Ch. 16: AP Micro Monopolistic Competition

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

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 

Which of the following must be true if a profit-maximizing monopolistically competitive firm continues to operate in the short run while incurring a loss?

• Marginal revenue equals marginal cost and price is greater than average total cost.

• Marginal revenue equals marginal cost and price is greater than average variable cost.

• Marginal revenue equals marginal cost and price is less than average variable cost.

• Price equals both marginal cost and marginal revenue.

• Price is less than marginal revenue, but greater than average variable cost.

What is the profit-maximizing price and quantity?

• P₁, Q₁

• P₂, Q₄

• P₃, Q₃

• P₄, Q₂

• P₅, Q₁

If profits are negative in a monopolistically competitive market, then:

• new firms will enter until profit returns to the optimal positive level.

• new firms will enter the market until economic profits are zero.

• firms will exit the market until economic profit returns to the optimal positive level.

• firms will exit the market until economic profit returns to zero.