Question 1

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

Monopolistic competition is characterized by many firms producing slightly differentiated products, having limited price-setting power due to close substitutes, and relatively easy entry into the market.

Question 2

Recall the application about opening a Dunkin' Donuts shop and the small barriers to entering the donut business.Which of the following is NOT required to operate a Dunkin' Donuts franchise?

Accepted Answer

While earning a profit is the goal of any business, it is not a requirement to operate a Dunkin' Donuts franchise. However, paying a franchise fee, paying a royalty rate on profits, and selling a specific brand of donuts are all necessary to operate as a franchisee of Dunkin' Donuts.

Question 3

Monopolistic competition is NOT characterized by:

Accepted Answer

Monopolistic competition is characterized by slightly different products, many sellers, and no barriers to entry. However, firms in monopolistic competition do have some control over price as they can differentiate their products from their competitors.

Question 4

When a profit-maximizing firm in monopolistic competition is producing its long-run equilibrium quantity:

Accepted Answer

In long-run equilibrium in monopolistic competition, the firm's price will be equal to its average total cost. This is because in the long run, firms can enter or exit the market, and in the absence of barriers to entry, new firms will continue to enter the market until economic profits are driven to zero. As firms enter and offer similar products, consumers will have more choices and therefore, the demand curve for each firm's product will become more elastic, causing each firm to sell less at a lower price. Eventually, in long-run equilibrium, price will be equal to average total cost, and the firm will be earning zero economic profit.

Question 5

Firms in monopolistically competitive markets sell identical products.

Accepted Answer

Firms in monopolistically competitive markets sell differentiated products, meaning that their products are similar but not identical, and each firm has some degree of monopolistic power over their product.

Question 6

-Refer to Figure 11.2.In the long run the monopolistic competitor would generate total cost equal to the area:

Accepted Answer

The answer of 
-Refer to Figure 11.2.In the long run...

Question 7

Under a monopolistically competitive market structure,firms will continue to enter the market until the economic profit is eliminated.

Accepted Answer

In monopolistically competitive markets, firms will continue to enter until economic profits are eliminated because there is low barriers to entry and differentiation between firms, leading to a constant competition for market share.

Question 8

In the long run,which two curves are tangent for a firm in monopolistic competition?

Accepted Answer

In the long run, for a firm in monopolistic competition, the average total cost curve and the demand curve are tangent. This reflects the point where the firm is making zero economic profit, as it is producing at a level where price equals average total cost.

Question 9

In some monopolistically competitive markets,differentiation is obtained simply by location.Which of the followings is NOT a good sample of differentiation by location?

Accepted Answer

The answer of In some monopolistically competitive markets,differentiation is obtained...

Question 10

-Refer to Figure 11.2.In the long run the monopolistic competitor would charge a price of ________ per unit.

Accepted Answer

The answer of 
-Refer to Figure 11.2.In the long run...

Question 11

Since a firm in monopolistic competition has some market power,its long-run price will be greater than its:

Accepted Answer

In the long run, a firm in monopolistic competition will produce at a level where its marginal revenue equals its marginal cost. Since the firm has some market power, the marginal revenue will be greater than the downward sloping demand curve facing the firm. Therefore, the long-run price will be greater than the firm's marginal cost. Option A is incorrect because the long-run price will be greater than the average total cost as well. Option C is incorrect because total cost includes fixed costs which do not affect pricing decisions in the short or long run. Option D is incorrect because option B is the correct answer.

Question 12

-Refer to Figure 11.2.In the long run the monopolistic competitor would produce ________ units.

Accepted Answer

The answer of 
-Refer to Figure 11.2.In the long run...

Question 13

The toothpaste industry with 5 firms is a monopolistic competition,if a sixth firm decides to entry the market,what will happen to firms' specific demand curve?

Accepted Answer

With the entry of the sixth firm, the market becomes more competitive, leading to a decrease in each firm's market share. This will shift the specific demand curve for each firm to the left, as they will now have to lower their prices to maintain their market share.

Question 14

In the short run,a firm in monopolistic competition operates much like a:

Accepted Answer

In the short run, a firm in monopolistic competition operates much like a monopolist because of its ability to set prices and differentiate its product. However, in the long run, the entry of new firms with similar products will decrease the firm's market power and force it to lower its prices.

Question 15

Recall the application regarding opening a Dunkin' Donuts shop and the small barriers to entering the donut business.What should an owner of a Dunkin' Donut shop expect in a monopolistically competitive market?

Accepted Answer

In a monopolistically competitive market, firms have some market power but face competition from other firms. This means that they can set prices above marginal cost but will still face competition for consumers. As a result, firms in a monopolistically competitive market can expect to earn positive economic profits in the short run, but these profits will be competed away in the long run.

Question 16

Firms in a monopolistically competitive industry have small economies of scale which causes no barriers to entry.

Accepted Answer

Monopolistically competitive firms do not have significant economies of scale, which means that new firms can easily enter the market without facing high barriers to entry.

Question 17

In monopolistic competition,the presence of free entry suggests that:

Accepted Answer

In monopolistic competition, free entry allows new firms to enter the industry and compete with existing firms. This competition reduces the market power of each firm, leading to zero economic profit in the long run. This is because as new firms enter and compete for customers, the demand for established firms' products falls and they must lower their prices to remain competitive. This results in lower profit margins for all firms in the industry. Therefore, in the long run, all firms will earn zero economic profit in monopolistic competition.

Question 18

When a profit-maximizing firm in monopolistic competition is in long-run equilibrium:

Accepted Answer

In long-run equilibrium in monopolistic competition, the firm will produce where its marginal revenue equals its marginal cost. However, the demand curve it faces will be less elastic than perfect competition, allowing the firm to have some degree of market power. This means that the firm can set a price above its marginal cost, leading to a markup and generating economic profits. Therefore, choice C is correct. Choices A, B, and D are not necessarily true in this scenario.

Question 19

Which of the following goods are NOT sold in a monopolistically competitive market?

Accepted Answer

Monopolistically competitive markets are characterized by a large number of firms selling differentiated products. Computer software, toothpaste, and toilet paper are examples of goods that can be sold in a monopolistically competitive market. However, oil is typically not sold in a monopolistically competitive market as it is a commodity with standardized characteristics, and the market is dominated by a small number of large firms.

Question 20

-Refer to Figure 11.2.In the long run the monopolistic competitor would earn an economic profit equal to the area:

Accepted Answer

In the long run, a monopolistic competitor earns zero economic profit because of the entry and exit of firms in the market. This results in the firm's demand curve being tangent to its average total cost curve, meaning it covers its costs exactly, including a normal profit, but does not earn an economic profit.

Quiz 11: Market Entry and Monopolistic Competition

Which of the following is a characteristic of monopolistic competition?

Recall the application about opening a Dunkin' Donuts shop and the small barriers to entering the donut business.Which of the following is NOT required to operate a Dunkin' Donuts franchise?

Monopolistic competition is NOT characterized by:

When a profit-maximizing firm in monopolistic competition is producing its long-run equilibrium quantity:

Firms in monopolistically competitive markets sell identical products.

-Refer to Figure 11.2.In the long run the monopolistic competitor would generate total cost equal to the area:

Under a monopolistically competitive market structure,firms will continue to enter the market until the economic profit is eliminated.

In the long run,which two curves are tangent for a firm in monopolistic competition?

In some monopolistically competitive markets,differentiation is obtained simply by location.Which of the followings is NOT a good sample of differentiation by location?

-Refer to Figure 11.2.In the long run the monopolistic competitor would charge a price of ________ per unit.

Since a firm in monopolistic competition has some market power,its long-run price will be greater than its:

-Refer to Figure 11.2.In the long run the monopolistic competitor would produce ________ units.

The toothpaste industry with 5 firms is a monopolistic competition,if a sixth firm decides to entry the market,what will happen to firms' specific demand curve?

In the short run,a firm in monopolistic competition operates much like a:

Recall the application regarding opening a Dunkin' Donuts shop and the small barriers to entering the donut business.What should an owner of a Dunkin' Donut shop expect in a monopolistically competitive market?

Firms in a monopolistically competitive industry have small economies of scale which causes no barriers to entry.

In monopolistic competition,the presence of free entry suggests that:

When a profit-maximizing firm in monopolistic competition is in long-run equilibrium:

Which of the following goods are NOT sold in a monopolistically competitive market?

-Refer to Figure 11.2.In the long run the monopolistic competitor would earn an economic profit equal to the area: