Question 1

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

Accepted Answer

There are significant barriers to entry.

Question 2

A monopolistically competitive firm faces a demand curve that is:

Accepted Answer

Less elastic than a perfectly competitive firm's demand curve but more elastic than a monopoly's demand curve.

Question 3

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

Accepted Answer

$MR = MC$

Question 4

Suppose a monopolistically competitive coffee shop is earning positive economic profits in the short run. What is most likely to happen in the long run?

Accepted Answer

New firms will enter, the demand curve for each firm will shift left and become more elastic, and profits will fall to zero.

Question 5

Which equation correctly describes the relationship between price, marginal revenue, and marginal cost for a monopolistically competitive firm in the long run?

Accepted Answer

$P > MR = MC$

Question 6

Why is a monopolistically competitive firm not productively efficient in the long run?

Accepted Answer

It does not produce at the lowest point of its average total cost curve.

Question 7

Which of the following is a potential benefit of advertising in monopolistic competition?

Accepted Answer

It provides consumers with information about product differences.

Question 8

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

Accepted Answer

Some firms will exit, the demand curve for remaining firms will shift right and become less elastic, and profits will rise to zero.

Question 9

Which of the following best explains why zero economic profit is considered 'normal' in the long run for monopolistically competitive firms?

Accepted Answer

Firms are earning just enough to cover the opportunity costs of all resources, including normal returns to capital and labor.

Question 10

Which of the following is a con of advertising and marketing in monopolistic competition?

Accepted Answer

It can create barriers to entry for new firms.

Question 11

A monopolistically competitive firm produces at a quantity where:

Accepted Answer

$P > MC$

Question 12

Which of the following real-world examples best fits the model of monopolistic competition?

Accepted Answer

Local restaurants in a city.

Question 13

Suppose a new brand of hand soap enters a monopolistically competitive market. What is the most likely effect on existing firms?

Accepted Answer

The demand curve for each existing firm will shift to the left and become more elastic.

Question 14

Which of the following statements about allocative efficiency in monopolistic competition is correct?

Accepted Answer

A monopolistically competitive firm does not achieve allocative efficiency because $P > MC$.

Question 15

In the long run, the demand curve facing a monopolistically competitive firm is:

Accepted Answer

Tangent to the average total cost curve at the profit-maximizing quantity.

Question 16

Which of the following is NOT a pro of advertising in monopolistic competition?

Accepted Answer

It always leads to lower prices for consumers.

Question 17

If a monopolistically competitive firm is producing at a quantity where $P < ATC$ but $P > AVC$, what should the firm do in the short run?

Accepted Answer

Continue producing to minimize losses.

Question 18

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

Accepted Answer

Firms do not produce at the minimum point of their average total cost curve.

Question 19

Which of the following equations represents the condition for zero economic profit in the long run for a monopolistically competitive firm?

Accepted Answer

$P = ATC$

Question 20

Which of the following is a reason why monopolistically competitive firms do not violate antitrust laws?

Accepted Answer

They do not earn huge profits and are very competitive.

Monopolistic Competition: Structure, Pricing, Efficiency, and Advertising

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