AP Micro: Monopolistic Competition

Which of the following statements correctly identifies a difference between perfect competition and monopolistic competition? 

• In perfect competition there are no barriers to entry, but there are strong barriers in monopolistic competition. 
• In perfect competition there are many firms, but in monopolistic competition there are only a few firms. 
• In perfect competition the firms all sell products that are exactly the same, but in monopolistic competition each firm sells a slightly differentiated product. 
• In perfect competition there are few consumers, but in monopolistic competition there are many consumers. 

Monopolistically competitive firms are considered inefficient in allocating society’s resources for which of the following reasons? 

• In long-run equilibrium, the marginal benefit exceeds the price charged by the firms. 
• In long-run equilibrium, the price is greater than the marginal cost. 
• In long-run equilibrium, average total costs are minimized.
• In long-run equilibrium, the firm is earning economic profits. 

Which of the following market structures results in allocative efficiency? 

• Monopoly
• Monopolistic Competition
• Perfect Competition
• Oligopoly

Which of the following is true of a monopolistically competitive firm in long-run equilibrium? 

• Price equals marginal cost and average total cost. 
• Price equals average total cost but is greater than marginal cost. 
• Price equals marginal cost and is greater than average total cost. 
• The firm earns positive economic profits by producing at minimum average cost. 

The demand curve for a monopolistically competitive firm is downward sloping because:

• the products produced by different firms are not identical

• there are a small number of firms in the market

• the product is produced by using scarce resources

• it is easy for firms to enter or exit the market

The graph shows a monopolistically competitive firm:

• making a profit in the short-run
• incurring a loss in the short-run
• making a profit in the long-run
• breaking even in the long-run

In the long-run, the ATC will be tangent to the demand curve at:

• Q1
• Q2
• Q3
• none of the above

Which of the following is true of a monopolistically competitive firm in long-run equilibrium? 

• The firm produces the allocatively efficient level of output. 
• The firm produces an output level that minimizes average total cost. 
• The firm produces in the inelastic range of its demand curve. 
• The firm is allocatively inefficient, because it produces an output level at which price is greater than marginal cost. 

Let P = price, MR = marginal revenue,
MC = marginal cost, and ATC = average total cost. In monopolistic competition, which of the following most accurately describes the long-run equilibrium conditions for a firm? 

• P>ATC, MR=MC, and P>MC 
• P=ATC, MR=MC, and P=MC 
• P=ATC, MR=MC, and P>MC 
• P=ATC, MR>MC, and P>MC 

Over the past 5 years, 50 new restaurants have opened and 30 have closed in the city of Zuni. Currently there are 110 restaurants operating in the city. Which of the options best represents the market structure, barriers to entry, and economic profits in the long run? 

• A
• B
• C
• D