Chapter 25: Monopolistic Competition
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
Which of the following is NOT a characteristic of
monopolistic competition?
A.
B.
C.
D.
product differentiation
barriers to entry into the market
advertising
a significant number of sellers
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
In a monopolistically competitive market, a firm
should advertise to the point at which
A. it is selling the most units it can possibly sell.
B. the extra revenue from an additional dollar
spent on advertising just equals the marginal
cost of producing one more unit of the good.
C. the additional revenue generated by one more
dollar of advertising just equals the extra dollar
cost of advertising.
D. it can raise price to the highest level possible.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
In the short run, a monopolistically competitive firm
can earn
A.
B.
C.
D.
positive profits only.
zero profits only.
zero or positive profits only.
zero, positive, or negative profits.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
Refer to the figure below. A long-run equilibrium in
monopolistic competition is pictured by
A.
B.
C.
D.
Panel A.
Panel B.
Panel C.
Panel D.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
In the long run, monopolistic competitive firms are
considered to be operating inefficiently because
their
A.
B.
C.
D.
economic profits are positive.
economic profits are zero.
average total costs are not at a minimum.
marginal costs are rising.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
One way to view the cost structure of monopolistic
competition is to say that the cost of product
differentiation is equal to
A. the difference between marginal revenue and
marginal cost.
B. the difference between the cost of production
for a monopolistically competitive firm in an
open market and the minimum average total
cost.
C. the sum of price and marginal cost.
D. the sum of marginal cost and minimum average
cost.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
According to Chamberlin, the fact that in the long
run average total cost exceeds its minimum value
under monopolistic competition is
A. the social cost of monopolistic competition.
B. the most important reason for why monopolistic
competition is not efficient.
C. part of the cost of producing different products
for consumers.
D. actually beneficial because it makes
adjustments easier when demand increases.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
In the long run, a perfectly competitive market
produces at ________, whereas the monopolistic
competitive firm does not.
A. the output at which the lowest average total
cost of production is reached
B. an output level at which positive economic
profits exist
C. zero economic profits
D. the point at which MR = MC=ATC
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
The most significant difference between perfect
competition and monopolistic competition is that
A. in a perfectly competitive market, products are
differentiated, while in a monopolistically competitive
market products are homogeneous.
B. in a perfectly competitive market, products are
homogeneous, while in a monopolistically competitive
market products are differentiated.
C. in a perfectly competitive market ,there is a large
number of sellers, while in a monopolistically
competitive market there is a small number of sellers.
D. in a perfectly competitive market, there is a small
number of sellers, while in a monopolistically
competitive market there is a large number of sellers.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
When a telemarketer calls you about a product,
this is an example of
A.
B.
C.
D.
direct marketing.
indirect marketing.
searching for a good.
persuasive marketing.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
By promoting its brand name heavily, the
monopolistically competitive firm
A. earns more profit in the long run.
B. signals its long-term intention to stay in the
industry.
C. signals its intention to leave the industry.
D. guarantees a short-run profit.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
Direct marketing is
A. advertising that permits a consumer to follow
up directly by searching for more information
and placing direct product orders.
B. advertising that targets a specific audience and
allows the consumer to follow up directly by
placing direct product orders usually through
television or radio.
C. advertising targeted at specific consumers.
D. advertising intended to reach as many
consumers as possible.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
All of the following are advertisement methods
EXCEPT
A.
B.
C.
D.
direct marketing.
mass marketing.
indirect marketing.
interactive marketing.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
Bonnie has just purchased a crystal vase she saw
advertised when she went online to find her local
weather forecast. The Internet ad is an example of
A.
B.
C.
D.
mass marketing.
direct marketing.
indirect marketing.
interactive marketing.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
If a monopolistically competitive firm selling an
information product engages in marginal cost
pricing, it will
A. earn additional profits.
B. fail to earn sufficient revenues to cover its fixed
costs.
C. lower costs.
D. break even.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
Which of the following conditions best explain the
short-run economies of operation associated with
production of an information product?
A. AVC slopes downward, and AFC is constant, so
that ATC slopes downward.
B. AVC is constant, and AFC slopes downward, so
that ATC slopes downward.
C. AFC is constant, and MC slopes downward, so
that AVC slopes downward.
D. MC is constant, and MC slopes upward, so that
AVC slopes upward.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
A good that entails relatively high fixed costs
associated with the use of knowledge and other
information-intensive inputs as key factors of
production is
A.
B.
C.
D.
a logo good.
a search good.
a persuasive good.
an information product.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
Average variable cost for an information product
would
A. first decrease and then increase as quantity
increases.
B. increase constantly as quantity increases.
C. decrease constantly as quantity increases.
D. remain constant as quantity increases.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
Refer to the figure below. The figure shows the
cost structure of a firm producing an information
product. Which curve represents average total
cost?
A. Any of the three
could be ATC.
B. Curve 1
C. Curve 2
D. Curve 3
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.
Firms that produce an information product
experience short-run economies of operation
because
A. the firm will always produce in the decreasing
portion of the marginal cost curve.
B. of the U-shaped nature of the average total
cost curve.
C. of the U-shaped nature of the average variable
cost curve.
D. the average total cost of producing and selling
the product declines as output increases.
Roger LeRoy Miller
Economics Today, Sixteenth Edition
© 2012 Pearson Addison-Wesley. All rights reserved.