Microeconomics - Testbank 1 (Hubbard/O'Brien)

Chapter 12 Monopolistic Competition: The Competitive Model

in a
More Realistic Setting
d1)
The key characteristics of a monopolistically competitive
market structure include:
A
)
many, small, independently acting sellers.
B
)
all sellers sell a differentiated product.
C
)
no barriers to entry of new rivals.
D
)
all of these.
b2)
The key characteristics of a monopolistically competitive

market structure include:

A
)
few sellers.
B
)
sellers selling similar but differentiated products.
C
)
high barriers to entry .
D
)
all of these.
c3)
What type of demand does a monopolistically competitive firm
face?
A
)
Horizontal
B
)
Vertical

C
)
Downward sloping
D
)
Upward sloping
d4)
If a monopolistically competitive firm cuts its price from $10
where it sold 25 units to $9 and sells five more units of output,
its marginal revenue per unit of output is:
A
)
$270.
B
)
$2.50
C
)
$20.
D
)
$4.

c5)
If a monopolistically competitive firm cuts its price from $10
where it sold 25 units to $9 and sells five more units of output,
its marginal revenue is:
A
)
$270.
B
)
$2.50.
C
)
$20.
D
)
$4.
a6)
Monopolistic competition has:
A
)

many sellers who each face a downsloping demand curve.

B
)
a few sellers who each face a downsloping demand curve.
C
)
only one seller who faces a downsloping demand curve.
D
)
many sellers who each face a perfectly elastic demand curve.
b7)
To maximize profits, a monopolistically competitive firm would
produce the output where:
A
)
price equals average total cost.
B
)
marginal revenue equals marginal cost.
C
)
price equals marginal cost.

D
)
marginal revenue equals price.
b8)
If a monopolistically competitive firm is producing at an output
where marginal revenue is $23 and marginal cost is $19, then to
maximize profits the firm will:
A
)
continue to produce the same quantity.
B
)
increase output.
C
)
decrease output.
D
)
shutdown.
c9)

If a monopolistically competitive firm is producing at an output

where marginal revenue is $111.11 and marginal cost is $118,
then to maximize profits the firm will:
A
)
continue to produce the same quantity.
B
)
increase output.
C
)
decrease output.
D
)
shutdown.
a10
)
If a monopolistically competitive firm is producing at an output
where marginal revenue is $12 and marginal cost is $12., then to
maximize profits this firm will:
A
)
continue to produce the same quantity.
B

increase output.
C
)
decrease output.
D
)
shutdown.
c11
)
If a monopolistically competitive firm is producing 66 units of
output where marginal revenue equals marginal cost at a price
of $18 and average total cost at that output is $16.55, then its
total profit is:
A
)
$1,188.

B
)

$1,092.30.
C
)
$95.70.

$1.45.
c12
)
If a monopolistically competitive firm is producing 50 units of
output where marginal cost equals marginal revenue, total cost
is $1,674 and total revenue is $2,000, its average profit is:
A
)
$326.
B
)
$40.
C
)
$6.52.
D
)
impossible to determine without additional information.
c13
)
A monopolistically competitive firm maximizing profits will
produce at a price that is:

A
)
equal to marginal cost.
B
)
equal to marginal revenue.
C
)
greater than marginal cost.
D
)
less than marginal revenue.
b1
4)
A monopolistically competitive industry that earns economic
profits in the short run will:
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 old firms out of the industry in the long
run.
D
)
experience a rise in demand in the long run.
d1
5)
A monopolistically competitive firm that is earning profits will,
in the long run, experience:
A
)
new rivals entering the market.
B
)
demand decreases.
C
)
demand for the firm's product becomes more elastic.
D
)
all of the above.

c16
)
A monopolistically competitive firm earning profits in the short
run will find the demand for its product decreasing in the long
run because:
A
)
customers have tired of the firm's product.
B
)
consumers' incomes have fallen.
C
)
some of its customers have switched purchases to new entrants
into the market.
D
)
its costs and price has risen.
a17
)
A monopolistically competitive firm earning profits in the short
run will find the demand for its product becoming more elastic
in the long run because:

A
)
more substitutes are available because new rivals have entered
the market.
B
)
the price of the product relative to buyers' incomes has
increased.
C
)
consumers have tired of the firm's product.
D
)
consumers incomes have fallen.
c18
)
A monopolistically competitive firm earning profits in the short
run will find the demand for its product decreasing and
becoming more elastic in the long run as new firms move into
the industry until:
A
)
the original firm is driven into bankruptcy.
B

the firm's demand curve is perfectly elastic.

C
)
the firm's demand curve is tangent to its average total cost
curve.
D
)
the firm exits the market.

b1
9)
In the long run, a typical monopolistically competitive firm
will:
A
)
earn an economic profit.
B
)
breakeven.
C
)
incur an economic loss.

D
)
shut down.
b2
0)
If a monopolistically competitive firm breaks even in an
economic sense, the entrepreneur:
A
)
should exit the industry.
B
)
is earning as much in this industry as he or she could anywhere
else.
C
)
avoids having to pay income tax.
D
)
none of the above.
a21
)

If a monopolistically competitive firm breaks even in an

economic sense, the entrepreneur:
A
)
is earning an accounting profit and will have to pay taxes on
that profit.
B
)
is earning zero accounting and economic profit.
C
)
should exit the industry.
D
)
none of the above.
b2
2)
If a typical monopolistically competitive firm is losing money
in an economic sense, then:
A
)
all firms will exit the market.
B
)

as some firms leave, the remaining firms find the demand for
their product increasing.
C
)
as some firms leave, the remaining firms find the demand for
their product becomes more elastic.
D
)
all of the above happen.
d2
3)
Profits earned by monopolistically competitive firms in the
short run typically will decline in the long run because:
A
)
their products are of poor quality.
B
)
buyers realize the products are less differentiated than they
initially believed.
C
)
buyers tire of their products.
D

of the entry of imitators.

c24
)
A monopolistically competitive firm has more control over the
price of its product because:
A
)
of entrance of new firms into the market.
B
)
it can convince buyers that its product is very similar.
C
)
it can convince buyers that its product is differentiated.
D
)
entrance of new firms is very difficult.
c25
)
A major difference between monopolistically competitive and
perfectly competitive markets is:
A
)

the number of sellers.

B
)
the degree by which market demand slopes downward.
C
)
products are not standardized in monopolistic competition.
D
)
barriers to entry.
d2
6)
Among the characteristics that monopolistic competition and
perfect competition share is:
A
)
many, small independently acting sellers.
B
)
low barriers to entry into the industry by new firms.
C
)

the typical firm breaks even in the long run.

D
)
all of the above.
c27
)
If buyers of a monopolistically competitive product feel the
products of different sellers are strongly differentiated, then:
A
)
the demand for each seller's product is perfectly inelastic.
B
)
the demand for each seller's product is perfectly elastic.
C
)
the demand for each seller's product is relatively inelastic.
D
)
the demand for each seller's product is relatively elastic.
a28
)

A monopolistically competitive firm can increase its profits

beyond the long-run equilibrium breakeven level by:
A
)
continually finding ways to produce its product at a lower cost
level.
B
)
selling more of its product.
C
)
marketing its product as similar to others in the industry.
D
)
all of the above.
b2
9)
A monopolistically competitive firm can convince buyers that
its product has value by:
A
)
selling the product at a lower price than rivals do.
B
)

differentiating its product to suit consumers' preferences.

C
)
marketing its product as similar to competitors.
D
)
blocking entry.
b3
0)
Which of the following is NOT a characteristic of long-run
equilibrium in a monopolistically competitive market?
A
)
Selling price equals average total cost.
B
)
Production is at minimum average total cost.
C
)
Marginal revenue equals marginal cost.
D
)
Selling price is greater than marginal cost.

c31
)
How does the long run equilibrium of a monopolistically
competitive industry differ from that of a perfectly competitive
industry?
A
)
In long-run equilibrium in a monopolistically competitive firm
will earn economic profits.
B
)
In long-run equilibrium in a monopolistically competitive firm
price will be higher than the average cost of production.
C
)
In long-run equilibrium in a monopolistically competitive firm
does not use fully the plant size it built.
D
)
In long-run equilibrium in a monopolistically competitive firm
is allocatively efficient while the perfectly competitive firm is
not.
a32
)

Is a monopolistically competitive firm productively efficient?

A
)
It is NOT because it does not produce at minimum average total
cost.
B
)
It is because it produces where marginal cost equals marginal
revenue.
C
)
It is NOT because price is greater than marginal product.
D
)
It is because price equals average total costs.
a33
)
For allocative efficiency to hold:
A
)
price is equal to marginal cost.
B
)

price is equal to marginal revenue.

C
)
average variable cost is minimized in production.
D
)
average total cost is minimized in production.
Refer to Figure 12.1 for the questions below.

Figure 12.1
b3
4)
The monopolistic competitor in figure 12.1 will produce:
A
)

Q1.

Q2.

Q3.

B
)

C
)

D
)

Q4.
d3
5)
The monopolistic competitor in figure 12.1 will charge:
A
)
P1.

P2.

P3.

B
)

C
)

P4.
b3
6)
The monopolistic competitor in figure 12.1:
A
)
is making a profit.
B
)
is breaking even.
C
)
should shut down.
D
)
is losing money but should operate in the short run.
d3
7)
The productive efficient output for the monopolistic competitor
in figure 12.1 is:
A
)

Q1.

Q2.

Q3.

B
)

C
)

D
)

Q4.
b3
8)
Brand management:
A
)
is picking a brand name for a new product that will attract
attention.
B
)
is the efforts to maintain the differentiation of a product over
time.
C
)

is the efforts to reduce the cost of production.

D
)
is selling the right to use a brand name in a particular market.

d3
9)
What is the purpose of advertising by a monopolistically
competitive firm?
A
)
Increase demand for the firm's product.
B
)
Make the demand for the firm's product more inelastic.
C
)
Earn more economic profit for the firm.
D
)
Firms advertise for all these reasons.
c40

What is considered by some individuals to be good about

advertising by monopolistically competitive firms?
A
)
Advertising can act as a barrier to entry.
B
)
Advertising has a low cost.
C
)
Firms tend to advertise their best products, so the quantity of
advertising provides consumers with useful information.
D
)
Firms that advertise have lower costs of production.
c41
)
Advertising, marketing, and brand management are all done by
monopolistically competitive firms in an effort to:
A
)
satisfy buyers with the lowest possible price.
B

produce at the lowest possible average total cost level.

C
)
increase demand and make it more inelastic to earn above
break-even profits.
D
)
to get price to equal average total costs.
a42
)
An advantage of trademarking your product is:
A
)
a trademark differentiates your product.
B
)
a trademark means no one else can legally produce a similar
product.
C
)
a trademark means your product name may become highly
associated with the product.
D

all of the above.

b4
3)
A disadvantage for consumers who buy a product of a
monopolistically competitive firm is:
A
)
they have no choice in the attributes of the product.
B
)
they pay a price greater than the marginal cost of production.
C
)
they have no choice about whether to buy or not.
D
)
they pay a price greater than average total cost.
c44
)
An advantage to consumers from buying a product of a
monopolistically competitive firm is:
A

they are paying a price greater than marginal cost.

B
)
they are paying for product advertising.
C
)
they can buy a product more closely suited to their tastes.
D
)
they can buy the same product as everyone else.