Question 1

Suppose a monopolistically competitive firm faces the following demand schedule for its product: At a price of $$120, it sells 0 units; at 115$$, it sells 1 unit; at $$110, it sells 2 units; at 105$$, it sells 3 units; at $$100, it sells 4 units; and at 95$$, it sells 5 units. What is the marginal revenue when the firm increases sales from 2 to 3 units?

Accepted Answer

$95

Question 2

Which of the following best describes the demand curve faced by an individual firm in a perfectly competitive market?

Accepted Answer

A perfectly elastic demand curve at the market price.

Question 3

If a monopolistically competitive firm is earning positive economic profits in the short run, what will happen in the long run?

Accepted Answer

New firms will enter the market, shifting the demand curve for existing firms to the left and making it more elastic.

Question 4

In monopolistic competition, what is the relationship between the firm's marginal revenue (MR) curve and its demand (D) curve?

Accepted Answer

The MR curve lies below the demand curve.

Question 5

Suppose Maria manages a bakery and her profit-maximizing output is 4 loaves of bread per hour, with a price of $$4.00 per loaf. If her total cost at this output is 15.50$$, what is her maximum profit?

Accepted Answer

$0.50

Question 6

Which of the following is a key difference between long-run equilibrium in monopolistic competition and perfect competition?

Accepted Answer

Monopolistically competitive firms charge a price greater than marginal cost in the long run.

Question 7

A firm in a monopolistically competitive market is producing at a quantity where average total cost (ATC) is above the demand curve. What does this indicate?

Accepted Answer

The firm is making an economic loss.

Question 8

Which of the following is a benefit to consumers from monopolistic competition compared to perfect competition?

Accepted Answer

Consumers benefit from product differentiation and greater variety.

Question 9

Suppose a firm increases its advertising spending, but the demand for its product does not change. What is the likely effect on the firm's profits?

Accepted Answer

Profits decrease because average total cost increases while demand remains unchanged.

Question 10

Which of the following is an example of a trademarked name that has become so widely used that it is no longer associated with a specific company?

Accepted Answer

Aspirin.

Question 11

If a monopolistically competitive firm is producing 10,000 bottles of shampoo at a price of $2 per bottle, but the minimum average total cost occurs at 14,000 bottles, what is the firm's excess capacity?

Accepted Answer

$$4,000$$

Question 12

Which of the following best explains why monopolistically competitive firms are not allocatively efficient in the long run?

Accepted Answer

Price is greater than marginal cost at the profit-maximizing output.

Question 13

Suppose Jerry is a used-car salesman in a monopolistically competitive market. His marginal cost of purchasing a used car is $5,000. According to the table, at what quantity does marginal revenue equal marginal cost, and what price should he charge?

Accepted Answer

Sell 4 cars at $14,000 each.

Question 14

Which of the following is a possible effect of advertising for a monopolistically competitive firm?

Accepted Answer

Advertising can increase profits by making the demand curve for the product more inelastic.

Question 15

A monopolistically competitive firm introduces a significantly different version of an old product. How might the firm use brand management?

Accepted Answer

To postpone the time when they will no longer be able to earn economic profits.

Question 16

Which of the following factors under the control of owners and managers can make a firm successful and allow it to earn economic profits?

Accepted Answer

The firm's ability to produce its product at a lower average cost than competitors.

Question 17

Suppose Angelica sells beef brisket sandwiches in a monopolistically competitive market. If she is making an economic loss in the short run, what is she likely to do in the long run?

Accepted Answer

Exit the industry.

Question 18

In the long run, what happens to the demand curve facing a monopolistically competitive firm as new firms enter the market?

Accepted Answer

It shifts to the left and becomes more elastic.

Question 19

Which of the following is NOT a characteristic of monopolistic competition?

Accepted Answer

Firms sell identical products.

Question 20

Suppose a monopolistically competitive firm is producing at the profit-maximizing output where marginal revenue equals marginal cost. If the price is above average total cost at this output, what is the firm's economic profit?

Accepted Answer

Positive economic profit.

CH. 13 Study Guide

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