Foundation Course in Managerial Economics: MOOC: Week 7 Assignment Solution
Multiple choice questions
1. A monopolistically competitive firm faces the following demand curve for its product:
Price
10
9
8
7
6
5
4
3
2
1
(Rs)
Quantity 2
4
6
8
10
12
14
16
18
20
The firm has total fixed costs of Rs20 and a constant marginal cost of Rs5 per unit. What is the
quantity of output that the firm will produce to maximize its profit
A. 6 units
B. 9 units
C. 11 units
D. 13 units
2. 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.
3. A monopolistically competitive market is like both a competitive market and a monopoly in that
firms in all three market structures
A. Can earn economic profits in the short run.
B. Charge price = MC for profit maximization in the long run
C. Charge a price above marginal cost in the short run
D. Charge price = MR for profit maximization in the long run
4. Same quality milk produced by local farmers sells at a price equal to the marginal cost of
production when sold loose but fetches different prices which are much above marginal cost
when sold under different brands in different packaging because:
A. Consumers have perfect information when they buy from local farmers but have
notional information when sold under different brands and packaging
B. Farmers are naïve and they don’t charge price above marginal cost like bigger brands
do
C. Bigger brands have higher costs due to branding and packaging
D. Markets are more complicated when organized companies operate rather than
unorganized farmers
5. Which of the following statements is not correct?
A. Critics of advertising argue that firms advertise to manipulate consumers’ tastes.
B. Defenders of advertising argue that advertising provides valuable product information to
consumers.
C. An industry with many brand name products will be more competitive than one
with many generic products.
D. The willingness of a firm to spend a large amount of money on advertising can signal
the quality of the product.
1
6. Which of the following statements is correct?
A. Firms in monopolistic competition and monopoly can earn economic profits in both the
short run and the long run.
B. Both perfectly competitive and monopolistically competitive firms are price takers.
C. Both a monopolistically competitive industry and a monopoly are characterized by a
very small number of (or one) firm(s).
D. Firms can easily enter a perfectly competitive or monopolistically competitive
industry.
7. Select the correct option from below. A firm produces the welfare-maximizing level of output
A. only when the market is perfectly competitive because price equals marginal cost
B. only when the market is perfectly competitive or monopolistically competitive as in both
cases economic profit =0
C. only when the market is monopolistically competitive or perfectly competitive as in both
cases there is no case for government intervention
D. when the market is perfectly competitive, monopolistically competitive, or price
discriminating monopolist.
8. Choose the correct statement:
A. In monopolistic competition, if economic profit is positive in the short run, more firms
enter the market shifting the supply curve to the right and bringing down prices and
ultimately profits to zero for all firms in the long run
B. In monopolistic competition, if economic profit is positive in the short run, more
firms enter the market shifting the demand curve to the left and ultimately profits
to zero for all firms in the long run
C. In perfect competition, if economic profit is positive in the short run, more firms enter the
market shifting the demand curve to the left and ultimately profits to zero for all firms in
the long run
D. In perfect competition, if economic profit is positive in the short run, both the demand
and supply curves shift and ultimately profits come down to zero for all firms in the long
run
9. Two bags of banana chips sit side-by-side in a grocery store: Haldiram(a brand name) sells for
Rs 50 while Barbar Khao (not a brand name) sells for Rs 35. In a typical day the store sells
some of each type of chips, which suggests that
A. no rational consumer would spend Rs 15 more for Haldiram as he would for Barbar
Khao.
B. some consumers must perceive that Haldiram is a higher quality product.
C. Haldiram has no incentive to maintain the quality of its product just because of the
Haldiram brand name.
D. Barbar Khao should raise its price since Haldiram is doing so already and it is confident
that its quality is as good.
10. In which of the following product markets are we likely to observe the largest amount of
advertising?
A. markets with highly differentiated products
B. perfectly competitive markets
C. markets in which industrial products are sold
D. markets in which there is very little difference between different firms' products
2