Question 1

Which of the following best describes a monopolistically competitive market?

Accepted Answer

A market with many firms selling differentiated products and low barriers to entry.

Question 2

Suppose a coffee shop in a monopolistically competitive market raises its price. What is the most likely outcome?

Accepted Answer

Some customers will switch to other coffee shops, but not all, due to product differentiation.

Question 3

In the short run, a monopolistically competitive firm maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 4

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

Accepted Answer

New firms will enter, shifting the demand curve for the existing firm to the left.

Question 5

Which of the following equations correctly represents marginal revenue?

Accepted Answer

$$MR = \frac{\Delta TR}{\Delta Q}$$

Question 6

A monopolistically competitive firm faces the following costs and revenues for producing 5 units: $$P = 3.50$$, $$ATC = 2.50$$, $$Q = 5. $$What is the profit per unit?

Accepted Answer

$$1.00$$

Question 7

Why is the demand curve for a monopolistically competitive firm more elastic than that of a monopoly but less elastic than that of a perfectly competitive firm?

Accepted Answer

Because there are many close but not perfect substitutes.

Question 8

If a monopolistically competitive firm is suffering losses in the short run, what is likely to happen in the long run?

Accepted Answer

Firms will exit the market, increasing demand for the remaining firms.

Question 9

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

Accepted Answer

High barriers to entry

Question 10

Suppose a monopolistically competitive firm’s demand curve becomes more elastic over time. What is the most likely cause?

Accepted Answer

More firms are entering the market, increasing the number of substitutes.

Question 11

A monopolistically competitive firm’s marginal revenue curve:

Accepted Answer

Lies below its demand curve and intersects the quantity axis halfway between the origin and where the demand curve hits the axis.

Question 12

If a monopolistically competitive firm’s price is less than its average total cost at the profit-maximizing output, the firm is:

Accepted Answer

Suffering a loss

Question 13

Which of the following best explains why monopolistically competitive firms engage in marketing and advertising?

Accepted Answer

To differentiate their products and increase demand.

Question 14

In the long run, what is the relationship between price and average total cost for a monopolistically competitive firm?

Accepted Answer

$$P = ATC$$

Question 15

Suppose a monopolistically competitive firm faces the following: $$MR = MC at$$ $$Q = 6$$, $$P = 3.00$$, $$ATC = 3.50. $$What is the firm’s profit or loss per unit?

Accepted Answer

$$-0.50$$

Question 16

Which of the following is a real-world example of a monopolistically competitive industry?

Accepted Answer

Clothing stores

Question 17

If a monopolistically competitive firm is producing where $$MR \u003e MC$$, what should the firm do to maximize profit?

Accepted Answer

Increase output

Question 18

Which of the following best describes the long-run equilibrium for a monopolistically competitive firm?

Accepted Answer

Firms earn zero economic profit because entry and exit drive profits to zero.

Question 19

Suppose the total revenue for a firm increases from $$10.00 to 13.50$ when output increases from 2 to 3 units. What is the marginal revenue for the third unit?

Accepted Answer

$$3.50$$

Question 20

Which of the following is true about the demand curve faced by a monopolistically competitive firm?

Accepted Answer

It is downward sloping because the firm has some market power due to product differentiation.

Chap 13 - Monopolistic Competition: Structure, Profit Maximization, and Long-Run Outcomes

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