13.4 Comparing Monopolistic Competition and Perfect Competition
1) How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?
A) A firm in monopolistic competition will earn economic profits, but a firm in perfect competition earns zero profit.
B) A firm in monopolistic competition will charge a price higher than the average cost of production, but a firm in perfect competition charges a price equal to the average cost of production.
C) A firm in monopolistic competition does not take full advantage of its economies of scale, but a firm in perfect competition produces at the lowest average cost possible.
D) A firm in monopolistic competition produces an allocatively efficient output level, while a firm in perfect competition produces a productively efficient output level.
2) Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that
A) firms produce at the minimum point of their average cost curves.
B) price equals marginal cost.
C) firms earn normal profits.
D) price equals marginal revenue.
3) Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?
A) Selling price equals average total cost.
B) Production is at minimum average total cost.
C) Marginal revenue equals marginal cost.
D) Selling price is greater than marginal cost.
4) For productive efficiency to hold,
A) price must equal the marginal cost of the last unit produced.
B) price must equal marginal revenue of the last unit sold.
C) average variable cost is minimized in production.
D) average total cost is minimized in production.
5) For allocative efficiency to hold,
A) price must equal marginal revenue of the last unit sold.
B) price must equal the marginal cost of the last unit produced.
C) average variable cost is minimized in production.
D) average total cost is minimized in production.
6) Is a monopolistically competitive firm productively efficient?
A) No, because it does not produce at minimum average total cost.
B) Yes, because it produces where marginal cost equals marginal revenue.
C) No, because price is greater than marginal cost.
D) Yes, because price equals average total cost.
7) Is a monopolistically competitive firm allocatively efficient?
A) No, because it does not produce at minimum average total cost.
B) Yes, because it produces where marginal cost equals marginal revenue.
C) No, because price is greater than marginal cost.
D) Yes, because price equals average total cost.
8) If a firm has excess capacity, it means
A) that the firm expends too much of its resources on advertising its product without seeing an appreciable increase in sales.
B) that the firm is not producing its minimum efficient scale of output.
C) that the firm’s long-run average cost of producing a given quantity exceeds its short-run cost of producing that same quantity.
D) that the firm’s quantity supplied exceeds its quantity demanded.
9) Economists agree that a monopolistically competitive market structure
A) lowers consumer utility because consumers pay a price higher than the marginal cost of production.
B) is detrimental to society because it leads to a waste of scarce resources.
C) benefits consumers because firms produce products that appeal to a wide range of consumer tastes.
D) can eliminate any excess capacity if all firms in the industry devote more funds to differentiating their products.
10) Consumers benefit from monopolistic competition by
A) being able to choose from products more closely suited to their tastes.
B) paying the lowest possible price for the product.
C) paying the same price as everyone else.
D) being able to purchase high-quality products at low prices.
11) Suppose electronic cigarette manufacturer NJOY is successful in establishing a profitable market for e-cigarettes in what is a monopolistically competitive industry. In the long run, NJOY will most likely find it ________ to remain profitable as they face ________ competition in the e-cigarette market.
A) harder; more
B) harder; less
C) easier; more
D) easier; less
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