12 MONOPOLISTIC COMPETITION

© 2012 Pearson Addison-Wesley Q1: The market for which of the following goods is best described as being monopolistically competitive? A Automobiles B Wheat C Fast food D Postage stamps

© 2012 Pearson Addison-Wesley Q2: Restaurants in New York City operate in monopolistic competition. Economic profit would encourage ________, which decreases the________ for each restaurant’s meals. A entry; demand B entry; supply C exit; demand D exit; supply

© 2012 Pearson Addison-Wesley Q3: Which of the following firms would most likely operate in a monopolistically competitive market? A The producers of Levi’s, Wrangler, Joe’s, and Paper Denim & Cloth jeans B Cathy sells the strawberries she grows in her garden at the local farmers market C Farmers in the Mid-West who grow wheat D South West and American Airlines on the St. Louis to Detroit route

© 2012 Pearson Addison-Wesley Q4: A firm in monopolistic competition produces the quantity at which _______. A marginal revenue equals marginal cost and then charges the highest price that buyers are willing to pay for that quantity B marginal cost equals the highest price that buyers are willing to pay for that good C marginal cost equals marginal revenue and charges the price that equals marginal cost D average total cost equals price so that the firm breaks even

© 2012 Pearson Addison-Wesley Q5:In the long-run equilibrium, a firm in monopolistic competition _____. A sets its price above its average total cost B sets its price above its marginal cost C produces the output at which it can charge a price that exceeds average total cost D produces the output at which marginal cost exceeds its price

© 2012 Pearson Addison-Wesley Q6: Which of the following statements is FALSE? A In long-run equilibrium, firms in both monopolistic competition and perfect competition produce the efficient quantity. B In both monopolistic competition and perfect competition, firms are free to enter and exit. C In both monopolistic competition and perfect competition, each firm has a small market share. D The number of firms in both monopolistic competition and perfect competition markets is large.

© 2012 Pearson Addison-Wesley Q7: La Super Taco, one of many outlets in a city, is currently producing the quantity of tacos at which its marginal revenue is greater than its marginal cost. La Super Taco ________. A can increase economic profit by increasing the quantity it produces B can increase economic profit by decreasing the quantity it produces C is maximizing economic profit D does not have enough information to determine how it can increase its economic profit

© 2012 Pearson Addison-Wesley Q8: One benefit of monopolistic competition over perfect competition is that _______. A firms make larger economic profits B firms produce a variety of the product C firms have excess capacity D the market outcome is efficient

© 2012 Pearson Addison-Wesley Q10: In the December 2008 edition of Runner’s World magazine, Karhu, Adidas, The North Face, and Brooks have full page advertisements for running shoes. Which of the following statements is correct? I. Advertising increases each firm’s total cost. II. Advertising increases each firm’s fixed costs. III. All the advertising makes the demand for each running shoes more elastic. A Only I B Only II C I, II, and III D Only I and II