.
D) All answers are correct
10.
A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market
A) has no barriers to entry.
B) faces a downward-sloping demand curve for its product.
C) faces a horizontal demand curve at the market clearing price.
D) is characterized by market share maximization.
Explanation / Answer
1. D) new firms will enter the market. 2. Cannot be answered without "panel c" (Answer "C" is impossible, however.) 3. D) its demand curve will be tangent to its average-total-cost curve. 4. A) each of the sellers offers a somewhat different product. 5. D) both economic profits and economic losses disappear in the long run. 6. A) All answers are correct (they are all equivalent, so I can answer without the picture.) 7. D) downward-sloping demand curve, it will always operate with excess capacity. 8. A) firms can enter or exit the market without restriction. 9. C) those products are highly differentiated. 10. B) faces a downward-sloping demand curve for its product.
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