Q: Which formula correctly calculates a firm’s profit in monopolistic competition?

$$Profit = (P - ATC) \times Q$$

Question 1

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

Accepted Answer

Firms sell identical products

Question 2

In monopolistic competition, why is the demand curve for an individual firm downward sloping?

Accepted Answer

Because products are differentiated and firms have some market power

Question 3

If a monopolistically competitive firm wants to maximize profit, it should produce the quantity where:

Accepted Answer

$$MR = MC$$

Question 4

Refer to the table of café lattes sold per week. At what quantity is the firm maximizing profit?

Accepted Answer

Where $$MR = MC$$, which is at 6 lattes per week

Question 5

In monopolistic competition, what happens to a firm’s demand curve when new firms enter the market?

Accepted Answer

It shifts left and becomes more elastic

Question 6

Why do monopolistically competitive firms have excess capacity?

Accepted Answer

Because they produce where $$MR = MC$$, which is not at minimum $$ATC$$

Question 7

Which formula correctly calculates a firm’s profit in monopolistic competition?

Accepted Answer

$$Profit = (P - ATC) 	imes Q$$

Question 8

If a monopolistically competitive firm is earning economic profits in the short run, what is likely to happen in the long run?

Accepted Answer

New firms will enter, reducing each incumbent’s demand and profits

Question 9

Which of the following best describes the trade-off consumers face in monopolistic competition?

Accepted Answer

Consumers pay a higher price for a wider variety of differentiated products

Question 10

A firm in monopolistic competition can maintain economic profits in the long run only if:

Accepted Answer

It continuously differentiates its product or lowers its costs

Question 11

If a monopolistically competitive firm lowers its price, what happens to total revenue when demand is elastic?

Accepted Answer

Total revenue increases

Question 12

Which equation represents the condition for allocative efficiency in a perfectly competitive market?

Accepted Answer

$$P = MC$$

Question 13

In monopolistic competition, what is the relationship between price and marginal cost at the profit-maximizing output?

Accepted Answer

$$P \u003e MC$$

Question 14

Which curve is always below the demand curve for a monopolistically competitive firm?

Accepted Answer

Marginal revenue curve

Question 15

If a monopolistically competitive firm fails to differentiate its product or lower its costs, what is the likely outcome?

Accepted Answer

Its economic profits will be eliminated by competition

Question 16

Which of the following is a real-world example of a monopolistically competitive market?

Accepted Answer

Smartphone industry with many brands and models

Question 17

What is the main reason monopolistically competitive firms are not allocatively efficient?

Accepted Answer

They charge a price greater than marginal cost

Question 18

Suppose a monopolistically competitive firm’s $$MR is$$ $$2.00$$ and $$MC is$$ $$2.50 at a $$given output. What should the firm do to maximize profit?

Accepted Answer

Decrease output

Question 19

Which of the following strategies can help a monopolistically competitive firm maintain profits in the long run?

Accepted Answer

Effective marketing to create perceived differentiation

Question 20

If a monopolistically competitive firm’s price is $$3.50$$, average total cost is $$2.75$$, and it sells 6 units, what is its profit?

Accepted Answer

$$Profit = (3.50 - 2.75) 	imes 6 = 4.50$$

Chapter 13

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