Question 1

Which of the following is a key feature that distinguishes monopolistic competition from perfect competition?

Accepted Answer

Firms in monopolistic competition sell differentiated products.

Question 2

Why does a monopolistically competitive firm face a downward-sloping demand curve?

Accepted Answer

Because its products are differentiated, so some customers prefer its product over others.

Question 3

Suppose Blue Bottle Coffee lowers the price of its cappuccino. What is the 'output effect' of this price reduction?

Accepted Answer

The increase in revenue from selling additional coffees.

Question 4

In monopolistic competition, the marginal revenue curve is always:

Accepted Answer

Below the demand curve.

Question 5

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

Accepted Answer

$MC = MR$

Question 6

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

Accepted Answer

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

Question 7

In the long run, the demand curve for a monopolistically competitive firm becomes:

Accepted Answer

More elastic.

Question 8

Which equation represents the profit of a monopolistically competitive firm?

Accepted Answer

$Profit = (P - ATC) 	imes Q$

Question 9

Which of the following is true about long-run equilibrium in monopolistic competition?

Accepted Answer

The ATC curve is tangent to the demand curve.

Question 10

Monopolistic competition results in:

Accepted Answer

Neither productive nor allocative efficiency.

Question 11

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

Accepted Answer

Firms could lower average total cost by increasing output.

Question 12

How can a monopolistically competitive firm avoid zero economic profit in the long run?

Accepted Answer

By differentiating its product or lowering its costs.

Question 13

Which marketing strategy can make the demand curve for a firm's product more inelastic?

Accepted Answer

Advertising and brand management.

Question 14

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

Accepted Answer

Market-wide changes in consumer preferences.

Question 15

Suppose a monopolistically competitive firm is currently producing where $MC < MR$. What should the firm do to maximize profit?

Accepted Answer

Increase output.

Question 16

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

Accepted Answer

A coffee shop offering organic, single-origin coffee.

Question 17

In monopolistic competition, what is the role of brand management?

Accepted Answer

To maintain product differentiation over time.

Question 18

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

Accepted Answer

Later entrants can become more successful than the first firm.

Question 19

Allocative efficiency is achieved when:

Accepted Answer

$MC = MB$

Question 20

Why might consumers benefit from monopolistic competition despite its inefficiency?

Accepted Answer

Because product differentiation allows consumers to find products better suited to their preferences.

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

Study Guide - Practice Questions