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One characteristic of monopolistic competition is the existence of many firms operating in the same industry.

A) True
B) False

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What is meant by the term "allocative efficiency"?


A) When a firm is producing an output that equals minimum AC.
B) When a firm is producing an output and charging a price that equals minimum AC.
C) When a firm is charging a price equal to MC.
D) When a firm has achieved its MES.

E) All of the above
F) B) and C)

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Mutual interdependence is a significant characteristic of a monopolistically competitive industry.

A) True
B) False

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Below is a graphical illustration of a typical firm operating in a monopolistically competitive industry: Below is a graphical illustration of a typical firm operating in a monopolistically competitive industry: -Refer to the graph above to answer this question. At what price and quantity, respectively, would this firm sell its product in order to maximize profits? A) P<sub>1</sub> and Q<sub>1</sub>. B) P<sub>2</sub> and Q<sub>2.</sub> C) P<sub>3</sub> and Q<sub>1</sub>. D) P<sub>4</sub> and Q<sub>3.</sub> E) P<sub>5</sub> and Q<sub>1</sub>. -Refer to the graph above to answer this question. At what price and quantity, respectively, would this firm sell its product in order to maximize profits?


A) P1 and Q1.
B) P2 and Q2.
C) P3 and Q1.
D) P4 and Q3.
E) P5 and Q1.

F) A) and E)
G) A) and D)

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-Refer to the graph above to answer this question. What is the firm's profit-maximizing price? A) $30. B) $38. C) $40. D) $55. E) $72. -Refer to the graph above to answer this question. What is the firm's profit-maximizing price?


A) $30.
B) $38.
C) $40.
D) $55.
E) $72.

F) A) and B)
G) None of the above

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Most economic theory is based on the assumption that firms have one goal. Which of the following is that goal?


A) Profit maximization.
B) Continued growth of the corporation's sales and size of operations.
C) The achievement of management autonomy in decision making.
D) Development of state-of-the art technology.
E) Enhancement of the company's image and the management's pride.

F) B) and E)
G) D) and E)

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-Refer to the graph above to answer this question. What will be the profit maximizing price? A) P<sub>1</sub>. B) P<sub>2</sub>. C) P<sub>3</sub>. D) P<sub>4</sub>. E) P<sub>5</sub>. -Refer to the graph above to answer this question. What will be the profit maximizing price?


A) P1.
B) P2.
C) P3.
D) P4.
E) P5.

F) A) and E)
G) A) and D)

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The home appliance, automotive, brewing and computer hardware industries are all examples of what kind of industry structure?


A) Perfect competition.
B) Monopolistic competition.
C) Monopoly.
D) Differentiated oligopoly.
E) Undifferentiated oligopoly.

F) B) and E)
G) C) and D)

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-Refer to the graph above to answer this question. What is the firm's profit-maximizing output? A) 45. B) 90. C) 132. D) 145. E) 157. -Refer to the graph above to answer this question. What is the firm's profit-maximizing output?


A) 45.
B) 90.
C) 132.
D) 145.
E) 157.

F) A) and E)
G) C) and D)

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Suppose that the concentration ratio of an industry is high. Which of the following statements would be correct?


A) Increasing returns to scale are insignificant for the firms within the industry.
B) Increasing returns to scale are significant for the firms within the industry.
C) The industry will have many firms within it.
D) The firms within the industry will have all achieved their minimum efficient scale.
E) All the firms must be of a similar size.

F) A) and E)
G) B) and C)

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All of the following, except one, could be a barrier to entry into an oligopoly industry. Which is the exception?


A) The existence of economies of scale.
B) Patents and copyrights.
C) The restricted ownership of crucial natural resources.
D) Natural monopoly.

E) A) and B)
F) A) and C)

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Which of the following statements concerning a monopolistically competitive industry is correct?


A) If there are short-run losses, firms will exit from the industry and the demand of the remaining firms will decrease.
B) If there are short-run losses, firms will exit from the industry and the demand of the remaining firms will increase.
C) If there are short-run profits, firms will exit from the industry and the demand of the remaining firms will increase.
D) If there are short-run profits, firms will enter the industry and the demand of the remaining firms will increase.

E) None of the above
F) A) and B)

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What will be the long-run result of new firms entering a monopolistically-competitive industry?


A) The price charged by the representative firm will be equal to marginal cost.
B) The representative firm will certainly incur losses.
C) While the representative firm will not make economic profits, it will be able to make normal profits.
D) The representative firm will be able to maintain economic profits.

E) A) and D)
F) B) and C)

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On which of the following does game theory focus?


A) Prices, revenues and costs.
B) Prices, elasticity and costs.
C) Entry, revenues and costs.
D) Entry, interdependence and strategies.
E) Interdependence, strategies and pay-offs.

F) A) and B)
G) A) and C)

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If the firms in an oligopoly industry are able to successfully form a cartel we would expect the price and output of the cartel to approximate that of which of the following?


A) A perfectly competitive industry.
B) A monopolistically competitive industry.
C) An oligopolistic industry that is similar to the price leadership variant.
D) A monopoly.

E) All of the above
F) B) and C)

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Why is it impossible for a monopolistically competitive firm to achieve productive efficiency?


A) All monopolistically competitive firms are too small.
B) All monopolistically competitive firms make economic profits.
C) The market demand curve is perfectly elastic.
D) The firm's demand curve is not perfectly elastic.
E) The firm's marginal cost curve is upward-sloping.

F) B) and C)
G) C) and E)

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Below is a graphical illustration of a typical firm operating in a monopolistically competitive industry: Below is a graphical illustration of a typical firm operating in a monopolistically competitive industry: -Refer to the graph above to answer this question. Which of the following will be a result of the situation illustrated in the graph above? A) The market demand curve will shift to the left. B) The market demand curve will shift to the right. C) The market supply curve will shift to the left. D) The market supply curve will shift the right. -Refer to the graph above to answer this question. Which of the following will be a result of the situation illustrated in the graph above?


A) The market demand curve will shift to the left.
B) The market demand curve will shift to the right.
C) The market supply curve will shift to the left.
D) The market supply curve will shift the right.

E) A) and B)
F) A) and C)

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Draw a linear demand curve, marginal revenue curve, marginal cost curve, average total cost curve, and an average variable cost curve for a monopolistically competitive firm earning an economic profit in the short run. Shade in the area of economic profit.

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Use the kinked demand curve diagram to illustrate and describe why prices are often sticky in an oligopoly market.

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-Refer to Table 11.2 to answer this question. If the firm produces its profit-maximizing output, how much excess capacity will it have? A) 60. B) 120. C) 300. D) More information is needed to answer the question. -Refer to Table 11.2 to answer this question. If the firm produces its profit-maximizing output, how much excess capacity will it have?


A) 60.
B) 120.
C) 300.
D) More information is needed to answer the question.

E) All of the above
F) A) and D)

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