Micro Economics Chapter 25 Test Review

For the monopolistic competitor, which of the following is INCORRECT?

If the firm in a monopolistically competitive industry were making economic losses, new firms will enter the industry.

Considering the relevant market structures, which is an INCORRECT statement?

In any market situation, the number of firms is not very important.

The monopolistically competitive firm maximizes profit by producing to the point at which

MC = MR.

Which of the following is TRUE for a monopolistically competitive firm?

MR < P

The number of firms in a monopolistically competitive industry means that

firms will not cooperate to set a pure monopoly price.

A monopolistic competitor is like a monopolist in the short run in that when economic profits are

greater than zero, price exceeds marginal cost.

It has been argued that in the long run monopolistic competition is inefficient because

here are too many firms, each with excess capacity, producing too little output.

The demand curve for a monopolistically competitive firm is

less elastic than the demand curve of the perfectly competitive firm.

Compared with a monopolist, the demand curve faced by a monopolistically competitive firm is

more elastic.

Compared with a firm in a perfectly competitive market, the demand curve faced by a monopolistically competitive firm is

more inelastic.

Which will be TRUE for a monopolistic competitor experiencing short-run losses?

P < ATC

In a long-run monopolistically competitive equilibrium

P = ATC, and ATC is not at its minimum value.

In the long run, the monopolistically competitive firm's demand curve will

become tangent to the ATC curve somewhere to the left of its minimum point.

A monopolistic competitor is in long-run equilibrium when

economic profits are equal to zero and the average total cost curve is tangent to the demand curve.

For the monopolistically competitive firm, in both the short run and the long run

price will exceed marginal cost.

A monopolistically competitive firm maximizes profits when it

produces the quantity at which marginal cost equals marginal revenue and uses the demand curve to determine the market price.

In general, the demand for the product of a monopolistic competitor is

relatively elastic.

If firms in a monopolistically competitive industry experience short-run losses

some firms exit the industry, causing the demand curves for the remaining firms to shift to the right until they earn a normal profit.

The major similarity between monopolistic competition and perfect competition is

that both assume many buyers and sellers.

Monopolistic competition and perfect competition are similar in that each market structure is characterized by

the absence of long-run economic profits.

It has been argued that a monopolistically competitive industry involves "waste" because

the firms do not produce at the minimum of the average total cost curve and price is above marginal cost.

The greater the product differentiation between monopolistically competitive firms

the greater the price elasticity of demand.

In the long run, a perfectly competitive market produces at ________, whereas the monopolistic competitive firm does not.

the output at which the lowest average total cost of production is reached

The demand for the product of a monopolistically competitive firm is highly elastic when

there are a lot of close substitutes.

In the long run, both monopolistically competitive and perfectly competitive firms attain

zero economic profits.