Figure 13-12
Figure 13-12 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
19) Refer to Figure 13-12. If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run?
A) Some firms will exit the market causing the demand to increase for firms remaining in the market.
B) The firms that are making losses will be purchased by their more successful rivals.
C) Inefficient firms will exit the market and new cost efficient firms will enter the market.
D) Firms will have to raise their prices to cover costs of production.
20) Firms such as Caribou Coffee and Diedrich Coffee operate hundreds of coffeehouses nationwide while firms such as Dunn Brothers Coffee operate only in four states. How would you characterize these stores?
A) Caribou Coffee and Diedrich Coffee are oligopolists while Dunn Brothers is a monopolistic competitor.
B) Caribou Coffee and Diedrich Coffee are duopolists while Dunn Brothers is a monopolistic competitor.
C) Caribou Coffee and Diedrich Coffee are duopolists while Dunn Brothers is an oligopolist
D) They are all monopolistic competitors.
21) According to a Wall Street Journal article, hhgregg has differentiated itself from its competition, particularly from large chain stores such as Best Buy,
A) by charging lower prices.
B) by providing better customer service.
C) by selling inferior products.
D) by offering discounts for cash sales.
22) The financial situation at Starbucks in the late 2000s illustrates the fact that maintaining long-run profits in a monopolistically competitive market is
A) impossible.
B) very difficult.
C) fairly easy.
D) almost always guaranteed.
23) In theory, in the long run, monopolistically competitive firms earn zero profits. However, in reality there are some ways by which a firm can avoid losing profits. Which of the following is one such way?
A) gradually increase the mark up on the goods produced
B) lower the price of its products to expand its market share
C) identify new markets and develop products precisely for those markets
D) find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment
24) Tony’s Italian Ice is a monopolistically competitive firm. If Tony’s earns a profit in the short run, which of the following is most likely to occur?
A) New firms that sell Italian ice will enter the market, and Tony’s cost curves will shift to the left.
B) New firms that sell Italian ice will enter the market, and Tony’s demand curve will shift to the left.
C) New firms that sell Italian ice will enter the market, and Tony’s demand curve will shift to the right.
D) New firms that sell Italian ice will enter the market, and Tony’s demand curve will become more inelastic.
25) Which of the following describes the relative positions of the demand curve and the average total cost (ATC) curve of a monopolistically competitive firm that earns a profit in the short run?
A) In the short run, the firm’s demand curve will lie above its ATC curve. The demand curve will be tangent to the ATC curve in the long run.
B) In the short run, the firm’s demand curve will lie below its ATC curve. The demand curve will be tangent to the ATC curve in the long run.
C) In the short run, the firm’s demand curve will cross its ATC curve at the ATC curve’s lowest point. The demand curve will be above the ATC curve in the long run.
D) In the short run, the firm’s ATC curve will cross the demand curve at the profit maximizing level of output. The demand curve will be tangent to the ATC curve in the long run.
26) If firms in a monopolistically competitive industry are making profits in the short run,
A) barriers to entry will be erected to keep out rivals.
B) some firms will ultimately exit the industry.
C) they will resort to advertising wars to help sustain these profits.
D) new firms will enter the market.
27) A monopolistically competitive firm that earns an accounting profit in the short run
A) must also earn an economic profit in the short run.
B) does not earn enough to earn an economic profit in the short run.
C) could earn an economic profit, break even or suffer an economic loss in the short run.
D) could earn an economic profit or break even, but could not suffer an economic loss in the short run.
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