Name: Ashley Stockton Date: November 12, 2009 1. In monopolistic competition, each firm: B) has some ability to set the price of its differentiated good.

2. Monopolistic competition is similar to perfect competition in that firms in both market structures: D) do not face any barriers to entry into the industry in the long run.

3. Monopolistic competition is an industry characterized by a: C) large number of firms producing similar products, with relatively easy entry for firms.

4. An industry with a large number of relatively small firms producing ________ in a market with easy entry and exit is a(n) ________. D) differentiated products; monopolistic competition

Use the following to answer question 5: Figure: Revenues, Costs, and Profits

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5. (Figure: Revenues, Costs, and Profits) At the profit-maximizing quantity of output in the figure, total revenue is $________, total cost is $________, and profit is $________. A) 90; 14; 76 B) 90; 70; 20

Use the following to answer question 6: Figure: Total Cost

6. (Figure: Total Cost) In the figure, total cost at the profit-maximizing quantity of bushels is $________. C) 56

Use the following to answer questions 7-8: Figure: Monopolistic Competition VI

7. (Figure: Monopolistic Competition VI) The figure illustrates a firm in the ________; in the ________, the demand and marginal revenue curves will shift ________. A) short run; long run; right B) long run; short run; left C) short run; long run; left D) long run; short run; right

8. (Figure: Monopolistic Competition VI) In the figure, firms, in the long run, will: A) enter this market until all firms are earning a normal profit. B) exit this market until all remaining firms are earning a normal profit. C) enter this market, leading to excess profit for all the firms. D) exit this market, leading to excess profit for all the remaining firms.

9. Price for a firm under monopolistic competition is: A) equal to marginal revenue. B) greater than marginal revenue. C) less than marginal revenue. D) greater than total revenue.

10. If a firm under monopolistic competition is producing a quantity that generates MC > MR, then the marginal decision rule tells us that profit: A) can be increased by increasing production. B) can be increased by decreasing production. C) can be increased by decreasing the price. D) is maximized only if MC = P.

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Use the following to answer questions 11-13: Figure: The Restaurant Market

11. (Figure: The Restaurant Market) The figure shows curves facing a typical restaurant in a community. Assume that many firms, differentiated products, and easy entry and easy exit characterize the market. The restaurant shown here will maximize profits at a quantity of: A) Q1. B) Q2. C) Q3. D) Not enough information is given to answer the question.

12. (Figure: The Restaurant Market) The figure shows curves facing a typical restaurant in a community. Assume that many firms, differentiated products, and easy entry and easy exit characterize the market. If the restaurant shown here were to raise its price above the profit-maximizing price, it would experience: A) a reduction in total revenue. B) an increase in total revenue. C) no change in total revenue. D) Not enough information is given to answer the question.

13. (Figure: The Restaurant Market) The figure shows curves facing a typical restaurant in a community. Assume that many firms, differentiated products, and easy entry and easy exit characterize the market. If the restaurant shown here is typical of others in the community, then in the long run, we would expect to observe: A) restaurants leaving the market. B) new restaurants entering the market. C) neither entry nor exit. D) Not enough information is given to answer the question.

14. A situation in which one firm sets the price and other firms in the industry match it is known as: A) a Nash equilibrium. B) price leadership. C) Cournot competition. D) price competition.

15. A field of law that attempts to limit the ability of oligopolists to collude and restrict competition is called: A) antitrust policy. B) product safety policy. C) fuel efficiency standards. D) excise tax policy.

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16. The model of monopolistic competition can characterize the market for plumbing services in a city. Suppose that the market is in long-run equilibrium. For a typical plumbing firm, price: A) equals average total cost. B) exceeds average total cost. C) is less than average total cost. D) is greater than the average for all other firms in the market.

17. Price leadership occurs if: A) smaller firms in an industry silently agree to charge the same price as the largest firm. B) two or more firms in an industry agree to fix the price at a given level. C) competition among a large number of small firms generates a stable market price. D) competition among a large number of small firms generates similar, but slightly different, prices.

18. Oligopoly is a market structure that is characterized by a ________ number of ________ firms that produce ________ products. A) large; relatively small, independent; identical B) small; independent; identical or differentiated C) large; relatively small, independent; differentiated D) small; interdependent; identical or differentiated

19. An industry dominated by a few firms, where each firm recognizes that its own choices will affect the choices of its rivals and vice versa, is: A) a monopoly. B) an oligopoly. C) characterized by monopolistic competition. D) characterized by perfect competition.

20. Oligopoly is a market structure characterized by: A) independence in decision making. B) uncertainty about the behavior of rival firms. C) substantial diseconomies of scale. D) a large number of small firms.

21. Which of the following is not a characteristic of a perfectly competitive industry? A) Firms seek to maximize profits. B) Profits may be positive in the short run. C) There are many firms. D) There are differentiated products.

22. Price-takers are individuals in a market who: A) select a price from a wide range of alternatives. B) select the lowest price available in a competitive market. C) select the average of prices available in a competitive market. D) have no ability to affect the price of a good in a market.

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23. Marginal revenue is a firm's: A) ratio of profit to quantity. B) ratio of average revenue to quantity. C) price per unit times the number of units sold. D) increase in total revenue when it sells an additional unit of output.

24. In the short run, a perfectly competitive firm produces output and earns an economic profit if: A) P > ATC. B) P = ATC. C) P < AVC. D) AVC > P > ATC.

25. Which of the following is true? A) If price falls below average total cost, the firm will shut down in the short run. B) Price and marginal revenue are the same in perfect competition. C) Economic profit per unit is found by subtracting AVC from price. D) Economic profit is always positive in the short run.

26. Firms in the model of perfect competition will: A) maximize total revenue by using the marginal decision rule. B) increase output up to the point that the marginal benefit of an additional unit of output is greater than the marginal cost. C) increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost. D) always attempt to minimize average variable cost.

Use the following to answer questions 27 and 28 Figure: Monopolistic Competition I

27. (Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor earning a loss in the short run? A) Panel a B) Panel b C) Panel c D) None of the panels show a loss in the short run.

28. (Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor earning a profit in the short run? A) Panel a B) Panel b C) Panel c D) Panels a and c

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Use the following to answer questions 29 to 30; Figure: Monopolistic Competition V

29. (Figure: Monopolistic Competition V) The figure illustrates a firm in the ________; in the ________, the demand and marginal revenue curves will shift ________. A) short run; long run; right B) long run; short run; left C) short run; long run; left D) long run; short run; right

30. (Figure: Monopolistic Competition V) In the figure, firms, in the long run, will: A) enter this market until all firms are earning a normal profit. B) exit this market until all remaining firms are earning a normal profit. C) enter this market, leading to excess profit for all the firms. D) exit this market, leading to excess profit for all the remaining firms.

Use the following to answer questions 31-32: Figure: Monopolistic Competition VI

31. (Figure: Monopolistic Competition VI) The figure illustrates a firm in the ________; in the ________, the demand and marginal revenue curves will shift ________. A) short run; long run; right B) long run; short run; left C) short run; long run; left D) long run; short run; right

32. (Figure: Monopolistic Competition VI) In the figure, firms, in the long run, will: A) enter this market until all firms are earning a normal profit. B) exit this market until all remaining firms are earning a normal profit. C) enter this market, leading to excess profit for all the firms. D) exit this market, leading to excess profit for all the remaining firms.

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33. The demand curve for a firm under monopolistic competition is: A) U-shaped. B) upward-sloping. C) downward-sloping. D) vertical.

Figure: Profit Maximization in Monopolistic Competition

34. (Figure: Profit Maximization in Monopolistic Competition) In panel A, the profitmaximizing price and quantity are ________ and ________. A) S; M B) P; M C) P; Q D) T; Q

35. (Figure: Profit Maximization in Monopolistic Competition) A firm in monopolistic competition will maximize profits by producing the level of output at which: A) P = MC. B) MR = MC. C) P = MR. D) price minus ATC (i.e., economic profit per unit) is the largest.

36. (Figure: Profit Maximization in Monopolistic Competition) In the short run, a firm in monopolistic competition may experience economic profits as shown in panel A: A) PS. B) PS times the quantity M. C) PS times the quantity Q. D) PT times the quantity Q. 37. (Figure: Profit Maximization in Monopolistic Competition) In panel A, if the firm raises its price above P, it will: A) lose all its customers. B) still have some customers. C) not lose any customers. D) gain many new customers.

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