Microeconomics Assignment 9 SHSU – Flashcards

1. Which of the following is a characteristic of monopolistic competition? a. ownership of a key resource by a single firm b. free entry c. identical product d. patents

2. Which of the following goods are not likely to be sold in monopolistically competitive markets? a. jeans b. books c. tap water d. clocks

3. A monopolistically competitive industry is characterized by a. many firms selling products that are similar but not identical. b. many firms selling identical products. c. a few firms selling products that are similar but not identical. d. a few firms selling highly different products.

4. Which of the following is not a characteristic of monopolistic competition? a. a large number of sellers b. firms are price takers c. free entry into the market d. a differentiated product

5. Monopolistically competitive markets differ from perfectly competitive markets due to (i) the number of sellers. (ii) the barriers to entry. (iii) the product differentiation among the sellers. a. (i) only b. (iii) only c. (i) and (iii) only d. (ii) and (iii) only

6. Which of the following statements is correct? a. Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers. b. Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products. c. Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market. d. Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves for firms.

7. In monopolistic competition as well as in monopoly, a. price exceeds marginal revenue for each firm. b. profit is zero in a long-run equilibrium for each firm. c. entry and exit by firms are unrestricted. d. there are at most a few firms in each market.

8. Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because a. there are many other sellers in the market. b. there are very few other sellers in the market. c. the firm's product is different from those offered by other firms in the market. d. the firm faces the threat of entry into the market by new firms.

8. For a monopolistically competitive firm, a. marginal revenue and price are the same. b. average revenue and price are the same. c. at the profit-maximizing quantity of output, price equals marginal cost. d. at the profit-maximizing quantity of output, price equals the minimum of average total cost

10. In the short run, a firm in a monopolistically competitive market operates much like a a. firm in a perfectly competitive market. b. firm in an oligopoly. c. monopolist. d. monopsonist.

10. A monopolistically competitive firm chooses the quantity to produce where a. price equals marginal cost. b. demand equals marginal cost. c. marginal revenue equals marginal cost. d. Both a and c are correct.

11. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that a. the firm is currently maximizing its profit. b. the profits of the firm are negative. c. firms are likely to leave this market in the long run. d. All of the above are correct.

12. In the short run, a firm operating in a monopolistically competitive market can earn a. positive economic profits. b. economic losses. c. zero economic profits. d. All of the above are possible.

13. Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium? a. P = AR b. MR = MC c. P > MC d. All of the above are correct.

14. A firm operating in a monopolistically competitive market can earn economic profits in a. the short run but not in the long run. b. the long run but not in the short run. c. both the short run and the long run. d. neither the short run nor the long run.

15. Which of the following is not a key feature of monopolistic competition? a. Excess capacity b. A markup of price over marginal cost c. Positive economic profits for firms in the long run d. Differentiated products among firms in the market

16. Refer to Figure 16-3. What is the profit-maximizing price, quantity, and resulting profit? a. P=$60, Q=20 units, profit=$200 b. P=$80, Q=20 units, profit=$200 c. P=$75, Q=25 units, profit=$100 d. P=$60, Q=40 units, profit=$0

17. Refer to Figure 2. Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry? a. panel a b. panel b c. panel c d. panel d

18. Refer to Figure 2. Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry? a. panel a b. panel b c. panel c d. panel d

19. Refer to Figure 2. Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry? a. panel a b. panel b c. panel c d. panel d

20. Refer to Figure 2. Panel a shows a profit-maximizing monopolistically competitive firm that is a. earning zero economic profit. b. likely to exit the market in the long run. c. producing its efficient scale of output. d. not maximizing its profit.

21. In monopolistically competitive markets, positive economic profits a. suggest that some existing firms will exit the market. b. suggest that new firms will enter the market. c. are sustained through government-imposed barriers to entry. d. are never possible.

22. In monopolistically competitive markets, economic losses a. suggest that some existing firms will exit the market. b. suggest that new firms will enter the market. c. are minimized through government-imposed barriers to entry. d. are never possible.

23. As new firms enter a monopolistically competitive market, profits of existing firms a. rise, and product diversity in the market increases. b. rise, and product diversity in the market decreases. c. decline, and product diversity in the market increases. d. decline, and product diversity in the market decreases.

24. A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium has a. minimized average total cost. b. chosen to produce where demand is unitary elastic. c. produced the efficient scale of output. d. chosen a quantity of output where average revenue equals average total cost.

25. In a long-run equilibrium, a firm in a monopolistically competitive market operates a. where marginal revenue is zero. b. where marginal revenue is negative. c. on the rising portion of its average total cost curve. d. on the declining portion of its average total cost curve.

26. Among the following situations, which one is least likely to apply to a monopolistically competitive firm? a. profit is positive in the short run b. total cost exceeds total revenue in the short run c. profit is positive in the long run d. total revenue equals total cost in the long run

28. Under which of the following market structures would consumers likely pay the highest price for a product? a. perfect competition b. monopolistic competition c. oligopoly d. monopoly

27. When a monopolistically competitive firm is in long-run equilibrium, a. price is equal to average total cost. b. price is equal to marginal cost. c. price is equal to marginal revenue. d. the firm operates at its efficient scale.

28. Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost? a. monopoly only b. monopoly and monopolistic competition only c. monopoly, monopolistic competition, and perfect competition d. The answer cannot be determined without knowing whether the market is in the long run or short run.

29. Under which of the following market structures would consumers likely pay the highest price for a product? a. perfect competition b. monopolistic competition c. oligopoly d. monopoly

30. Under which of the following market structures would the highest output of a particular good be produced? a. perfect competition b. monopolistic competition c. oligopoly d. monopoly

31. In the long run, a firm in a perfectly competitive market operates a. at its efficient scale, and a monopolistically competitive firm operates at its efficient scale. b. at its efficient scale, and a monopolistically competitive firm operates with excess capacity. c. with excess capacity, and a monopolistically competitive firm operates with excess capacity. d. with excess capacity, and a monopolistically competitive firm operates at its efficient scale.

32. In which of the following market structures do firms produce the welfare-maximizing level of output? a. perfect competition b. monopolistic competition c. monopoly d. Both a and b are correct.

33. Monopolistic competition is considered inefficient because a. price exceeds marginal cost. b. output is excessive. c. long-run profits are positive. d. barriers to entry limit the number of firms in the market.

34. The product-variety externality is associated with the a. producer surplus that accrues to incumbent firms in a monopolistically competitive industry. b. loss of consumer surplus from exposure to additional advertising. c. consumer surplus that is generated from the introduction of a new product. d. opportunity cost of firms exiting a monopolistically competitive industry.

35. A business-stealing externality is a. an externality that is likely to be punished under antitrust laws. b. the negative externality that occurs when one firm attempts to duplicate exactly the product of a different firm. c. an externality that is considered to be an explicit cost of business in monopolistically competitive markets. d. the negative externality associated with entry of new firms in a monopolistically competitive market.

36. With respect to monopolistic competition, a. both the business-stealing externality and the product-variety externality are positive externalities. b. the business-stealing externality is a positive externality, while the product-variety externality is a negative externality. c. the business-stealing externality is a negative externality, while the product-variety externality is a positive externality. d. both the business-stealing externality and the product-variety externality are negative externalities.

11. A monopolistically competitive firm chooses the quantity to produce where a. price equals marginal cost. b. demand equals marginal cost. c. marginal revenue equals marginal cost. d. Both a and c are correct.