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
Figure 11-17
12) Refer to Figure 11-17. What is the productively efficient output for the firm represented in the diagram?
A) Qf units
B) Qg units
C) Qh units
D) Qj units
13) Refer to Figure 11-17. What is the allocatively efficient output for the firm represented in the diagram?
A) Qf units
B) Qg units
C) Qh units
D) Qj units
14) Refer to Figure 11-17. What is the amount of excess capacity?
A) Qh – Qf units
B) Qj – Qf units
C) Qj – Qh units
D) Qh – Qg units
15) Refer to Figure 11-17. Suppose the firm is currently producing Qf units. What happens if it increases its output to Qg units?
A) Its average cost of production will fall and its profit will rise.
B) It will be taking advantage of economies of scale and will be able to lower the price of its product.
C) It will move from a zero profit situation to a profit situation.
D) It will move from a zero profit situation to a loss situation.
16) Refer to Figure 11-17. In the long run, why will the firm produce Qf units and not Qg units, which has a lower its average cost of production?
A) Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.
B) At Qg, average cost exceeds marginal cost so the firm will actually make a loss.
C) At Qg, marginal revenue is less than average revenue which will result in a loss for the firm.
D) The firm’s goal is to charge a high price and make a small profit rather than a low price and no profit.
Figure 11-18
17) Refer to Figure 11-18. Which of the following statements is true?
A) Da represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the demand curve in the short run.
B) Da represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the long-run demand curve in an increasing-cost industry.
C) Da represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor.
D) Da represents the long-run supply curve in a perfectly competitive, constant-cost industry while Db depicts the long-run demand curve facing a monopolistic competitor in a decreasing-cost industry.
18) Refer to Figure 11-18. The diagram demonstrates that
A) in the short run, the monopolistic competitor produces an output Qb but in the long run after it adjusts its capacity, it will produce the allocatively efficient output, Qa.
B) it is not possible for a monopolistic competitor to produce the productively efficient output level, Qa, because of product differentiation.
C) it is possible for a monopolistic competitor to produce the productively efficient output level, Qa, if it is willing to lower its price from Pb to Pa.
D) in the long run, the monopolistic competitor produces the minimum-cost output level, Qa, but in the short run its output of Qb is not cost minimizing.
19) In both monopolistically competitive and perfectly competitive industries
A) firms produce products for which there are no close substitutes.
B) there are high barriers to entry.
C) there are many buyers and sellers.
D) firms are price takers.
20) In the long run firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits, but unlike perfectly competitive firms in the long run, monopolistically competitive firms
A) charge a price that is greater than average revenue.
B) charge a price that is equal to marginal cost.
C) do not produce at minimum average total cost.
D) charge a price that is equal to average total cost.
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