Principles of Econ Final Quiz

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

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 

A monopolistically competitive firm advertises in order to:

• shift the demand curve for its product to the left 
• make its product more similar to its competitors’ 
• reduce the industry’ s barriers to entry 
• make the demand for its product less price elastic 

What are the main characteristics of oligopoly?

• Few firms, independent, high barriers of entry
• Few firms, interdependent, high barriers of entry 
• Many firms, interdependent, low barriers of entry
• Many firm, independent, low barriers of entry

A firm is currently selling 100 units of output per week at $10 per unit. It estimates that the demand schedule for its product is as follows.

This estimate suggests that the firm

• Encounters competition only when its price exceeds $10.

• is a discriminating monopolist, since the price elasticity of demand is different for a rise in price from that for a fall in price

• believes that competitors will match decreases in price but not increases in price

• will use price changes rather than advertising in any competitive sales strategy