PrQ15: Practice Quiz - Ch. 15: Monopolistic Competition and Product Differentiation

(Figure: Perfect Competition and Monopolistic Competition in the Long Run) Use Figure: Perfect Competition and Monopolistic Competition in the Long Run. Which statement is FALSE?

Firms in panel (a) cannot have profits in the long run, but those in panel (b) can.

Coors is a widely recognized brand name. During the World Series each year, this beer company has many of the most successful ads. Which statement is TRUE about advertising for Coors?

It is designed to increase the demand for Coors.

An industry with a large number of relatively small firms producing _____ products in a market with easy entry and exit is _____.

differentiated; monopolistically competitive

Florists in the town of Minerva, Illinois, operate in a monopolistically competitive market. The price in long-run equilibrium for a flower shop is _____, and output is _____, than would be the case for a perfectly competitive firm with an identical production function and cost curves.

higher; lower

For a monopolistically competitive firm, marginal cost is _________ in long run equilibrium.

less than price

The profit-maximizing rule, MC = MR, is followed by firms operating in:

monopolistic competition, monopoly, and perfect competition.

(Scenario: Monopolistic Competition in the Hotel Industry) Use Scenario: Monopolistic Competition in the Hotel Industry. Given the information in the scenario, in the long run, this firm can expect to have an optimal price of: Scenario: Monopolistic Competition in the Hotel Industry For a monopolistically competitive firm operating in the hotel industry, the demand curve is given by Q = 160 - P, and the firm's cost functions are MC = 20 + 2Q and TC = 20Q + Q2.

$80

(Figure: Short Run and Long Run Profit in Monopolistic Competition) Use Figure: Short Run and Long Run Profit in Monopolistic Competition. In monopolistic competition, long-run equilibrium is characterized by:

P > MR.

Since a firm operating in a monopolistically competitive market faces a downward-sloping demand curve, it is generally the case that:

P > MR.

(Figure: Fast Food Profits in Monopolistic Competition III) Use Figure: Fast Food Profits in Monopolistic Competition. The profit-maximizing quantity of output is determined by the intersection at point:

S.

(Figure: Monopolistic Competition in the Market for Couture Clothing) Use Figure: Monopolistic Competition in the Market for Couture Clothing. If the firm shown in the figure maximizes its returns, it will:

earn a positive economic profit.

In a monopolistically competitive market, firms:

earn zero economic profits in the long run.

When a monopolistically competitive firm earns zero economic profits, it produces at an output at which the average total cost curve is tangent to its demand curve. At this output:

the firm is maximizing profits, and marginal cost must equal marginal revenue.

An example of a monopolistically competitive industry is the _____ industry.

perfume

(Figure: The Market for Designer Boots in Monopolistic Competition IV) Use Figure: The Market for Designer Boots in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is _____ in panel _____.

F; (A)

Which of the following advertisements is LEAST economically useful?

NFL player Aaron Rodgers is shown throwing a football in a Crest toothpaste commercial.

(Figure: The Market for Specialized Lawn Care Service) Use Figure: The Market for Specialized Lawn Care Service. The figure shows curves facing a typical lawn care service in a large town. The market is characterized by many firms, differentiated products, and easy entry and exit. If the lawn care service shown here were to raise its price above the profit-maximizing price, the outcome would be _____ in total revenue.

a reduction

(Figure: The Market for Designer Boots in Monopolistic Competition II) Use Figure: The Market for Designer Boots in Monopolistic Competition II. Which panel(s) in the figure show(s) a monopolistic competitor in long-run equilibrium?

panel (c) only

Super Snacking Services is a typical monopolistically competitive firm. Initially, the market is in long-run equilibrium, and then there is an increase in the market demand for snacks. In the short run, the price of snacks will _____, and the market output of snacks will _____.

rise; rise

(Figure: Monopolistic Competition in the Market for Designer Clothing) Use Figure: Monopolistic Competition in the Market for Designer Clothing. The figure illustrates a firm in the _____; in the _____, the demand and marginal revenue curves will shift to the _____.

short run; long run; left