____ 1. Refer to Figure 16-2. Which of the graphs would most likely represent a
ID: 2441279 • Letter: #
Question
____ 1. Refer to Figure 16-2. Which of the graphs would most likely represent a profit-maximizing firm in a monopolistically competitive market?
a.
panel (a)
b.
panel (b)
c.
panel (c)
d.
panel (d)
____ 2. What is an important difference between the situations faced by a profit-maximizing monopolistically competitive firm in the short run and in the long run?
a.
In the short run, price may exceed marginal revenue; in the long run, price equals marginal revenue.
b.
In the short run, price may exceed marginal cost; in the long run, price equals marginal cost.
c.
In the short run, price may exceed average total cost; in the long run, price equals average total cost.
d.
In the short run, price may exceed average variable cost; in the long run, price equals average variable cost.
____ 3. Under what circumstances does a firm operate with excess capacity?
a.
Additional production would lower the average total cost.
b.
Additional production would increase average total cost.
c.
It must be a perfectly competitive firm.
d.
It must be a monopolistically competitive firm.
____ 4. Which of the following statements explains the welfare loss associated with a monopolistically competitive market?
a.
The entry of new firms creates externalities.
b.
The absence of restrictions on entry by new firms ensures that there will be no deadweight loss.
c.
There are generally too many firms in the market relative to the socially optimal number of firms.
d.
There are generally too few firms in the market relative to the socially optimal number of firms.
a.
panel (a)
b.
panel (b)
c.
panel (c)
d.
panel (d)
Price Price MC MR Quantity Price Price MC TC Q Quantity) Figure 16-2Explanation / Answer
a) "A"
Panel A represents a monopolistically competitive firm in the short run making a profit.
b) "C"
IN the short run the price may exceed average total cost but in the long run, it will be equal to the average total cost in the long run i.e., in the long run, there will be zero profit for the firm.
c) "A"
increased production would lower the average total cost of production.
d) "C"
Generally, there are too many firms in the market in a monopolistic market.
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