Question 1

Which of the following is a key characteristic of monopolistic competition, as opposed to perfect competition?

Accepted Answer

Firms sell differentiated products.

Question 2

Suppose a monopolistically competitive firm is maximizing profit in the short run. Which condition must be satisfied?

Accepted Answer

$$MR = MC$$

Question 3

In the long run, what happens to economic profit for firms in a monopolistically competitive market?

Accepted Answer

Economic profit is driven to zero due to entry of new firms.

Question 4

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

Accepted Answer

Their products are differentiated from those of competitors.

Question 5

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

Accepted Answer

Increase output.

Question 6

Which of the following is NOT a source of product differentiation in monopolistic competition?

Accepted Answer

Perfect information about all products.

Question 7

A monopolistically competitive firm is currently earning positive economic profit. What is likely to happen in the long run?

Accepted Answer

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

Question 8

Which of the following best describes allocative efficiency?

Accepted Answer

Producing where $$P = MC$$ for the last unit produced.

Question 9

Why does monopolistic competition typically result in neither productive nor allocative efficiency?

Accepted Answer

Firms have excess capacity and set $$P \u003e MC.$$

Question 10

A successful brand name can help a monopolistically competitive firm by:

Accepted Answer

Maintaining product differentiation and customer loyalty.

Question 11

Suppose a new coffee shop enters a monopolistically competitive market where Blue Bottle Coffee is earning economic profit. What is the most likely effect on Blue Bottle Coffee's demand curve?

Accepted Answer

It will shift to the left and become more elastic.

Question 12

Which of the following is an example of a firm using advertising to increase its short-run profit in monopolistic competition?

Accepted Answer

Advertising to make demand more inelastic, allowing higher prices.

Question 13

If a monopolistically competitive firm is producing at a point where $$P \u003e ATC \u003e MC$$, what can be said about its profit and efficiency?

Accepted Answer

The firm is earning a profit but is not allocatively efficient.

Question 14

Which of the following is most likely to be true in the long run for a monopolistically competitive firm?

Accepted Answer

The firm earns zero economic profit.

Question 15

Which of the following best illustrates the concept of excess capacity in monopolistic competition?

Accepted Answer

Firms produce less than the output that minimizes average total cost.

Question 16

A monopolistically competitive firm faces the following cost and revenue data: $$P = 20$$, $$ATC = 18$$, $$MC = 15$$, $$MR = 15. $$What should the firm do to maximize profit?

Accepted Answer

Maintain current output, as $$MR = MC.$$

Question 17

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

Accepted Answer

A coffee shop offering unique blends and ambiance.

Question 18

Which of the following is NOT a likely outcome of successful brand management in monopolistic competition?

Accepted Answer

Permanent economic profit in the long run.

Question 19

Suppose a monopolistically competitive firm is the first to introduce a new product. According to recent research, what is the most likely long-term outcome?

Accepted Answer

The firm may gain a short-term advantage, but it is unlikely to last.

Question 20

Which of the following best describes the role of marketing in monopolistic competition?

Accepted Answer

Marketing is essential for differentiating products and attracting customers.

Monopolistic Competition: The Competitive Model in a More Realistic Setting

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