Question 1

Which of the following best explains why a monopolistically competitive firm faces a downward-sloping demand curve?

Accepted Answer

Because the firm sells a differentiated product, so some customers are willing to pay more for its product.

Question 2

Suppose Blue Bottle Coffee reduces the price of its cappuccino from $$3.50 to 3.00 $$and sells one additional cup. What is the marginal revenue from this price cut, given that it loses $$0.50 on each of the 5 cups it would have sold at 3.50$$?

Accepted Answer

Marginal revenue is $$3.00 - 2.50$$ = $0.50.

Question 3

A monopolistically competitive firm maximizes profit in the short run by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 4

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

Accepted Answer

It becomes flatter and more elastic.

Question 5

Which equation represents the profit per unit for a monopolistically competitive firm?

Accepted Answer

$$Profit\ per\ unit = P - ATC$$

Question 6

Why do monopolistically competitive firms earn zero economic profit in the long run?

Accepted Answer

Because entry of new firms reduces demand for each existing firm until price equals average total cost.

Question 7

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

Accepted Answer

Firms sell identical products.

Question 8

If a monopolistically competitive firm is earning an economic profit, what is likely to happen in the market?

Accepted Answer

New firms will enter, increasing competition and reducing profits.

Question 9

Which of the following best describes productive efficiency?

Accepted Answer

Producing goods at the lowest possible cost.

Question 10

Allocative efficiency occurs when:

Accepted Answer

The marginal benefit to consumers equals the marginal cost to firms ($$MB = MC).$$

Question 11

Which of the following is a real-world example of product differentiation in monopolistic competition?

Accepted Answer

A coffeehouse offering artisanal, small-batch coffee.

Question 12

What is the main purpose of advertising for a monopolistically competitive firm?

Accepted Answer

To increase demand and differentiate its product.

Question 13

Which of the following factors is under a firm's control and can help it earn economic profit in the long run?

Accepted Answer

Differentiating its product and lowering average cost.

Question 14

In monopolistic competition, what is excess capacity?

Accepted Answer

The firm produces less than the quantity that minimizes average total cost.

Question 15

Which of the following is NOT a way a firm can avoid zero economic profit in the long run?

Accepted Answer

Ignoring brand management and relying on luck.

Question 16

Suppose a monopolistically competitive firm has $$P = 4$, $$ATC = $$3$$, and sells 1,000 units. What is its total economic profit?

Accepted Answer

$$Total\ profit = (P - ATC) 	imes Q = (4 - 3) 	imes 1,000 = 1,000$$

Question 17

Which of the following statements about first-mover advantage is supported by recent research?

Accepted Answer

Later entrants can become dominant by providing better products at lower prices.

Question 18

If a monopolistically competitive firm increases its output, what happens to its average total cost?

Accepted Answer

It may decrease if the firm has excess capacity.

Question 19

Which of the following best describes brand management?

Accepted Answer

Actions intended to maintain product differentiation over time.

Question 20

In the context of monopolistic competition, which scenario is most likely to benefit consumers?

Accepted Answer

A firm offers a differentiated product that better suits consumer preferences, even at a higher price.

Monopolistic Competition: The Competitive Model in a More Realistic Setting

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