Question 1

Which of the following best describes the market structure of monopolistic competition?

Accepted Answer

Many firms selling differentiated products with low barriers to entry.

Question 2

Suppose Blue Bottle Coffee faces the following demand schedule: If the price of a cappuccino is raised from $$4.00 to 4.50$$, and the quantity sold decreases from 4 to 3 per week, what is the marginal revenue for the third cappuccino?

Accepted Answer

$ 3.50

Question 3

In the short run, a monopolistically competitive firm maximizes profit by producing the quantity where marginal revenue equals marginal cost. Which equation represents this rule?

Accepted Answer

$$ MR = MC $$

Question 4

Refer to the table: At what quantity does the firm maximize profit if marginal revenue and marginal cost are equal?

Accepted Answer

Q = 5

Question 5

If a monopolistically competitive firm is earning an 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 until economic profit is zero.

Question 6

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

Accepted Answer

Horizontal demand curve

Question 7

Suppose a coffeehouse is suffering short-run losses. What is the relationship between price and average total cost?

Accepted Answer

$$ P \u003c ATC $$

Question 8

In the long run, what happens to the demand curve for a monopolistically competitive firm as new firms enter the market?

Accepted Answer

It becomes more elastic and shifts left.

Question 9

Which of the following best explains why the marginal revenue curve lies below the demand curve for a monopolistically competitive firm?

Accepted Answer

The firm must lower its price to sell additional units, reducing revenue from previous units.

Question 10

A monopolistically competitive firm’s average total cost curve is tangent to its demand curve in the long run. What does this imply?

Accepted Answer

The firm is breaking even, earning zero economic profit.

Question 11

If a monopolistically competitive firm increases its marketing efforts to differentiate its product, what is the likely effect on the elasticity of its demand curve?

Accepted Answer

Demand becomes less elastic.

Question 12

Suppose Angelica’s sandwich shop faces the following cost and demand curves. If she wants to maximize profit, at what quantity should she produce and what price should she charge?

Accepted Answer

Produce 110 sandwiches and charge $4.50.

Question 13

Which equation correctly calculates marginal revenue?

Accepted Answer

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

Question 14

In monopolistic competition, what is the main reason firms do not achieve productive efficiency in the long run?

Accepted Answer

Firms produce at a quantity less than the minimum of average total cost.

Question 15

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

Accepted Answer

Clothing stores

Question 16

If a monopolistically competitive firm is making a loss in the short run, what is the likely effect on the market in the long run?

Accepted Answer

Existing firms will exit the market, increasing demand for remaining firms.

Question 17

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

Accepted Answer

Product differentiation makes demand more elastic than a monopolist’s demand curve.

Question 18

Suppose a firm in a monopolistically competitive market is producing at a quantity where $$ MR \u003c MC . $$What should the firm do to maximize profit?

Accepted Answer

Decrease output.

Question 19

Which of the following best describes the long-run equilibrium in monopolistic competition?

Accepted Answer

Firms earn zero economic profit and the ATC curve is tangent to the demand curve.

Question 20

If Blue Bottle Coffee’s demand curve shifts leftward due to new entrants, what happens to its market share and the elasticity of its demand curve?

Accepted Answer

Market share decreases and demand becomes more elastic.

Chap 13 - Study Guidance: Monopolistic Competition in Microeconomics

Study Guide - Practice Questions

Study Guide - Flashcards