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Test 9 - Monopolistic Comp.tst, Study notes of Microeconomics

University of Dubuque (UD)Microeconomics

5) A monopolistically competitive firm in long run equilibrium: A) will make negative profit. B) will make positive profit. C) will make zero profit. D) any of ...

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bg1
MikroekonomiaB
b
yMikolajCzajkowski
Test9-MonopolisticCompetition
Name___________________________________
Group__________________
MULTIPLECHOICE.Choosetheonealternativethatbestcompletesthestatementoranswersthequestion.
1) WhichofthefollowingisNOTregardedasasourceofinefficiencyinmonopolisticcompetition?
A) productdiversity.
B) thefactthatlong-runaveragecostisnotminimized.
C) thefactthatpriceexceedsmarginalcost.
D) excesscapacity.
E) alloftheabove.
1)
2) Forwhichofthefollowingmarketstructuresisitassumedthattherearebarrierstoentry?
A) monopoly
B) perfectcompetition
C) monopolisticcompetition
D) alloftheabove
E) BandConly
2)
3) Themostimportantfactorindeterminingthelong-runprofitpotentialinmonopolistic
competitionis
A) freeentryandexit.
B) thereactionofrivalfirmstoachangeinprice.
C) theelasticityofthefirmʹsdemandcurve.
D) theelasticityofthemarketdemandcurve.
3)
4) Whichofthefollowingistrueforbothperfectandmonopolisticcompetition?
A) Firmsproduceadifferentiatedproduct.
B) Firmsproduceahomogeneousproduct.
C) Firmsfaceadownwardslopingdemandcurve.
D) Thereisfreedomofentryandexitinthelongrun.
4)
5) Amonopolisticallycompetitivefirminlongrunequilibrium:
A) willmakenegativeprofit. B) willmakepositiveprofit.
C) willmakezeroprofit. D) anyoftheabovearepossible.
5)
pf3
pf4

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Mikroekonomia B by Mikolaj Czajkowski

Test 9 - Monopolistic Competition

Name___________________________________

Group __________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

  1. Which of the following is NOT regarded as a source of inefficiency in monopolistic competition? A) product diversity. B) the fact that long-run average cost is not minimized. C) the fact that price exceeds marginal cost. D) excess capacity. E) all of the above.
  1. For which of the following market structures is it assumed that there are barriers to entry? A) monopoly B) perfect competition C) monopolistic competition D) all of the above E) B and C only
  1. The most important factor in determining the long-run profit potential in monopolistic competition is A) free entry and exit. B) the reaction of rival firms to a change in price. C) the elasticity of the firmʹs demand curve. D) the elasticity of the market demand curve.
  1. Which of the following is true for both perfect and monopolistic competition? A) Firms produce a differentiated product. B) Firms produce a homogeneous product. C) Firms face a downward sloping demand curve. D) There is freedom of entry and exit in the long run.
  1. A monopolistically competitive firm in long run equilibrium: A) will make negative profit. B) will make positive profit. C) will make zero profit. D) any of the above are possible.
  1. Which of the following is true in long run equilibrium for a firm in a monopolistic competitive industry? A) The demand curve is tangent to average cost curve. B) The demand curve is tangent to marginal cost curve. C) The marginal cost curve is tangent to average cost curve. D) The demand curve is tangent to marginal revenue curve.
  1. A market with few entry barriers and with many firms that sell differentiated products is A) oligopolistic. B) purely competitive. C) a monopoly. D) monopolistically competitive.
  1. Which of the following is true of the output level produced by a firm in long run equilibrium in a monopolistically competitive industry? A) It does not produce at minimum average cost, and average cost is increasing. B) It does not produce at minimum average cost, and average cost is decreasing. C) It produces at minimum average cost. D) Either B or C could be true.
  1. Monopolistically competitive firms have monopoly power because they A) face downward sloping demand curves. B) are free to advertise. C) are great in number. D) have freedom of entry.
  1. Which of the following is true in long run equilibrium for a firm in monopolistic competition? A) MC = ATC. B) MC < ATC. C) MC > ATC. D) Any of the above may be true.
  1. Use the following two statements about monopolistic competition to answer this question. I. In the long run, the price of the good will equal the minimum of the average cost. II. In the short run, firms may earn a profit. A) I is true, and II is false. B) I is false, and II is true. C) I and II are false. D) I and II are true.
  1. Excess capacity in monopolistically competitive industries results because in equilibrium A) each firmʹs output rate is too great to minimize average cost. B) each firmʹs output rate is too small to minimize average cost. C) price equals marginal cost. D) firms make positive economic profit.

Answer Key

Testname: TEST 9 ‐ MONOPOLISTIC COMP

1) A

2) A

3) A

4) D

5) C

6) A

7) D

8) B

9) A

10) B

11) B

12) B

13) D

14) D

15) C

  1. a. Calculate MR and equate it to MC. MC = MR
  • 10 + 0.10Q2^ = 10 - 0.2Q 0.1Q2^ + 0.2Q - 20 = 0 The quadratic formula yields: Q1 = 13.17 Q2 = - 15.15. Use Q1 since negative quantities are not meaningful. At Q1 = 13. P = 10 - 0.1(13.17) = 8. b. Computation of monopoly power. The Lerner index is computed below: L = P^ - P^ MC At Q = 13.17, P = 8.68, and MC = 7. L = (8.68 - 7.34)/8.68 = 0.