Chapter 16.
MONOPOLISTIC COMPETITION
1. Which of the following conditions does Not describe a firm in a monopolistically competitive market?
a. it sells a product different from its competitors.
b. it takes its price as given by market conditions.
c. it maximizes profit both in the short run and in the long run.
d. it has the freedom to enter or exit in the long run.
2. Which of the following markets best fits the definition of monopolistic competition?
a. mobile phone
b. salt
c. crude oil
d. sugar
3. a monopolistically competitive firm will increase its production if
a. marginal revenue is greater than marginal cost.
b. marginal revenue is greater than average total cost.
c. price is greater than marginal cost.
d. price is greater than average total cost.
4. New firms will enter a monopolistically competitive market if
a. marginal revenue is greater than marginal cost.
b. marginal revenue is greater than average total cost.
c. price is greater than marginal cost.
d. price is greater than average total cost.
5. What is true of a monopolistically competitive market in long-run equilibrium?
a. Price is greater than marginal cost.
b. Price is equal to marginal revenue.
c. Firms make positive economic profits.
d. Firms produce at the minimum of average total cost.
6. if advertising makes consumers more loyal to particular brands, it could _________ the elasticity of demand
and _________ the markup of price over marginal cost.
a. increase; increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease
7. if advertising makes consumers more aware of alternative products, it could _________ the elasticity of
demand and _________ the markup of price over marginal cost.
a. increase; increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease
8. advertising can be a signal of quality
a. if advertising is freely available to all firms.
b. if the benefit of attracting customers is greater for firms with better products.
c. only if consumers are irrationally attracted to products they see advertised.
d. only if the content of the ads contains credible information about the products.
9. For each of the following characteristics, say whether it describes a perfectly competitive firm, a
monopolistically competitive firm, both, or neither.
a. sells a product differentiated from that of its competitors
b. has marginal revenue less than price
c. earns economic profit in the long run
d. produces at the minimum of average total cost in the long run
e. equates marginal revenue and marginal cost
f. charges a price above marginal cost
10. For each of the following characteristics, say whether it describes a monopoly firm, a monopolistically
competitive firm, both, or neither.
a. faces a downward-sloping demand curve
b. has marginal revenue less than price
c. faces the entry of new firms selling similar products
d. earns economic profit in the long run
e. equates marginal revenue and marginal cost
f. produces the socially efficient quantity of output