Question 1. Which is a characteristic of monopolistic competition?

A) standardized product C) absence of nonprice competition

B) a relatively small number of firms D) relatively easy entry

2. In which industry is monopolistic competition most likely to be found?

A) utilities B) agriculture C) retail trade D) mining

3. One difference between monopolistic competition and pure competition is that:

A) products can be standardized or differentiated in pure competition.

B) there is some control over price in monopolistic competition.

C) monopolistic competition has significant barriers to entry.

D) firms differentiate their products in pure competition.

4. The monopolistically competitive seller’s demand curve will become more elastic the:

A) larger the number of competitors. C) more significant the barriers to entry.

B) greater the degree of product differentiation. D) smaller the number of competitors.

5. A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating:

A) with a profit in the short run.

B) with a loss in the short run.

C) at the break-even level of output in the short run.

D) at an efficient level of output in the short run.

6. Refer to the above graph. In the short run, this monopolistically competitive firm will set price at:

A) $65 and produce 45 units of output. C) $50 and produce 35 units of output.

B) $65 and produce 35 units of output. D) $50 and produce 50 units of output.

7. Refer to the above graph. This monopolistically competitive firm is:

A) making economic profit in the long run. C) earning only normal profit in the long run.

B) making economic profit in the short run. D) earning only normal profit in the short run.

8. If monopolistically competitive firms in an industry are making an economic profit, then:

A) new firms will enter the industry and product demand will increase for the existing firms.

B) firms will exit the industry and product demand will decrease for the firms that remain.

C) firms will exit the industry and product demand will increase for the firms that remain.

D) new firms will enter the industry and product demand will decrease for the existing firms.

9. Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to:

A) shift to the left.

B) shift to the right.

C) become more elastic.

D) remain the same since entering firms serve other customers in the market.

10. Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph:

A) A. B) B. C) C. D) D.

11. Refer to the above graphs. A short-run equilibrium that would produce losses for a monopolistically competitive firm would be represented by graph:

A) A. B) B. C) C. D) D.

12. Refer to the above graphs. The long-run equilibrium for a monopolistically competitive firm is represented by graph:

A) A. B) B. C) C. D) D.

13. Refer to the above graph of the representative firm in monopolistic competition. The long-run equilibrium price and output for this firm will be:

A) Aand C. B) Band D. C) Aand D. D) BandC.

In monopolistic competition, there is:

A) allocative efficiency. C) both allocative and productive efficiency.

B) productive efficiency. D) neither allocative nor productive efficiency.