Question 1

Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

Accepted Answer

In monopolistic competition, firms have some price-setting power due to product differentiation. Therefore, the price is typically greater than marginal cost (MC) and marginal revenue (MR), which are equal at the profit-maximizing output level.

Question 2

The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13, and MC = MR = $17.47. Which of the following is true ?

Accepted Answer

Since the firm is making a profit (P > ATC), additional firms will be attracted into the industry, seeking to earn similar profits.

Question 3

Exit of existing firms will occur in a monopolistic competitive industry until:

Accepted Answer

In monopolistic competition, firms will exit until economic profit equals zero. This is because in the long run, entrants will continue to enter the market, causing demand for existing firms to decrease and lower their profits. As a result, firms will exit the market until profits reach zero, which is the point at which firms are indifferent about continuing to stay in the market or leaving. Marginal cost and marginal revenue do not necessarily determine the exit of firms in a monopolistic competitive industry.

Question 4

Exhibit 10-1 A monopolistic competitive firm

As presented in Exhibit 10-1, the short-run profit-maximizing output for the monopolistic competitive firm is:

Accepted Answer

In a monopolistically competitive market, firms face a downward-sloping demand curve, which means they must lower their price in order to increase their quantity sold. The short-run profit-maximizing output is where marginal revenue (MR) equals marginal cost (MC). In Exhibit 10-1, this occurs at a quantity of 400 units per day, where MR intersects with MC. At this level of output, the firm can charge a price above its marginal cost and earn a positive economic profit. Therefore, the best choice is C, 400 units per day.

Question 5

Exhibit 10-1 A monopolistic competitive firm

In the long run, the demand curve for the monopolistic competitive firm shown in Exhibit 10-1:

Accepted Answer

The answer of Exhibit 10-1 A monopolistic competitive firm

In the...

Question 6

Exhibit 10-3 A monopolistic competitive firm in the long run

As presented in Exhibit 10-3, the long-run profit-maximizing output for the monopolistic competitive firm is:

Accepted Answer

In the long run, a monopolistic competitive firm produces where marginal revenue equals marginal cost and charges a price that is higher than the marginal cost. In Exhibit 10-3, this occurs where the marginal cost curve intersects the demand curve at a quantity of 400 units per week. At this level of output, the firm earns a normal profit (i.e., zero economic profit) because the price is equal to the average total cost. Therefore, the long-run profit-maximizing output for this firm is 400 units per week.

Question 7

As new firms enter a monopolistic competitive industry, it can be expected that:

Accepted Answer

As new firms enter a monopolistic competitive industry, the supply curve of the industry will shift rightward, increasing the level of competition. As a result, existing firms will have to reduce their prices to remain competitive, reducing their profits. Therefore, profits of existing firms will decrease.

Question 8

Exhibit 10-2 A monopolistic competitive firm

As represented in Exhibit 10-2, the maximum long-run economic profit earned by this monopolistic competitive firm is:

Accepted Answer

In the long-run in monopolistic competition, firms are able to enter and exit the market freely, leading to a situation of zero economic profit. In the graph, the long-run equilibrium occurs at the point where the demand curve is tangent to the average total cost curve, indicating zero economic profit. Therefore, the maximum long-run economic profit earned by the firm is zero.

Question 9

Exhibit 10-1 A monopolistic competitive firm

As represented in Exhibit 10-1, the maximum long-run economic profit earned by this monopolistic competitive firm is:

Accepted Answer

In monopolistic competition, firms can earn some positive economic profit in the short run but in the long run, due to the existence of low barriers to entry, new firms will enter the market causing the demand curve facing each firm to shift left until it is tangent to the average total cost curve. At this point, price equals average total cost and economic profit is zero. Therefore, in the long-run, the maximum economic profit earned by a monopolistic competitive firm is zero.

Question 10

Exhibit 10-2 A monopolistic competitive firm

To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 10-2 will charge a price per unit of:

Accepted Answer

The answer of Exhibit 10-2 A monopolistic competitive firm

To maximize...

Question 11

Exhibit 10-2 A monopolistic competitive firm

Comparing the monopolistically competitive firm in Exhibit 10-2 to the long-run profit-maximizing outcome for a perfectly competitive firm with a price of $15 per unit and a quantity of 600,

Accepted Answer

The answer of Exhibit 10-2 A monopolistic competitive firm

Comparing the...

Question 12

In monopolistic competition if there is profit, there is:

Accepted Answer

In monopolistic competition, there are relatively low barriers to entry, meaning that new firms can easily enter the market if they perceive there is profit to be made. Therefore, if existing firms are making profits, it sends a signal for new firms to enter the market and compete, which increases competition and potentially reduces profits for existing firms.

Question 13

Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?

Accepted Answer

In monopolistic competition, firms have some degree of market power due to differentiated products, but there are also many firms competing in the market. In the short run, the profit-maximizing level of output occurs where marginal revenue equals marginal cost, but the price charged will be higher than the marginal cost due to market power. In the long run, new firms can enter the market and compete away any economic profits, leading to a zero economic profit equilibrium. Therefore, choice C is the best description of monopolistic competition.

Question 14

Entry of new firms into a monopolistically competitive market causes a(n)

Accepted Answer

The entry of new firms into a monopolistically competitive market increases the number of competitors, which leads to a decrease in the existing firms' demand curves. With more firms offering similar products, customers will have more choices, and the existing firms' market share will decrease. This can also lead to lower prices and lower profits for existing firms, as they will have to compete with the new entrants.

Question 15

Exhibit 10-2 A monopolistic competitive firm

If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 10-2, we would expect that in the long run:

Accepted Answer

The answer of Exhibit 10-2 A monopolistic competitive firm

If all...

Question 16

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

Accepted Answer

The producer's price of $500 per tombstone is below its average total cost of $600 per tombstone, meaning they are losing money on each tombstone sold. Therefore, they are losing $2,000 a week (20 tombstones sold x $100 loss per tombstone). This is not a profitable situation, so new firms will likely not want to enter and competition may even decrease in this market due to the losses experienced by Rolling Stones. Increasing production would only increase the losses.

Question 17

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

Accepted Answer

Economic profit is calculated by subtracting total costs from total revenue. Here, the price ($80) minus ATC ($65) gives a profit of $15 per frame. Selling 100 frames a week results in a total economic profit of $1,500 ($15 profit per frame * 100 frames).

Question 18

In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are:

Accepted Answer

In the long run, monopolistic competition is characterized by low barriers to entry and exit. As a result, when economic profits are earned in the short run, new firms enter the industry attracted by the possibility of making a profit. As new firms enter, they increase competition, reducing the market power of existing firms, leading to a decrease in demand and economic profits. Therefore, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, will be eliminated due to firms entering the industry in the long run.

Question 19

Exhibit 10-1 A monopolistic competitive firm

If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 10-1, firms in the long run will:

Accepted Answer

The presence of positive economic profits in the short run will attract new firms to enter the industry in the long run, increasing competition and driving profits down to zero. Therefore, the monopolistic competitive firm shown in Exhibit 10-1 will experience competition from new firms that enter the industry.

Question 20

Compared to monopoly, the market results with monopolistic competition are usually expected to be:

Accepted Answer

In monopolistic competition, there are more firms competing which leads to more choices for consumers and more pressure to keep prices low. Therefore, the market results are usually expected to be better because consumers can pay a lower price.

Quiz 10: Monopolistic Competition and Oligopoly

Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13, and MC = MR = $17.47. Which of the following is true ?

Exit of existing firms will occur in a monopolistic competitive industry until:

Exhibit 10-1 A monopolistic competitive firm As presented in Exhibit 10-1, the short-run profit-maximizing output for the monopolistic competitive firm is:

Exhibit 10-1 A monopolistic competitive firm In the long run, the demand curve for the monopolistic competitive firm shown in Exhibit 10-1:

Exhibit 10-3 A monopolistic competitive firm in the long run As presented in Exhibit 10-3, the long-run profit-maximizing output for the monopolistic competitive firm is:

As new firms enter a monopolistic competitive industry, it can be expected that:

Exhibit 10-2 A monopolistic competitive firm As represented in Exhibit 10-2, the maximum long-run economic profit earned by this monopolistic competitive firm is:

Exhibit 10-1 A monopolistic competitive firm As represented in Exhibit 10-1, the maximum long-run economic profit earned by this monopolistic competitive firm is:

Exhibit 10-2 A monopolistic competitive firm To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 10-2 will charge a price per unit of:

Exhibit 10-2 A monopolistic competitive firm Comparing the monopolistically competitive firm in Exhibit 10-2 to the long-run profit-maximizing outcome for a perfectly competitive firm with a price of $15 per unit and a quantity of 600,

In monopolistic competition if there is profit, there is:

Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?

Entry of new firms into a monopolistically competitive market causes a(n)

Exhibit 10-2 A monopolistic competitive firm If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 10-2, we would expect that in the long run:

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are:

Exhibit 10-1 A monopolistic competitive firm If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 10-1, firms in the long run will:

Compared to monopoly, the market results with monopolistic competition are usually expected to be: