Microeconomics 
       Instructor Miller 
       Practice Problems Monopolistic Competition 
        
        
       1. A monopolistically competitive market is described as one in which there are 
       A) a few firms producing an identical product. 
       B) a large number of firms selling similar, but not identical, products. 
       C) a few firms producing differentiated products. 
       D) one large firm and many small firms producing identical products. 
        
        
       2. Which of the following is not a characteristic of monopolistic competition? 
       A) Firms are price takers.  
       B) There are many buyers and sellers.  
       C) Barriers to entry are low.  
       D) Firms sell similar, but not identical, products.  
        
        
       3. Because the monopolistically competitive firm faces a ________ demand curve for its 
       product, it ________ the price of its output. 
       A) downward-sloping; cannot influence 
       B) horizontal; can influence 
       C) horizontal; cannot influence 
       D) downward-sloping; can influence 
        
        
       4. A major difference between monopolistic competition and perfect competition is 
       A) the number of sellers in the markets. 
       B) the degree by which the market demand curves slope downwards. 
       C) that products are not standardized in monopolistic competition unlike in perfect competition. 
       D) the barriers to entry in the two markets. 
        
        
       5. For a monopolistically competitive firm, marginal revenue  
       A) always equals the price. 
       B) is greater than the price. 
       C) is less than the price. 
       D) and price are unrelated.  
        
        
        
        
        
        
        
              6. The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair.  It sells 8 pairs of 
              jeans per day at a price of $90 per pair. The marginal revenue of the eighth pair of jeans is 
              A) $20. 
              B) $90. 
              C) $100. 
              D) $700. 
               
               
              7.  What is the profit-maximizing rule for a monopolistically competitive firm? 
              A) to produce a quantity that maximizes market share  
              B) to produce a quantity that maximizes total revenue 
              C) to produce a quantity such that marginal revenue equals marginal cost 
              D) to produce a quantity such that price equals marginal cost 
               
               
                                                          
                 Quantity          Price       Total Revenue     Total Cost 
                   (cases)        (dollars)       (dollars)      (dollars) 
                     1              $75             $75             $60 
                     2                70            140               85 
                     3                65            195             105 
                     4                60            240             115 
                     5                55            275             130 
                     6                50            300             155 
                     7                45            315             190 
                     8                40            320             230 
                     9                35            315             280 
               
              Eco Energy is a monopolistically competitive producer of a sports beverage called Power On.  
              Table 13-2 shows the firm's demand and cost schedules.  
               
              8. Refer to above table. What is the output (Q) that maximizes profit and what is the price (P) 
              charged?  
              A) P=$55; Q=5 cases 
              B) P=$50; Q=6 cases 
              C) P=$45; Q=7 cases 
              D) P=$40; Q=8 cases 
               
              9. Refer to above table. What is Eco Energy's profit? 
              A) $125 
              B) $140 
              C) $145 
              D) $150 
               
               
               
       10.  Refer to above table. What is the marginal profit from producing and selling the 5th case?   
       A) $275 
       B) $145 
       C) $35 
       D) $20 
        
        
       11.  Refer to above table. What is likely to happen to the product's price in the long run?  
       A) It will fall. 
       B) It will increase. 
       C) It will remain constant.  
       D) This cannot be determined without information on its long-run demand curve. 
        
        
                           
        
       The above figure 13-4 shows cost and demand curves for a monopolistically competitive 
       producer of iced-tea.  
        
       12. Refer to the above figure. What is the profit-maximizing output level? 
       A) 22 cases 
       B) 24 cases 
       C) 30 cases 
       D) 38 cases 
        
        
       13. Refer to the above figure. What is the firm's profit-maximizing price? 
       A) $12 
       B) $13 
       C) $14 
       D) $16 
       14. Refer to the above figure. At the profit-maximizing output level the firm will  
       A) earn a profit of $176. 
       B) break even.  
       C) earn a profit of $88. 
       D) earn a profit of $60.  
        
        
       15. Refer to the above figure.  Based on the diagram, one can conclude that 
       A) some existing firms will exit the market. 
       B) new firms will enter the market. 
       C) the industry is in long-run equilibrium. 
       D) firms achieve productive efficiency. 
        
        
       16. If price exceeds average variable cost but is less than average total cost, a firm  
       A) should further differentiate its product. 
       B) should stay in business for a while longer until its fixed costs expire. 
       C) is making some profit but less than maximum profit. 
       D) should shut down. 
        
        
       17. A monopolistically competitive firm that earns an accounting profit in the short run 
       A) must also earn an economic profit in the short run.  
       B) does not earn enough to earn an economic profit in the short run.  
       C) could earn an economic profit, break even or suffer an economic loss in the short run.  
       D) could earn an economic profit or break even, but could not suffer an economic loss in the 
       short run. 
        
        
       18. When new firms are encouraged to enter a monopolistically competitive market 
       A) some existing firms must be earning economic profits. 
       B) they do so because there is insufficient product differentiation. 
       C) the demand curve facing an existing firm shifts to the right. 
       D) the marginal cost curve facing an existing firm shifts downwards. 
        
        
       19. The entry and exit of firms in a monopolistically competitive market guarantee that 
       A) marginal revenue equals marginal cost and average total cost is minimized.  
       B) firms can earn economic profits in the long run.  
       C) price equals average total cost in the long run. 
       D) firms can earn economic profits in the short run.