Question 1

In monopolistic competition, what does 'excess capacity' refer to?

Accepted Answer

The amount by which the efficient scale exceeds the quantity that the firm produces

Question 2

Which of the following firms is producing at the efficient scale?

Accepted Answer

Dell produces 100 computers a week at which its average total cost is minimized

Question 3

In monopolistic competition, what is the 'markup'?

Accepted Answer

The amount by which price exceeds marginal cost

Question 4

Suppose a monopolistically competitive firm faces the following cost and demand functions: $$C(q) = 10q + 100$$ and $$P(q) = 30 - 0.5q. $$What is the firm's profit-maximizing output?

Accepted Answer

$$q = 40$$

Question 5

If a firm in monopolistic competition is producing at a quantity where average total cost is minimized, what can be said about its profit?

Accepted Answer

The firm may not be maximizing profit

Question 6

Which equation correctly represents the efficient scale of production?

Accepted Answer

$$ATC is $$minimized

Question 7

A monopolistically competitive firm sets its price above marginal cost. What is the primary reason for this?

Accepted Answer

Because the firm faces a downward-sloping demand curve

Question 8

If a firm is producing at a level where $$ATC is $$minimized, what is true about its output?

Accepted Answer

It is producing at the efficient scale

Question 9

Which of the following best describes the relationship between price and marginal cost in monopolistic competition?

Accepted Answer

$$P \u003e MC$$

Question 10

A firm in monopolistic competition is currently producing 50 units, where $$ATC = 20$$ and $$MC = 18. If $$the price is $$25$$, what is the firm's markup?

Accepted Answer

$$5$$

Question 11

Which scenario best illustrates a firm operating with excess capacity?

Accepted Answer

A clothing store produces less than the efficient scale

Question 12

If a monopolistically competitive firm increases its output, what happens to its average total cost if it is currently producing below the efficient scale?

Accepted Answer

Average total cost decreases

Question 13

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

Accepted Answer

Barriers to entry

Question 14

A firm in monopolistic competition faces the following demand: $$P = 50 - q. $$Its marginal cost is constant at $$MC = 20. $$What price will the firm charge at the profit-maximizing output?

Accepted Answer

$$P = 35$$

Question 15

Which of the following best explains why firms in monopolistic competition do not produce at the efficient scale?

Accepted Answer

They maximize profit where $$MR = MC$$, not where $$ATC is $$minimized

Question 16

If a firm in monopolistic competition is earning zero economic profit, what does this imply about its price and average total cost?

Accepted Answer

$$P = ATC$$

Question 17

Suppose a firm in monopolistic competition is producing at a quantity where $$MC = MR$$ and $$P \u003e ATC. $$What is true about the firm's profit?

Accepted Answer

The firm is earning positive economic profit

Question 18

Which of the following equations represents the profit-maximizing condition for a firm in monopolistic competition?

Accepted Answer

$$MR = MC$$

Question 19

A firm in monopolistic competition lowers its price to increase sales. What is the likely effect on its marginal revenue?

Accepted Answer

Marginal revenue decreases

Question 20

If a firm in monopolistic competition is producing at a quantity where $$P = MC$$, what is true about its output?

Accepted Answer

It is producing at the socially optimal level

Monopolistic Competition: Output, Efficiency, and Markup

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