Microeconomics - Testbank 1 (Hubbard/O'Brien)
Chapter 12 Monopolistic Competition: The Competitive Model
in a
More Realistic Setting
d1) The key characteristics of a monopolistically
competitive market structure include:
A many, small, independently acting sellers.
)
B all sellers sell a differentiated product.
)
C no barriers to entry of new rivals.
)
D all of these.
)
b2) The key characteristics of a monopolistically
competitive market structure include:
A few sellers.
)
B sellers selling similar but differentiated products.
)
C high barriers to entry .
)
D all of these.
)
c3) What type of demand does a monopolistically
competitive firm face?
A Horizontal
)
B Vertical
)
C Downward sloping
)
D Upward sloping
)
d4) If a monopolistically competitive firm cuts its price from
$10 where it sold 25 units to $9 and sells five more units
of output, its marginal revenue per unit of output is:
A $270.
)
B $2.50
)
C $20.
)
D $4.
)
c5) If a monopolistically competitive firm cuts its price from
$10 where it sold 25 units to $9 and sells five more units
of output, its marginal revenue is:
A $270.
)
B $2.50.
)
C $20.
)
D $4.
)
a6) Monopolistic competition has:
A many sellers who each face a downsloping demand
) curve.
B a few sellers who each face a downsloping demand
) curve.
C only one seller who faces a downsloping demand
) curve.
D many sellers who each face a perfectly elastic
) demand curve.
b7) To maximize profits, a monopolistically competitive
firm would produce the output where:
A price equals average total cost.
)
B marginal revenue equals marginal cost.
)
C price equals marginal cost.
)
D marginal revenue equals price.
)
b8) If a monopolistically competitive firm is producing at an
output where marginal revenue is $23 and marginal cost
is $19, then to maximize profits the firm will:
A continue to produce the same quantity.
)
B increase output.
)
C decrease output.
)
D
)
shutdow n.
c9) If a monopolistically competitive firm is producing at an
output where marginal revenue is $111.11 and marginal
cost is $118, then to maximize profits the firm will:
A continue to produce the same quantity.
)
B increase output.
)
C decrease output.
)
D shutdown.
)
a10 If a monopolistically competitive firm is producing at an
) output where marginal revenue is $12 and marginal cost
is $12., then to maximize profits this firm will:
A continue to produce the same quantity.
)
B increase output.
)
C decrease output.
)
D shutdown.
)
c11 If a monopolistically competitive firm is producing 66
) units of output where marginal revenue equals marginal
cost at a price of $18 and average total cost at that output
is $16.55, then its total profit is:
A
)
$1,188.
B $1,092.30.
)
C $95.70.
)
D $1.45.
)
c12 If a monopolistically competitive firm is producing 50
) units of output where marginal cost equals marginal
revenue, total cost is $1,674 and total revenue is $2,000,
its average profit is:
A $326.
)
B $40.
)
C $6.52.
)
D impossible to determine without additional
) information.
c13 A monopolistically competitive firm maximizing profits
) will produce at a price that is:
A equal to marginal cost.
)
B equal to marginal revenue.
)
C greater than marginal cost.
)
D less than marginal revenue.
)
b1 A monopolistically competitive industry that earns
4) economic profits in the short run will:
A continue to earn economic profits in the long run.
)
B experience the entry of new rival firms into the
) industry in the long run.
C experience the exit of old firms out of the industry in
) the long run.
D experience a rise in demand in the long run.
)
d1 A monopolistically competitive firm that is earning
5) profits will, in the long run, experience:
A new rivals entering the market.
)
B demand decreases.
)
C demand for the firm's product becomes more elastic.
)
D all of the above.
)
c16 A monopolistically competitive firm earning profits in
) the short run will find the demand for its product
decreasing in the long run because:
A customers have tired of the firm's product.
)
B consumers' incomes have fallen.
)
C some of its customers have switched purchases to
) new entrants into the market.
D its costs and price has risen.
)
a17 A monopolistically competitive firm earning profits in
) the short run will find the demand for its product
becoming more elastic in the long run because:
A more substitutes are available because new rivals
) have entered the market.
B the price of the product relative to buyers' incomes
) has increased.
C consumers have tired of the firm's product.
)
D consumers incomes have fallen.
)
c18 A monopolistically competitive firm earning profits in
) the short run will find the demand for its product
decreasing and becoming more elastic in the long run as
new firms move into the industry until:
A the original firm is driven into bankruptcy.
)
B the firm's demand curve is perfectly elastic.
)
C the firm's demand curve is tangent to its average total
) cost curve.
D the firm exits the market.
)
9)
b1
In
the
long run, a typical monopolistically competitive firm
will:
A earn an economic profit.
)
B breakeven.
)
C incur an economic loss.
)
D shut down.
)
b2 If a monopolistically competitive firm breaks even in an
0) economic sense, the entrepreneur:
A should exit the industry.
)
B is earning as much in this industry as he or she could
) anywhere else.
C avoids having to pay income tax.
)
D none of the above.
)
a21 If a monopolistically competitive firm breaks even in an
) economic sense, the entrepreneur:
A is earning an accounting profit and will have to pay
) taxes on that profit.
B is earning zero accounting and economic profit.
)
C should exit the industry.
)
D
)
none of the above.
b2 If a typical monopolistically competitive firm is losing
2) money in an economic sense, then:
A all firms will exit the market.
)
B as some firms leave, the remaining firms find the
) demand for their product increasing.
C as some firms leave, the remaining firms find the
) demand for their product becomes more elastic.
D all of the above happen.
)
d2 Profits earned by monopolistically competitive firms in
3) the short run typically will decline in the long run
because:
A their products are of poor quality.
)
B buyers realize the products are less differentiated
) than they initially believed.
C buyers tire of their products.
)
D of the entry of imitators.
)
c24 A monopolistically competitive firm has more control
) over the price of its product because:
A of entrance of new firms into the market.
)
B it can convince buyers that its product is very
) similar.
C it can convince buyers that its product is
) differentiated.
D entrance of new firms is very difficult.
)
c25 A major difference between monopolistically
) competitive and perfectly competitive markets is:
A the number of sellers.
)
B the degree by which market demand slopes
) downward.
C products are not standardized in monopolistic
) competition.
D barriers to entry.
)
d2 Among the characteristics that monopolistic
6) competition and perfect competition share is:
A many, small independently acting sellers.
)
B low barriers to entry into the industry by new firms.
)
C the typical firm breaks even in the long run.
)
D all of the above.
)
c27 If buyers of a monopolistically competitive product feel
) the products of different sellers are strongly
differentiated, then:
A
)
the
for each seller's product is perfectly inelastic.
demand
B the demand for each seller's product is perfectly
) elastic.
C the demand for each seller's product is relatively
) inelastic.
D the demand for each seller's product is relatively
) elastic.
a28 A monopolistically competitive firm can increase its
) profits beyond the long-run equilibrium breakeven
level by:
A continually finding ways to produce its product at a
) lower cost level.
B selling more of its product.
)
C marketing its product as similar to others in the
) industry.
D all of the above.
)
b2 A monopolistically competitive firm can convince
9) buyers that its product has value by:
A selling the product at a lower price than rivals do.
)
B differentiating its product to suit consumers'
) preferences.
C marketing its product as similar to competitors.
)
D blocking entry.
)
b3 Which of the following is NOT a characteristic of
0) long-run equilibrium in a monopolistically competitive
market?
A Selling price equals average total cost.
)
B Production is at minimum average total cost.
)
C Marginal revenue equals marginal cost.
)
D Selling price is greater than marginal cost.
)
c31 How does the long run equilibrium of a
) monopolistically competitive industry differ from that
of a perfectly competitive industry?
A In long-run equilibrium in a monopolistically
) competitive firm will earn economic profits.
B In long-run equilibrium in a monopolistically
) competitive firm price will be higher than the
average cost of production.
C In long-run equilibrium in a monopolistically
) competitive firm does not use fully the plant size it
built.
D In long-run equilibrium in a monopolistically
) competitive firm is allocatively efficient while the
perfectly competitive firm is not.
a32 Is a monopolistically competitive firm productively
) efficient?
A It is NOT because it does not produce at minimum
) average total cost.
B It is because it produces where marginal cost equals
) marginal revenue.
C It is NOT because price is greater than marginal
) product.
D It is because price equals average total costs.
)
a33 For allocative efficiency to hold:
)
A price is equal to marginal cost.
)
B price is equal to marginal revenue.
)
C average variable cost is minimized in production.
)
D average total cost is minimized in production.
)
Refer to Figure 12.1 for the questions below.
Figure 12.1
b3 The monopolistic competitor in figure 12.1 will produce:
4)
A Q1.
)
B Q2.
)
C Q3.
)
D Q4.
)
d3 The monopolistic competitor in figure 12.1 will charge:
5)
A P1.
)
B P2.
)
C P3.
)
D P4.
)
b3 The monopolistic competitor in figure 12.1:
6)
A is making a profit.
)
B is breaking even.
)
C should shut down.
)
D is losing money but should operate in the short run.
)
d3 The productive efficient output for the monopolistic
7) competitor in figure 12.1 is:
A Q1.
)
B Q2.
)
C Q3.
)
D Q4.
)
b3 Brand management:
8)
A is picking a brand name for a new product that will
) attract attention.
B is the efforts to maintain the differentiation of a
) product over time.
C is the efforts to reduce the cost of production.
)
D is selling the right to use a brand name in a particular
) market.
What is the purpose of advertising by a
monopolistically competitive firm?
d3
9)
A Increase demand for the firm's product.
)
B Make the demand for the firm's product more
) inelastic.
C Earn more economic profit for the firm.
)
D Firms advertise for all these reasons.
)
c40 What is considered by some individuals to be good
) about advertising by monopolistically competitive
firms?
A Advertising can act as a barrier to entry.
)
B Advertising has a low cost.
)
C Firms tend to advertise their best products, so the
) quantity of advertising provides consumers with
useful information.
D Firms that advertise have lower costs of production.
)
c41 Advertising, marketing, and brand management are all
) done by monopolistically competitive firms in an effort
to:
A satisfy buyers with the lowest possible price.
)
B produce at the lowest possible average total cost
) level.
C increase demand and make it more inelastic to earn
) above break-even profits.
D to get price to equal average total costs.
)
a42 An advantage of trademarking your product is:
)
A a trademark differentiates your product.
)
B a trademark means no one else can legally produce a
) similar product.
C a trademark means your product name may become
) highly associated with the product.
D all of the above.
)
b4 A disadvantage for consumers who buy a product of a
3) monopolistically competitive firm is:
A they have no choice in the attributes of the product.
)
B they pay a price greater than the marginal cost of
) production.
C they have no choice about whether to buy or not.
)
D they pay a price greater than average total cost.
)
c44 An advantage to consumers from buying a product of a
) monopolistically competitive firm is:
A they are paying a price greater than marginal cost.
)
B they are paying for product advertising.
)
C they can buy a product more closely suited to their
) tastes.
D they can buy the same product as everyone else.
)