Question 1

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

Accepted Answer

Because the firm's product is differentiated, so some customers prefer it over others.

Question 2

Suppose Blue Bottle Coffee wants to maximize its profit in the short run. Which rule should it follow?

Accepted Answer

Produce where $MC = MR$

Question 3

In the long run, what happens to the economic profit of a monopolistically competitive firm if it does not innovate or further differentiate its product?

Accepted Answer

It will earn zero economic profit.

Question 4

Which of the following is NOT a feature of a perfectly competitive market?

Accepted Answer

Barriers to entry.

Question 5

If a monopolistically competitive firm lowers its price to sell more units, what are the two effects on its revenue?

Accepted Answer

Price effect and output effect.

Question 6

Which equation correctly represents the profit of a monopolistically competitive firm?

Accepted Answer

$Profit = (P - ATC) 	imes Q$

Question 7

Why does the marginal revenue curve for a monopolistically competitive firm lie below its demand curve?

Accepted Answer

Because the firm must lower the price on all units to sell an additional unit.

Question 8

In the long run, the demand curve for a monopolistically competitive firm becomes more elastic. What is the main reason for this?

Accepted Answer

Consumers find it easier to switch to competitors.

Question 9

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

Accepted Answer

Firms produce less than the output that would minimize average total cost.

Question 10

Which of the following is a way a monopolistically competitive firm can avoid zero economic profit in the long run?

Accepted Answer

Innovate to lower costs or differentiate its product.

Question 11

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

Accepted Answer

Marketing helps firms differentiate their products and can make demand more inelastic.

Question 12

Suppose Sweetgreen tries to appeal to Millennials and Gen Zs by offering customizable salads and app ordering. What economic concept is Sweetgreen using to try to earn profit?

Accepted Answer

Product differentiation.

Question 13

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

Accepted Answer

Monopolistically competitive firms do not achieve allocative efficiency because $MC 
eq MB$.

Question 14

A firm in monopolistic competition is earning economic profit. What is likely to happen next in the market?

Accepted Answer

New firms will enter, reducing demand for the original firm's product.

Question 15

Which of the following is a critical element of marketing for monopolistically competitive firms?

Accepted Answer

Advertising.

Question 16

If a monopolistically competitive firm wants to maintain its economic profit, which strategy is most effective?

Accepted Answer

Engage in brand management to maintain product differentiation.

Question 17

Which of the following is NOT a factor under a firm's control that affects its profitability in monopolistic competition?

Accepted Answer

Market-wide factors such as consumer trends.

Question 18

Suppose a monopolistically competitive firm is producing at a quantity where $P > ATC$. What does this indicate?

Accepted Answer

The firm is making an economic profit.

Question 19

Which of the following real-world examples best illustrates product differentiation in monopolistic competition?

Accepted Answer

Blue Bottle Coffee offering artisanal coffee with unique flavors.

Question 20

Which of the following is most likely to delay the long-run outcome of zero economic profit for a monopolistically competitive firm?

Accepted Answer

Creating a successful brand name associated uniquely with its product.

Monopolistic Competition: The Competitive Model in a More Realistic Setting (Chapter 13 Study Notes)

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