Microeconomics ch 15

5. In long-run equilibrium, a monopolistically competitive firm is producing at a point on its average total cost curve where: a. price equals marginal cost. b. price equals average total cost. c. price equals marginal revenue. d. marginal revenue equals average total cost.

b. price equals average total cost.

13. Which of the following is true of monopolistic competition but is not true of perfect competition? a. Each firm distinguishes its product from that of its competitors. b. The firm engages in marginal cost pricing. c. The firm produces at the point where average total cost is minimized. d. There are significant barriers to the entry of new firms in the industry.

a. Each firm distinguishes its product from that of its competitors.

10. Which of the following describes accurately the long run in perfect competition but is not true of the long run in monopolistic competition? a. The firm produces where ATC is minimized. b. Economic profit is zero. c. Marginal revenue equals marginal cost. d. The firm will fail to produce enough to minimize ATC.

a. The firm produces where ATC is minimized.

6. Monopolistic competitors engage in product differentiation to: a. enhance their market power. b. make it easer to collude with other firms c. reduce costs. d. create excess capacity.

a. enhance their market power.

4. Monopolistically competitive firms can earning positive economic profits in the short run, but in the long run: a. the level of profits will be unchanged. b. they will make zero economic profits. c. firms will be unable to enter the industry because of the existence of barriers to entry. d. a limited number of firms will enter the industry, and profits will be reduced but will remain positive.

b. they will make zero economic profits.

14. To the extent that brand names developed in monopolistic competition provide a benefit to the consumer, it is: a. by allowing for a lower total cost. b. through their assurance that the firm will provide a quality product in order to preserve repeated transactions. c. by encouraging the entry of new competitors. d. by allowing the firm to engage in price discrimination.

b. through their assurance that the firm will provide a quality product in order to preserve repeated transactions.

8. Suppose that a monopolistically competitive firm is currently producing at the point where marginal revenue equals marginal cost and is not covering the variable cost of producing the last unit. In this situation, economic theory would predict that the firm will: a. raise prices in order to lessen the amount of the loss. b. collude with other producers. c. exit the industry. d. be able to switch to a point of profitability by producing where price equals marginal cost.

c. exit the industry.

1. The market for oil-change can be described as a market in which monopolistic competition prevails. This means that collusion among garages that change oil is ____________ and firms engage in _________ behavior. a. common; cooperative b. common; uncooperative c. rare; uncooperative d. rare; cooperative

c. rare; uncooperative

11. What is the effect in the market as more firms enter a monopolistically competitive industry? a. The market supply curve shifts to the right. b. The market supply curve shifts to the left. c. The demand curve faced by each firm shifts out and to the right. d. The demand curve faced by each firm shifts in and to the left.

d. The demand curve faced by each firm shifts in and to the left.

12. Which of the following is true of perfect competition but is not true of monopolistic competition? a. The firm faces a downward-sloping demand curve. b. The firm faces a downward-sloping marginal revenue curve. c. The firm will earn zero economic profit in the long run. d. The firm will produce at a point where price equals marginal cost.

d. The firm will produce at a point where price equals marginal cost.

9. What accounts for the fact that profit is zero in the long-run equilibrium in monopolistic competition? a. Firms have excess capacity. b. Firms spend too much on product development. c. Firms are too small relative to the market. d. There are no barriers to the entry of new firms.

d. There are no barriers to the entry of new firms.

7. The product diversity resulting from monopolistic competition comes at the expense of having: a. firms that will earn positive profits. b. firms that are too small to maximize profit. c. higher profit than would prevail under perfect competition. d. efficiency in the long run

d. efficiency in the long run

2. Since a monopolistic competitor produces a product with many close substitutes, but none exactly like it. As a result, the firm: a. has no market power. b. faces a highly inelastic demand curve. c. has unlimited market power. d. has some degree of market power.

d. has some degree of market power.

3. For any given firm in a monopolistically competitive market, the long-run economic profit tends to be __________ and firms operate to the ____________ of the minimum point on the average total cost curve. a. positive; left b. negative; right c. negative; right d. zero; left

d. zero; left