Question 1

In a monopolistically competitive market, social welfare would be enhanced if

Accepted Answer

A)   price equaled marginal cost.
B)   government regulation eliminated the product-variety externality.
C)   the government raised taxes to subsidize firms that price below average total cost.
D)   there were fewer firms, making the industry closer to an oligopoly.E) B) and D)
F) A) and C)

Question 2

Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.)  
-Refer to Scenario 16-3. How much profit will Peter earn each day if he chooses the price and quantity that maximize his profit?

Accepted Answer

A)   $176
B)   $208
C)   $225
D)   $352E) A) and B)
F) None of the above

Question 3

A study of the market for optometrists' services in the 1960s showed that

Accepted Answer

A)   all states in the United States prohibited advertising by optometrists.
B)   almost all professional optometrists opposed legal restrictions on their rights to advertise.
C)   the average price of eyeglasses would decrease if the legal restrictions on advertising by optometrists were removed.
D)   advertising on eyeglasses limited competition among optometrists.E) A) and C)
F) None of the above

Question 4

Monopolistic competition is an inefficient market structure because

Accepted Answer

A)   marginal revenue equals marginal cost.
B)   it has a deadweight loss, just as monopoly does.
C)   long-run profits are zero due to free entry.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 5

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

Accepted Answer

A)   firms would most likely experience economic losses.
B)   firms would also operate at their efficient scale.
C)   new firms would likely to enter the market.
D)   the most efficient firms would not likely to be affected.E) None of the above
F) B) and C)

Question 6

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Accepted Answer

A)   P > AR
B)   MR > MC
C)   P > MC
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 7

The term excess capacity refers to the fact that a firm produces a lower quantity than it would if it operated at the efficient scale.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

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.E) B) and C)
F) None of the above

Question 9

Figure 16-7 
-Refer to Figure 16-7. If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d) , it would

Accepted Answer

A)   not be maximizing its profit.
B)   be minimizing its losses.
C)   be losing market share to other firms in the market.
D)   be operating at excess capacity.E) A) and D)
F) A) and C)

Question 10

Which of the following statements is correct?

Accepted Answer

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.E) A) and D)
F) A) and C)

Question 11

Consider two industries in which firms hold the following market shares:
Industry A: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1%
Industry B: 30%, 10%, 9%, 8%, 8%, 8%, 8%, 6%, 6%, 5%, 2%
What are the concentration ratios for each industry? Which is more competitive?

Accepted Answer

The answer of Consider two industries in which firms hold...

Question 12

Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.) 
-Refer to Scenario 16-3. What is the maximum amount of profit that Peter can earn per day?

Accepted Answer

The answer of Scenario 16-3
Peter operates an ice cream shop...

Question 13

When a monopolistically competitive firm is in a long-run equilibrium, the values of marginal cost, average total cost, and price are all the same.

Accepted Answer

A) True 
 B)False

Question 14

The primary claim of defenders of advertising is that it

Accepted Answer

A)   conveys information about firm profitability.
B)   is psychological rather than informational.
C)   enhances the information available to consumers.
D)   reduces the elasticity of demand for a firm's product.E) A) and B)
F) B) and D)

Question 15

Table 16-6
Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's. 
-Refer to Table 16-6. If the government forced Beatrice's to produce at the efficient scale of output, what is the maximum profit Beatrice's could earn?

Accepted Answer

A)   $59
B)   $67
C)   $101
D)   $126E) None of the above
F) A) and C)

Question 16

Excess capacity is

Accepted Answer

A)   an example of the inefficiencies of monopolistically competitive markets.
B)   a short-run problem but not a long-run problem.
C)   a characteristic of rising average total cost curves.
D)   Both a and b are correct.E) None of the above
F) B) and D)

Question 17

Figure 16-2. The figure is drawn for a monopolistically competitive firm. 
-Refer to Figure 16-2. If the average variable cost is $24 at the profit­maximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is

Accepted Answer

A)   $-60.
B)   $196.
C)   $228.
D)   $288.E) None of the above
F) B) and C)

Question 18

Figure 16-5 
-Refer to Figure 16-5. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

Accepted Answer

A)   panel a
B)   panel b
C)   panel c
D)   panel dE) A) and D)
F) None of the above

Question 19

Scenario 16-2
Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q.
-Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what quantity would a profit-maximizing monopolist produce?

Accepted Answer

A)   Q = 0
B)   Q = 2
C)   Q = 5
D)   Q = 10E) None of the above
F) B) and D)

Question 20

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full) . This kind of excess capacity is indicative of what kind of market?

Accepted Answer

A)   monopoly
B)   perfect competition
C)   monopolistic competition
D)   oligopolyE) B) and C)
F) A) and B)

Exam 16: Monopolistic Competition

Figure 16-5 -Refer to Figure 16-5. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

Correct Answer
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Correct Answer
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Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full) . This kind of excess capacity is indicative of what kind of market?

Correct Answer
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When a monopolistically competitive firm is in a long-run equilibrium, the values of marginal cost, average total cost, and price are all the same.

Correct Answer
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Monopolistic competition is an inefficient market structure because

Correct Answer
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Excess capacity is

Correct Answer
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Correct Answer
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The primary claim of defenders of advertising is that it

Correct Answer
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Consider two industries in which firms hold the following market shares: Industry A: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1% Industry B: 30%, 10%, 9%, 8%, 8%, 8%, 8%, 6%, 6%, 5%, 2% What are the concentration ratios for each industry? Which is more competitive?

Correct Answer
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Which of the following statements is correct?

Correct Answer
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The term excess capacity refers to the fact that a firm produces a lower quantity than it would if it operated at the efficient scale.

Correct Answer
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A study of the market for optometrists' services in the 1960s showed that

Correct Answer
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Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what quantity would a profit-maximizing monopolist produce?

Correct Answer
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Figure 16-7 -Refer to Figure 16-7. If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d) , it would

Correct Answer
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Correct Answer
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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

Correct Answer
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Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $24 at the profitmaximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is

Correct Answer
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Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Correct Answer
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If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

Correct Answer
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In a monopolistically competitive market, social welfare would be enhanced if

Correct Answer
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Exam 16: Monopolistic Competition

Figure 16-5 -Refer to Figure 16-5. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full) . This kind of excess capacity is indicative of what kind of market?

Correct AnswerverifiedShow Answer

When a monopolistically competitive firm is in a long-run equilibrium, the values of marginal cost, average total cost, and price are all the same.

Correct AnswerverifiedShow Answer

Monopolistic competition is an inefficient market structure because

Correct AnswerverifiedShow Answer

Excess capacity is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The primary claim of defenders of advertising is that it

Correct AnswerverifiedShow Answer

Consider two industries in which firms hold the following market shares: Industry A: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1% Industry B: 30%, 10%, 9%, 8%, 8%, 8%, 8%, 6%, 6%, 5%, 2% What are the concentration ratios for each industry? Which is more competitive?

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Which of the following statements is correct?

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The term excess capacity refers to the fact that a firm produces a lower quantity than it would if it operated at the efficient scale.

Correct AnswerverifiedShow Answer

A study of the market for optometrists' services in the 1960s showed that

Correct AnswerverifiedShow Answer

Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what quantity would a profit-maximizing monopolist produce?

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Figure 16-7 -Refer to Figure 16-7. If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d) , it would

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $24 at the profit­maximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is

Correct AnswerverifiedShow Answer

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Correct AnswerverifiedShow Answer

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

Correct AnswerverifiedShow Answer

In a monopolistically competitive market, social welfare would be enhanced if

Correct AnswerverifiedShow Answer

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Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $24 at the profitmaximizing quantity, and if the firm's fixed costs amount to $60, then the firm's maximum profit is

Correct Answer
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Correct Answer
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