AP Microeconomics Unit 4 Practice MCQ

: A Topic: 1 Level: Moderate E: 445 MI: 211

1. Which is a characteristic of monopolistic competition?

A) standardized product C) absence of nonprice competition

B) a relatively small number of firms D) relatively easy entry

D

: D Topic: 1 Level: Easy E: 445 MI: 211

2. A major characteristic of monopolistic competition is:

A) mutual interdependence.

B) a high degree of collusion among firms.

C) a relatively large number of firms selling the product.

D) relatively easy entry into an industry, but a relatively difficult exit from the industry.

C

: A Topic: 1 Level: Moderate E: 445 MI: 211

3. Which is not a form of product differentiation for the monopolistically competitive firm?

A) brand names and trademarks C) location and accessibility

B) promotion and packaging D) standard hours and procedures

D

: A Topic: 1 Level: Difficult E: 446 MI: 212

4. A monopolistically competitive industry is like a purely competitive industry in that:

A) each industry produces a standardized product.

B) nonprice competition is a feature in both industries.

C) neither industry has significant barriers to entry.

D) firms in both industries face a horizontal demand curve.

C

: A Topic: 1 Level: Easy E: 445 MI: 21

5. Which assumption is part of the model of monopolistic competition?

A) Firms make identical products.

B) There is no collusion among firms.

C) There are significant barriers to entry into the market.

D) There are few buyers and sellers.

B

: A Topic: 1 Level: Easy E: 445-446 MI: 211-212

6. Monopolistic competition is characterized by firms:

A) producing differentiated products. C) producing at optimal productive efficiency.

B) making economic profits in the long run. D) producing where price equals marginal cost.

A

: A Topic: 1 Level: Easy E: 445 MI: 211

7. Which would be characteristic of monopolistic competition?

A) a potential for price fixing through collusion C) mutual interdependence among the few firms

B) relatively small market share for each firm D) product standardization

B

: A Topic: 1 Level: Easy E: 446 MI: 212

8. In which industry is monopolistic competition most likely to be found?

A) utilities B) agriculture C) retail trade D) mining

C

: A Topic: 1 Level: Easy E: 446 MI: 212

9. A feature of monopolistic competition is:

A) many (thousands) of buyers and sellers. C) considerable control over price.

B) homogeneous or standardized products. D) nonprice competition.

D

: A Topic: 1 Level: Moderate E: 445 MI: 211

10. One difference between monopolistic competition and pure competition is that:

A) products can be standardized or differentiated in pure competition.

B) there is some control over price in monopolistic competition.

C) monopolistic competition has significant barriers to entry.

D) firms differentiate their products in pure competition.

B

: A Topic: 1 Level: Easy E: 446 MI: 212

11. An example of a monopolistically competitive industry would be:

A) steel. B) soybeans. C) electricity. D) retail clothing.

D

: A Topic: 1 Level: Moderate E: 445-446 MI: 211-212

12. Which market model is characterized by many firms, differentiated products, and relatively easy entry?

A) pure competition B) pure monopoly C) monopolistic competition D) oligopoly

C

: A Topic: 1 Level: Moderate E: 445-446 MI: 211-212

13. Which set best describes the basic features of monopolistic competition?

A) easy entry, few firms, and standardized products

B) barriers to entry, few firms, and differentiated products

C) easy entry, many firms, and differentiated products

D) barriers to entry, many firms, and standardized products

C

: F Topic: 1 Level: Moderate E: 445-446 MI: 211-212

14. The goal of product differentiation and advertising in monopolistic competition is to make:

A) the firm allocatively efficient even if it is not productively efficient.

B) the firm productively efficient even if it is not allocatively efficient.

C) price less of a factor and product differences more of a factor in consumer purchases.

D) price more of a factor and product differences less of a factor in consumer purchases.

C

: A Topic: 1 Level: Moderate E: 446, 452 MI: 212, 218 Status: New

15. Which industry would be considered to be monopolistically competitive?

A) asphalt paving

B) breakfast cereals

C) vacuum cleaners

D) small-arms ammunition

A

: A Topic: 1 Level: Moderate E: 446, 452 MI: 212, 218 Status: New

16. Which industry would be considered to be monopolistically competitive?

A) electronic computers

B) electric light bulbs

C) women's dresses

D) men's slacks and jeans

C

: A Topic: 1 Level: Moderate E: 446, 452-453 MI: 212, 218-219 Status: New

17. In a monopolisitically competitive industry, the four-firm concentration ratio would be:

A) high, and the Herfindahl index would be high.

B) high, and the Herfindahl index would be low.

C) low, and the Herfindahl index would be high.

D) low, and the Herfindahl index would be low.

D

: A Topic: 1 Level: Moderate E: 446, 452-453 MI: 212, 218-219 Status: New

18. The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers would indicate that the industry was monopolistically competitive?

A) 25 and 207

B) 76 and 2662

C) 77 and 1807

D) 89 and 2582

A

Demand curve

Use the following to answer questions 19-20:

: G Topic: 2 Level: Difficult E: 446-448 MI: 212-214

19. Refer to the above graph. A successful advertising campaign by a monopolistically competitive firm will cause the demand curve to shift from:

A) A to B and become more elastic. C) B to A and become more elastic.

B) A to B and become less elastic. D) B to A and become less elastic.

B

: G Topic: 2 Level: Difficult E: 446-448 MI: 212-214

20. Refer to the above graph. A monopolistically competitive firm was initially successful, but then its rivals started an advertising campaign that undercut its market position. This situation would cause the demand curve for the monopolistically competitive firm to shift from:

A) A to B and become more elastic. C) B to A and become more elastic.

B) A to B and become less elastic. D) B to A and become less elastic.

C

: A Topic: 2 Level: Moderate E: 446-448 MI: 212-214

21. Monopolistically competitive firms have a:

A) horizontal demand curve. C) perfectly elastic demand curve.

B) perfectly inelastic demand curve. D) downward-sloping demand curve.

D

: A Topic: 2 Level: Moderate E: 446-448 MI: 212-214

22. The demand curve for a monopolistically competitive firm has a:

A) positive slope and the marginal revenue curve has a negative slope.

B) positive slope and the marginal revenue curve has a positive slope.

C) negative slope and the marginal revenue curve has a negative slope.

D) negative slope and the marginal revenue curve has a positive slope.

C

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214

23. Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because:

A) there is free entry and exit.

B) product differentiation allows each firm some degree of monopoly power.

C) there are a few large firms in the industry and they each act as a monopolist.

D) mutual interdependence among all firms in the industry leads to collusion.

B

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214

24. The downward-sloping demand curve of a monopolistic competitor:

A) reflects product differentiation.

B) becomes horizontal in the long run.

C) indicates collusion among the members of the product group.

D) ensures that the firm will produce at minimum average cost in the long run.

A

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214

25. The monopolistically competitive seller's demand curve will become more elastic the:

A) larger the number of competitors. C) more significant the barriers to entry.

B) greater the degree of product differentiation. D) smaller the number of competitors.

A

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214

26. The demand curve faced by a monopolistically competitive firm is:

A) vertical. B) horizontal. C) highly elastic. D) highly inelastic.

C

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214

27. The demand curve faced by a monopolistically competitive firm:

A) is more elastic than the monopolist's demand curve.

B) is less elastic than the monopolist's demand curve.

C) will shift outward as new firms enter the industry.

D) is more elastic than the demand curve faced by the purely competitive firm.

C

: A Topic: 2 Level: Moderate E: 446-448 MI: 212-214

28. A major difference between pure competition and monopolistic competition is that under pure competition:

A) individual firms have more elastic demand curves.

B) the market demand curve is less elastic.

C) there is a smaller number of producers.

D) there are barriers to entry.

A

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214

29. Which would make an individual firm's demand curve less elastic?

A) the purchase of more efficient machinery

B) a reduction in the price of the firm's product

C) increased brand loyalty toward the firm's product

D) a reduction in advertising expenditures by the firm

C

Price-output behavior

: A Topic: 3 Level: Difficult E: 448 MI: 214

30. A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating:

A) with a profit in the short run.

B) with a loss in the short run.

C) at the break-even level of output in the short run.

D) at an efficient level of output in the short run.

B

: A Topic: 3 Level: Moderate E: 448 MI: 214

31. A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits:

A) the firm should continue to produce this quantity.

B) the firm should increase output and decrease price.

C) the firm should decrease output and increase price.

D) it is unclear what the firm should do without knowing marginal revenue.

D

Use the following to answer questions 32-34:

The graph depicts a monopolistically competitive firm.

: G Topic: 3 Level: Moderate E: 447-448 MI: 213-214

32. Refer to the above graph. In the short run, this monopolistically competitive firm will set price at:

A) $65 and produce 45 units of output. C) $50 and produce 35 units of output.

B) $65 and produce 35 units of output. D) $50 and produce 50 units of output.

B

: G Topic: 3 Level: Moderate E: 447-448 MI: 213-214

33. Refer to the above graph. At the profit-maximizing level of short-run output, this monopolistically competitive firm will be making a profit of:

A) $275. B) $350. C) $500. D) $525.

D

: G Topic: 3 Level: Easy E: 447-448 MI: 213-214

34. Refer to the above graph. This monopolistically competitive firm is:

A) making economic profit in the long run. C) earning only normal profit in the long run.

B) making economic profit in the short run. D) earning only normal profit in the short run.

B

: A Topic: 3 Level: Difficult E: 447-448 MI: 213-214

35. A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should:

A) decrease the level of output. C) make no change in the level of output.

B) increase the level of output. D) increase product price.

B

: A Topic: 3 Level: Moderate E: 447-448 MI: 213-214

36. A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should:

A) reduce product price. C) decrease the level of output.

B) increase the level of output. D) make no change in the level of output.

D

Use the following to answer questions 37-39:

Answer the next question(s) based on the demand and cost schedules for a monopolistic competitor given in the table below.

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214

37. Refer to the above table. What output will the profit-maximizing monopolistic competitor produce?

A) 3 B) 4 C) 5 D) 6

C

: T Topic: 3 Level: Difficult E: 447-448 MI: 213-214

38. Refer to the above table. What will be the economic profit or loss for this monopolistic competitor at the profit-maximizing level of output?

A) -$15 B) +$10 C) +$20 D) +$27

C

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214

39. Refer to the above table. At the profit-maximizing level of output, marginal revenue will be:

A) $1 and marginal cost will be $40. C) $4 and marginal cost will be $4.

B) $60 and marginal cost will be $40. D) $6 and marginal cost will be $4.

C

: A Topic: 3 Level: Moderate E: 447-448 MI: 213-214

40. In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the firm will:

A) always earn an economic profit. C) set price above marginal cost.

B) set price equal to marginal cost. D) produce at minimum average total cost.

C

: A Topic: 3 Level: Easy E: 448 MI: 214

41. Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will:

A) reduce the excess capacity in the industry as firms expand production.

B) attract other firms to enter the industry because the barriers to entry are low.

C) cause firms to standardize their product to limit the degree of competition.

D) make the industry allocatively efficient as each firm seeks to maintain its profits.

B

: A Topic: 3 Level: Easy E: 448 MI: 214

42. If monopolistically competitive firms in an industry are making an economic profit, then:

A) new firms will enter the industry and product demand will increase for the existing firms.

B) firms will exit the industry and product demand will decrease for the firms that remain.

C) firms will exit the industry and product demand will increase for the firms that remain.

D) new firms will enter the industry and product demand will decrease for the existing firms.

D

: A Topic: 3 Level: Difficult E: 447-448 MI: 213-214

43. The marginal cost curve intersects the average total cost curve in monopolistic competition:

A) at the market price. C) to the left of the minimum average total cost.

B) at the minimum average total cost. D) to the right of the minimum average total cost.

B

Use the following to answer questions 44-47:

: G Topic: 3 Level: Easy E: 447 MI: 213

44. Refer to the above graph of a representative firm in monopolistic competition. What does line 1 represent?

A) demand B) marginal cost C) marginal revenue D) average total cost

B

: G Topic: 3 Level: Difficult E: 447 MI: 213

45. Refer to the above graph of a representative firm in monopolistic competition. What does line 2 represent?

A) demand B) marginal cost C) marginal revenue D) average total cost

D

: G Topic: 3 Level: Easy E: 447 MI: 213

46. Refer to the above graph of a representative firm in monopolistic competition. What does line 3 represent?

A) demand B) marginal cost C) marginal revenue D) average total cost

A

: G Topic: 3 Level: Moderate E: 447 MI: 213

47. Refer to the above graph of a representative firm in monopolistic competition. What does line 4 represent?

A) demand B) marginal cost C) marginal revenue D) average total cost

C

Use the following to answer questions 48-52:

Answer the next question(s) on the basis of the following demand and cost data for a specific firm.

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214

48. Refer to the above data. If columns 1 and 3 are this firm's demand schedule, the profit-maximizing level of output will be:

A) 3 units. B) 4 units. C) 5 units. D) 6 units.

B

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214

49. Refer to the above data. If columns 1 and 3 are this firm's demand schedule, the profit-maximizing price will be:

A) $30. B) $35. C) $40. D) $45.

C

: T Topic: 3 Level: Difficult E: 447-448 MI: 213-214

50. Refer to the above data. If columns 1 and 3 are this firm's demand schedule, economic profit will be:

A) $60. B) $70. C) $80. D) $90.

D

: T Topic: 3 Level: Difficult E: 447-448 MI: 213-214

51. Refer to the above data. Suppose that entry of firms into the industry changes this firm's demand schedule from columns 1 and 3 to columns 2 and 3. Economic profit will:

A) decrease to $25. B) decrease to $35. C) decrease to $70. D) decrease to zero.

B

: T Topic: 3 Level: Difficult E: 447-448 MI: 213-214

52. Refer to the above data. In the long run, the number of firms in this monopolistic competitive industry will most likely:

A) decrease because there are economic losses.

B) increase because there are economic profits.

C) stay the same because there is normal profit but no economic profit.

D) Cannot be determined from the information.

B

Use the following to answer questions 53-56:

Assume that the short-run cost and demand data given in the table below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion.

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214

53. Refer to the above table and information. At the profit-maximizing level of output, marginal revenue will be:

A) $25 and marginal cost will be $15. C) $35 and marginal cost will be $30.

B) $25 and marginal cost will be $25. D) $35 and marginal cost will be $35.

A

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214

54. Refer to the above table and information. At a price of $45, marginal revenue will be:

A) $15 and marginal cost will be $20. C) $35 and marginal cost will be $10.

B) $25 and marginal cost will be $15. D) $45 and marginal cost will be $5.

C

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214

55. Refer to the above table and information. At what output and price levels will the firm produce in the short run?

A) 3 units and $45 B) 4 units and $40 C) 5 units and $35 D) 6 units and $30

B

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214

56. Refer to the above table and information. What will total profits be at the profit-maximizing output and price?

A) $65 B) $85 C) $90 D) $110

C

: A Topic: 3 Level: Moderate E: 448-449 MI: 214-215

57. In the long run, a representative firm in a monopolistically competitive industry will typically:

A) have an elasticity of demand that will be less than it was in the short run.

B) have a larger number of competitors than it will in the short run.

C) produce a level of output at which marginal cost and price are equal.

D) earn a normal profit, but not an economic profit.

D

: A Topic: 3 Level: Moderate E: 448-449 MI: 214-215

58. Were a monopolistically competitive industry in long-run equilibrium, a firm in that industry might be able to increase its economic profits by:

A) decreasing the price of its product. C) increasing the demand for its product.

B) increasing the price of its product. D) decreasing the production of its product.

C

: A Topic: 3 Level: Moderate E: 448-449 MI: 214-215

59. In the short run, the monopolistically competitive firm will experience:

A) an economic profit, and also one in the long run.

B) a normal profit, but in the long run only an economic profit.

C) economic profits and losses, but in the long run only a normal profit.

D) economic profits and losses, but in the long run only an economic profit.

C

: A Topic: 3 Level: Easy E: 448-449 MI: 214-215

60. In the long run, the profits for a monopolistic competitor (in terms of a return on its investment) will be:

A) the same as the profits for a monopolist.

B) slightly less than the profits of a monopolist.

C) the same as the profits for a purely competitive firm.

D) slightly more than the profits of a purely competitive firm.

C

: A Topic: 3 Level: Easy E: 448-449 MI: 214-215

61. Firms in an industry will not earn long-run economic profits if:

A) fixed costs are zero.

B) the number of firms in the industry is fixed.

C) there is free entry and exit of firms in the industry.

D) production costs for a given level of output are minimized.

C

: A Topic: 3 Level: Moderate E: 448 MI: 214

62. Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to:

A) shift to the left.

B) shift to the right.

C) become more elastic.

D) remain the same since entering firms serve other customers in the market.

B

Use the following to answer questions 63-66:

: G Topic: 3 Level: Moderate E: 447 MI: 213

63. Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph:

A) A. B) B. C) C. D) D.

A

: G Topic: 3 Level: Moderate E: 447 MI: 213

64. Refer to the above graphs. A short-run equilibrium that would produce losses for a monopolistically competitive firm would be represented by graph:

A) A. B) B. C) C. D) D.

D

: G Topic: 3 Level: Difficult E: 447 MI: 213

65. Refer to the above graphs. The long-run equilibrium for a monopolistically competitive firm is represented by graph:

A) A. B) B. C) C. D) D.

B

: G Topic: 3 Level: Moderate E: 447 MI: 213

66. Refer to the above graphs. Which graph would not be a possible depiction of short-run or long-run outcomes for a monopolistically competitive firm?

A) A B) B C) C D) D

C

Use the following to answer questions 67-68:

: G Topic: 3 Level: Difficult E: 447 MI: 213

67. Refer to the above graph. It represents a monopolistically competitive firm in a constant-cost industry. In long-run equilibrium this firm will:

A) continue to earn economic profits because it has monopolistic power to set its price.

B) become a perfectly competitive firm because there are no significant barriers to entry.

C) break even because average total cost (ATC) and marginal cost (MC) will increase as more firms enter the market.

D) break even because its demand curve will fall and become more elastic as it loses sales to other firms entering the market.

D

: G Topic: 3 Level: Difficult E: 447 MI: 213

68. Refer to the above graph. It represents a monopolistically competitive firm in a constant-cost industry. The firm:

A) will produce less than Q0. C) is earning an economic profit at Q0.

B) will produce more than Q0. D) is suffering an economic loss at Q0.

C

: A Topic: 3 Level: Moderate E: 447 MI: 213

69. The long-run equilibrium position of the monopolistically competitive firm is where average costs are:

A) constant. B) increasing. C) decreasing. D) at their minimum point.

C

: A Topic: 3 Level: Difficult E: 447-448 MI: 213-214

70. Which is not true for a monopolistically competitive industry?

A) Firms tend to operate with excess capacity.

B) Each firm faces a downward-sloping demand curve.

C) These firms earn zero economic profits in the long run.

D) The portion of the marginal-cost curve above the average-variable-cost curve is the short-run supply curve for the firm.

D

: A Topic: 3 Level: Difficult E: 447-449 MI: 213-215

71. Which statement concerning monopolistic competition is false?

A) In the long run P = AC > MC.

B) Firms may experience losses in the short run.

C) Firms differentiate their products, but the products are relatively substitutable.

D) Firms may experience positive economic profits in the long run as barriers to entry are significant.

D

: A Topic: 3 Level: Moderate E: 448-449 MI: 214-215

72. In long-run equilibrium in a monopolistically competitive industry:

A) P = minimum AC. B) P > minimum AC. C) P = MC. D) P < MC.

B

: A Topic: 3 Level: Difficult E: 448-449 MI: 214-215

73. In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where:

A) AC = P, MR = MC = P. C) AC < P, MR + MC < P.

B) AC < P, MR = MC = P. D) AC = P, MR = MC < P.

D

: A Topic: 3 Level: Moderate E: 448-449 MI: 214-215

74. For the representative firm in monopolistic competition, there will tend to be economic profits:

A) in the short run and long run.

B) and losses in the short run and long run.

C) or losses in the short run, but the firm will break even in the long run.

D) or losses in the short run, but the firm will make economic profits in the long run.

C

Use the following to answer questions 75-78:

: G Topic: 3 Level: Moderate E: 447 MI: 213

75. Refer to the above graph of the representative firm in monopolistic competition. The intersection of marginal cost and average total cost is represented by point:

A) a. B) b. C) c. D) d.

D

: G Topic: 3 Level: Easy E: 447 MI: 213

76. Refer to the above graph of the representative firm in monopolistic competition. Marginal revenue and marginal cost intersect at point:

A) a. B) b. C) c. D) d.

A

: G Topic: 3 Level: Easy E: 447 MI: 213

77. Refer to the above graph of the representative firm in monopolistic competition. Point c is the intersection of the:

A) marginal cost and marginal revenue curves. C) marginal cost and demand curves.

B) marginal cost and average total cost curves. D) average total cost and demand curves.

C

: G Topic: 3 Level: Easy E: 447 MI: 213

78. Refer to the above graph of the representative firm in monopolistic competition. Demand is tangent to average total cost at point:

A) a. B) b. C) c. D) d.

B

: A Topic: 3 Level: Easy E: 448-449 MI: 214-215

79. A characteristic of monopolistically competitive industries is that:

A) there is product differentiation but only limited advertising of products by the representative firm.

B) the entry and exit of firms causes the representative firm to break even in the long run.

C) the representative firm is not very responsive to changes in consumer demand.

D) the representative firm produces at that level of output where marginal cost equals minimum average total cost.

B

Efficiency aspects

: A Topic: 4 Level: Moderate E: 449-450 MI: 215-216

80. Monopolistic competition is characterized by excess capacity because:

A) firms are always profitable in the long run.

B) firms charge a price that is less than marginal cost.

C) firms produce at an output level less than the least-cost output.

D) the demand for a product is perfectly elastic in this type of industry.

C

: A Topic: 4 Level: Difficult E: 449 MI: 215

81. In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that:

A) minimum ATC is less than MC. C) price is greater than minimum ATC.

B) minimum ATC is less than MR. D) price is greater than MC.

D

Use the following to answer questions 82-83:

: G Topic: 4 Level: Difficult E: 449 MI: 215 Status: New

82. Refer to the above graph of the representative firm in monopolistic competition. Excess capacity for this firm would be illustrated by:

A) D - 0. B) E - C. C) E - D. D) D - C.

C

: G Topic: 4 Level: Easy E: 445 MI: 215 Status: New

83. Refer to the above graph of the representative firm in monopolistic competition. The long-run equilibrium price and output for this firm will be:

A) A and C. B) B and D. C) A and D. D) B and C.

C

: A Topic: 4 Level: Easy E: 449 MI: 215

84. Monopolistic competitive firms are productively inefficient because production occurs where:

A) marginal cost is greater than marginal revenue.

B) marginal cost is less than marginal revenue.

C) average total cost is greater than the minimum average total cost.

D) average total cost is less than the difference between average total cost and average variable cost.

C

: A Topic: 4 Level: Easy E: 449-450 MI: 215-216

85. In the long run, the representative firm in monopolistic competition tends to have:

A) excess capacity. C) limited product differentiation.

B) economic profits. D) a perfectly elastic demand curve.

A

: A Topic: 4 Level: Easy E: 449-450 MI: 215-216

86. Compared to pure competition, monopolistic competition:

A) provides greater product differentiation at the cost of some excess capacity.

B) offers less product differentiation but attains equal productive efficiency.

C) provides greater product differentiation and achieves greater productive efficiency.

D) offers less product differentiation and lower productive efficiency.

A

: A Topic: 4 Level: Easy E: 449-450 MI: 215-216

87. In monopolistic competition, we usually observe:

A) significant diseconomies of scale.

B) more reliance on misleading advertising than in monopoly or oligopoly.

C) slower rates of technological advance and product development due to higher advertising costs.

D) a large number of firms, each operating with excess capacity.

D

: A Topic: 4 Level: Moderate E: 449 MI: 215

88. In monopolistic competition, there is:

A) allocative efficiency. C) both allocative and productive efficiency.

B) productive efficiency. D) neither allocative nor productive efficiency.

D

: A Topic: 4 Level: Difficult E: 449 MI: 215

89. The economic inefficiency of monopolistic competition means that:

A) industries tend to evolve into oligopolies rather than become more competitive.

B) industries spend money on advertising and sales promotion.

C) producers produce at an output short of, and charge a price greater than, minimum average total cost.

D) firms do not maximize profits at the MC equals MR output.

C

: A Topic: 4 Level: Moderate E: 449 MI: 215

90. The variety of products and product features which consumers may choose from in monopolistically competitive industries:

A) at least partially offsets the economic inefficiencies of this market structure.

B) leads to an optimal allocation of resources in the market structure.

C) guarantees that firms produce at full-capacity output levels.

D) makes the demand curves facing firms in these industries more elastic.

A

: A Topic: 4 Level: Difficult E: 449 MI: 215

91. In long-run equilibrium, a monopolistically competitive firm achieves:

A) productive and allocative efficiency.

B) productive efficiency but not allocative efficiency.

C) allocative efficiency but not productive efficiency.

D) neither allocative efficiency nor productive efficiency.

D

: A Topic: 4 Level: Easy E: 449-450 MI: 215-216

92. When the excess capacity problem under monopolistic competition becomes greater, there will be:

A) a narrower range of consumer choice. C) a wider range of consumer choice.

B) fewer advertisements and promotions. D) more entry by firms into the market.

C

: A Topic: 4 Level: Moderate E: 449 MI: 215

93. One prediction about monopolistic competition is that firms:

A) operate at minimum average total cost in the long run.

B) will not engage in brand advertising.

C) will be inefficient in the long run.

D) must make economic profits in the short run.

C

: A Topic: 4 Level: Easy E: 449 MI: 215

94. Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a:

A) lower price and lower output. C) higher price and higher output.

B) higher price and lower output. D) price and output that may be higher or lower.

B

: A Topic: 4 Level: Moderate E: 449 MI: 215

95. Which statement is true?

A) Monopoly will result in a higher price and a larger output than pure competition.

B) Monopoly will result in a higher price and a larger output than monopolistic competition.

C) Pure competition will result in a lower price and a higher output than monopolistic competition.

D) Monopolistic competition will result in a lower price and a lower output than pure competition.

C

Use the following to answer questions 96-97:

: G Topic: 4 Level: Difficult E: 449 MI: 215

96. Refer to the above graph. Assume that in long-run equilibrium a purely competitive firm has the same cost curves as that of the monopolistically competitive firm shown. It can be concluded that the:

A) purely competitive firm would have lower profits.

B) purely competitive firm would have higher profits.

C) purely competitive producer would produce less at a higher ATC.

D) monopolistically competitive producer would produce less at a higher ATC.

D

: G Topic: 4 Level: Difficult E: 449 MI: 215

97. Refer to the above graph. This monopolistically competitive firm is:

A) suffering an economic loss. C) allocatively and productively efficient.

B) earning an economic profit. D) neither allocatively nor productively efficient.

D

: A Topic: 4 Level: Difficult E: 449 MI: 215

98. Which statement concerning monopolistic competition is false?

A) Long-run equilibrium under monopolistic competition is achieved where economic profits are zero.

B) Monopolistic competition is likely to result in a greater variety of product brands than pure competition.

C) The monopolistic competitive demand curve is more elastic than the demand curve facing a monopolistic firm.

D) Monopolistic competition does not lead to any economic inefficiency, since firms in this industry cannot sustain economic profits.

D

: A Topic: 4 Level: Moderate E: 449 MI: 215

99. Which is true of pure competition but not of monopolistic competition?

A) There are barriers to entry.

B) Long-run economic profits are zero.

C) There are a large number of firms in the market.

D) Long-run equilibrium occurs at the minimum point on the ATC curve.

D

: A Topic: 4 Level: Easy E: 449 MI: 215

100. Given identical costs, the long-run equilibrium of a purely competitive firm differs from that of a monopolistically competitive firm in that:

A) price and output are both greater under pure competition.

B) price is greater, but quantity is the same, under pure competition.

C) both price and quantity are lower under pure competition.

D) price is lower, but quantity is greater, under pure competition.

D