Question 1

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

Accepted Answer

Firms sell differentiated products.

Question 2

Suppose Blue Bottle Coffee raises its price for cappuccinos. According to the concept of a downward-sloping demand curve, what is most likely to happen?

Accepted Answer

Some customers will switch to competitors, but some will remain loyal.

Question 3

In a monopolistically competitive market, the profit-maximizing rule for output is:

Accepted Answer

$MC = MR$

Question 4

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

Accepted Answer

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

Question 5

Which formula correctly calculates marginal revenue ($MR$) for a firm?

Accepted Answer

$MR = \frac{\Delta TR}{\Delta Q}$

Question 6

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 additional output.

Question 7

In the long run, what happens to the demand curve faced by a monopolistically competitive firm?

Accepted Answer

It becomes more elastic and flatter.

Question 8

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

Accepted Answer

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

Question 9

Allocative efficiency is achieved when:

Accepted Answer

$MC = MB$

Question 10

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

Accepted Answer

Innovating to lower costs or differentiating products through marketing.

Question 11

Suppose a monopolistically competitive firm is making a loss in the short run. What is the most likely outcome if this situation persists?

Accepted Answer

The firm will exit the market in the long run.

Question 12

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

Accepted Answer

Barriers to entry.

Question 13

How does advertising benefit monopolistically competitive firms?

Accepted Answer

It can increase demand and help differentiate products, allowing higher prices and short-run profit.

Question 14

If a monopolistically competitive firm produces where $P > ATC$, what does this indicate?

Accepted Answer

The firm is making an economic profit.

Question 15

Which of the following is an example of brand management in monopolistic competition?

Accepted Answer

Maintaining product differentiation over time through marketing and quality control.

Question 16

In the context of monopolistic competition, what is the likely effect of entry by new firms on the original firm's demand curve?

Accepted Answer

The demand curve shifts left and becomes more elastic.

Question 17

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

Accepted Answer

Firms do not achieve productive efficiency and have excess capacity.

Question 18

A successful brand name in monopolistic competition can:

Accepted Answer

Delay the ability of other firms to compete away profits.

Question 19

Which of the following is most likely to ensure a firm's long-term success in a monopolistically competitive market?

Accepted Answer

Providing customers with good products at a low price.

Question 20

In monopolistic competition, why might consumers be willing to pay a higher price for a product?

Accepted Answer

Because the product is differentiated and better suited to their tastes.

Monopolistic Competition: Theory, Demand, and Firm Behavior

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