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Use the following to answer questions: Figure: Firms in Monopolistic Competition Use the following to answer questions: Figure: Firms in Monopolistic Competition   -(Figure: Firms in Monopolistic Competition)  Look at the figure Firms in Monopolistic Competition. A long-run equilibrium is illustrated at the profit-maximizing price _____ in panel _____. A)  F; (A)  B)  G; (A)  C)  H; (B)  D)  I; (C) -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. A long-run equilibrium is illustrated at the profit-maximizing price _____ in panel _____.


A) F; (A)
B) G; (A)
C) H; (B)
D) I; (C)

E) B) and C)
F) A) and D)

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Your friend Stan owns a coffee shop in a monopolistically competitive industry. One day Stan tells you (an economist) that he is earning an economic profit and is setting his price equal to his marginal cost. Is Stan producing the profit-maximizing amount of coffee? What should he do?

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If Stan is producing where P = MC and pr...

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A wheat farmer is more likely to advertise than a restaurant that sells fast food hamburgers.

A) True
B) False

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In long-run equilibrium in perfect competition, price is:


A) greater than average total cost.
B) equal to average total cost at an output below the point where average total cost is minimized.
C) equal to average total cost at its minimum.
D) equal to average total cost at an output above the point where average total cost is minimized.

E) All of the above
F) B) and D)

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Advertising is an economically productive activity and NOT a waste of resources because it:


A) increases sales.
B) can convey information about the product.
C) can signal that firms are desperate for customers.
D) can decrease the costs of production.

E) C) and D)
F) A) and B)

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Use the following to answer questions: Figure: Profits in Monopolistic Competition Use the following to answer questions: Figure: Profits in Monopolistic Competition   -(Figure: Profits in Monopolistic Competition)  Look at the figure Profits in Monopolistic Competition. A positive economic profit is earned if the profit-maximizing price is _____ in panel _____. A)  E; (B)  B)  B; (A)  C)  A; (A)  D)  N; (C) -(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A positive economic profit is earned if the profit-maximizing price is _____ in panel _____.


A) E; (B)
B) B; (A)
C) A; (A)
D) N; (C)

E) C) and D)
F) B) and D)

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A monopolistic competitor will advertise to:


A) reduce excess capacity.
B) increase demand for its product.
C) collude more effectively with other firms.
D) produce on the upward-sloping portion of its ATC curve.

E) All of the above
F) C) and D)

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Use the following to answer questions: Figure: The Restaurant Market Use the following to answer questions: Figure: The Restaurant Market   -(Figure: The Restaurant Market)  The figure The Restaurant Market shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the restaurant market. In long-run equilibrium, the economic profit earned by the typical restaurant in the community will be: A)  negative. B)  zero. C)  equal to the level shown in the figure. D)  Not enough information is given to answer the question. -(Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the restaurant market. In long-run equilibrium, the economic profit earned by the typical restaurant in the community will be:


A) negative.
B) zero.
C) equal to the level shown in the figure.
D) Not enough information is given to answer the question.

E) A) and D)
F) A) and C)

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Suppose a monopolistically competitive firm can increase its profits by decreasing its output. At the current output:


A) marginal revenue is less than zero.
B) price is less than marginal revenue.
C) marginal revenue is less than marginal cost.
D) price is less than average total cost.

E) A) and B)
F) C) and D)

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Suppose a monopolistically competitive firm is making a profit, but it can increase its profits by increasing output. At the current level of output:


A) marginal revenue is greater than marginal cost.
B) price is less than marginal cost.
C) price is less than average total cost.
D) marginal revenue is less than marginal cost.

E) A) and C)
F) B) and D)

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An industry characterized by many competitors, each producing identical products, with free entry and exit, is described as:


A) monopolistically competitive.
B) oligopolistic.
C) perfectly competitive.
D) monopolistic.

E) C) and D)
F) None of the above

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In long-run equilibrium, a firm in monopolistic competition is similar to a monopoly because it:


A) earns no economic profit.
B) charges a price equal to marginal cost.
C) charges a price greater than marginal cost.
D) charges a price equal to average total cost.

E) None of the above
F) C) and D)

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Brand names offer some assurance that the seller has a reputation to protect and hopes to be engaged in repeated transactions with its customers.

A) True
B) False

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Critics of advertising argue that it:


A) tends to make markets more perfect.
B) leads to low-cost mass production.
C) results in higher prices to consumers.
D) encourages competition through new-product advertising.

E) None of the above
F) All of the above

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Firm A and firm B have identical cost curves. Firm A operates in perfect competition and firm B operates in monopolistic competition. In the long run, firm A will charge _____ and produce _____ than firm B.


A) less; less
B) more; more
C) more; less
D) less; more

E) A) and D)
F) B) and C)

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An industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit of firms is:


A) a monopoly.
B) a duopoly.
C) an oligopoly.
D) monopolistically competitive.

E) C) and D)
F) A) and B)

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In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which of the following must be TRUE for this firm?


A) MR = MC and P = ATC.
B) MR = MC and P > ATC.
C) MR > MC and P = ATC.
D) P = MR = MC > ATC.

E) A) and B)
F) A) and C)

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Suppose Susan owns a business that operates in a market characterized by monopolistic competition. Susan's profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits are $1,800 per week. Susan decides that she needs more profits and therefore raises her price to $15. At the new price of $15:


A) profits will increase.
B) profits will remain at $1,800.
C) marginal revenue will be greater than marginal cost.
D) marginal revenue will be less than marginal cost.

E) C) and D)
F) None of the above

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When the profit-maximizing level of output is less than the output associated with the minimum possible average total cost of production, a firm is said to have:


A) economic profits.
B) excess capacity.
C) advertising.
D) excess production.

E) None of the above
F) B) and C)

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Use the following to answer questions: Figure: Profits in Monopolistic Competition Use the following to answer questions: Figure: Profits in Monopolistic Competition   -(Figure: Profits in Monopolistic Competition)  In panel (B)  of the figure Profits in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point: A)  J. B)  K. C)  L. D)  M. -(Figure: Profits in Monopolistic Competition) In panel (B) of the figure Profits in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:


A) J.
B) K.
C) L.
D) M.

E) A) and B)
F) A) and C)

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