Q&A Hero

Q: Despite being in a market with ________, from the mid-1990s to the mid-2000s Starbucks was able to significantly differentiate its products from the products of its competitors. A) few barriers to entry B) significant barriers to entry C) blocked entry D) no barriers to entry

Q: The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run. However, it is possible for a firm to continue to earn economic profits if the firm A) expands its marketing budget. B) adopts new technologies that enable it to lower its cost of production. C) expands its product offerings to appeal to a wider range of consumers. D) reduces its price to expand its market.

Q: A monopolistically competitive firm that is profitable in the short run will face competition that will eventually eliminate the firm's profits in the long run. But the firm can stave off competition and continue to earn economic profits if A) it can successfully sue its competitors for copyright infringement. B) it can move to another country where there is less competition. C) it can lobby the government to establish a price floor for its product. D) it can find new ways to differentiate its product.

Q: If a store like hhgregg has higher costs than a comparable Best Buy store, the only way it can have higher profits is if A) it has more locations than Best Buy. B) its marginal revenue is lower than Best Buy's. C) the demand for its goods is higher than Best Buy's. D) it sells the quantity associated with its minimum average total cost.

Q: Which of the following will not happen as a consequence of a monopolistically competitive firm suffering economic losses in the short run? A) The firm's demand curve will shift to the right if it stays in business in the long run. B) The firm will exit the industry if it continues to suffer economic losses. C) The firm will break even if its stays in business in the long run. D) In the long run the firm will be able to charge a price that is greater than its average total cost.

Q: Which of the following is true for a monopolistically competitive firm in long-run equilibrium? A) P = ATC and MR = MC. B) P = ATC and P = MC. C) P > ATC and P > MR. D) P > MR and MC = ATC.

Q: Figure 13-14 Figure 13-14 illustrates a monopolistically competitive firm. Refer to Figure 13-14. It is possible to lower the average cost of production by expanding output beyond Q0 to Q1. Why wouldn't a firm expand its output to Q1? A) The firm wants to maximize accounting profit rather than economic profit. B) The firm would suffer an economic loss at Q1 while it would break even at Q0. C) The firm's marginal revenue would be negative at Q1. D) Demand is not sufficient for consumers to buy Q1.

Q: Figure 13-14 Figure 13-14 illustrates a monopolistically competitive firm. Refer to Figure 13-14. Which of the following statements describes the firm depicted in the diagram? A) The firm is making no economic profit and will exit the industry. B) The firm is suffering an economic loss by producing at Q0 but will break even it increases its output to Q1. C) The firm achieves productive efficiency by producing at Q0. D) The firm is in long-run equilibrium and is breaking even.

Q: Figure 13-13 Refer to Figure 13-13. If the diagram represents a typical firm in the market, what is likely to happen to its average cost of production in the long run? A) It will probably fall since the firm must be cost efficient to remain competitive. B) It will probably fall since the firm will be selling less than its current amount. C) It will probably rise since the firm will be producing less than its current amount. D) It will probably rise since its long-run demand is likely to be higher.

Q: Figure 13-13 Refer to Figure 13-13. If the diagram represents a typical firm in the market, what is likely to happen in the long run? A) Some firms will exit the market causing the demand to increase for firms remaining in the market. B) New firms will enter the market causing the demand to decrease for existing firms. C) Inefficient firms will exit the market and new cost-efficient firms will enter the market. D) Competition will be intensified as firms strive to make long-run profits.

Q: Figure 13-13 Refer to Figure 13-13. Economies of scale are exhausted at which output level? A) Q1 units B) Q2 units C) Q3 units D) more than Q1units

Q: Figure 13-13 Refer to Figure 13-13. What is the area that represents the firm's profit? A) profit= 0 B) P4edP2 C) P4eaP1 D) P3baP2

Q: Figure 13-13 Refer to Figure 13-13. What is the output price? A) P4 B) P3 C) P2 D) P1

Q: Figure 13-13 Refer to Figure 13-13. What is the profit maximizing output level? A) Q1 units B) Q2 units C) Q3 units D) Q4 units

Q: Long-run equilibrium under monopolistic competition and perfect competition is similar in that A) firms produce at the minimum point of their average cost curves. B) price equals marginal cost. C) firms break even. D) price equals marginal revenue.

Q: If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium? A) Demand decreases and becomes less elastic. B) Demand decreases and becomes more elastic. C) Demand increases and becomes less elastic. D) Demand increases and becomes more elastic.

Q: When new firms are encouraged to enter a monopolistically competitive market A) some existing firms must be earning economic profits. B) they do so because there is insufficient product differentiation. C) the demand curve facing an existing firm shifts to the right. D) the marginal cost curve facing an existing firm shifts downwards.

Q: The entry and exit of firms in a monopolistically competitive market guarantee that A) marginal revenue equals marginal cost and average total cost is minimized. B) firms can earn economic profits in the long run. C) price equals average total cost in the long run. D) firms can earn economic profits in the short run.

Q: One reason Starbucks experienced a decline in sales in the late 2000s is because A) the product they offered was becoming less differentiated from their competitors' products. B) the coffeehouse market transitioned from being monopolistically competitive to perfectly competitive. C) barriers to entry became more restrictive in the coffeehouse market. D) the number of competitors in the market declined dramatically.

Q: Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss? A) The firm could exit the industry in the long run. B) If the firm does not exit the industry in the long run its demand curve will shift to the left. C) If the firm does not exit the industry in the long run its demand curve will shift to the right. D) If the firm remains in the industry in the long run it will break even.

Q: In the long run, if the demand curve of a monopolistically competitive firm is tangent to its average total cost curve then A) the firm would break even. B) the firm would shut down temporarily. C) the firm would earn enough revenue to cover its variable costs, but not its fixed costs. D) the firm would earn an economic profit.

Q: A monopolistically competitive firm that earns an accounting profit in the short run A) must also earn an economic profit in the short run. B) does not earn enough to earn an economic profit in the short run. C) could earn an economic profit, break even or suffer an economic loss in the short run. D) could earn an economic profit or break even, but could not suffer an economic loss in the short run.

Q: If firms in a monopolistically competitive industry are making profits in the short run A) barriers to entry will be erected to keep out rivals. B) some firms will ultimately exit the industry. C) they will resort to advertising wars to help sustain these profits. D) new firms will enter the market.

Q: Which of the following describes the relative positions of the demand curve and the average total cost (ATC) curve of a monopolistically competitive firm that earns a profit in the short run? A) In the short run, the firm's demand curve will lie above its ATC curve. The demand curve will be tangent to the ATC curve in the long run. B) In the short run, the firm's demand curve will lie below its ATC curve. The demand curve will be tangent to the ATC curve in the long run. C) In the short run, the firm's demand curve will cross its ATC curve at the ATC curve's lowest point. The demand curve will be above the ATC curve in the long run. D) In the short run, the firm's ATC curve will cross the demand curve at the profit maximizing level of output. The demand curve will be tangent to the ATC curve in the long run.

Q: Tony's Italian Ice is a monopolistically competitive firm. If Tony's earns a profit in the short run, which of the following is most likely to occur? A) New firms that sell Italian ice will enter the market and Tony's cost curves will shift to the left. B) New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left. C) New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the right. D) New firms that sell Italian ice will enter the market and Tony's demand curve will become more inelastic.

Q: In theory, in the long run, monopolistically competitive firms earns zero profits. However, in reality there are some ways by which a firm can avoid losing profits. Which of the following is one such way? A) gradually increase the mark up on the goods produced B) lower the price of its products to expand its market share C) identify new markets and develop products precisely for those markets D) find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment

Q: The financial situation at Starbucks in the late 2000s illustrates the fact that maintaining long-run profits in a monopolistically competitive market is A) impossible. B) very difficult. C) fairly easy. D) almost always guaranteed.

Q: According to a Wall Street Journal article, hhgregg has differentiated itself from its competition, particularly from large chain stores such as Best Buy A) by charging lower prices. B) by providing better customer service. C) by selling inferior products. D) by offering discounts for cash sales.

Q: Firms such as Caribou Coffee and Diedrich Coffee operate hundreds of coffeehouses nationwide while firms such as Dunn Brothers Coffee operate only in four states. How would you characterize these stores? A) Caribou Coffee and Diedrich Coffee are oligopolists while Dunn Brothers is a monopolistic competitor. B) Caribou Coffee and Diedrich Coffee are duopolists while Dunn Brothers is a monopolistic competitor. C) Caribou Coffee and Diedrich Coffee are duopolists while Dunn Brothers is an oligopolist D) They are all monopolistic competitors.

Q: Figure 13-12 Figure 13-12 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-12. If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run? A) Some firms will exit the market causing the demand to increase for firms remaining in the market. B) The firms that are making losses will be purchased by their more successful rivals. C) Inefficient firms will exit the market and new cost efficient firms will enter the market. D) Firms will have to raise their prices to cover costs of production.

Q: If a monopolistically competitive firm breaks even, the firm A) is earning an accounting profit and will have to pay taxes on that profit. B) is earning zero accounting and zero economic profit. C) should advertise its product to stimulate demand. D) should expand production.

Q: Why do most firms in monopolistic competition typically make zero profit in the long run? A) because firms produce differentiated products B) because the lack of entry barriers would compete away profits C) because firms do not produce at their minimum efficient scale D) because the total market is not large enough to accommodate so many firms

Q: Figure 13-11 Refer to Figure 13-11. What is the amount of excess capacity? A) Q4 - Q3 units B) Q4 - Q2 units C) Q3 - Q2 units D) Q3 - Q1 units

Q: Figure 13-11 Refer to Figure 13-11. The diagram depicts a firm A) in a constant cost industry. B) in an increasing cost industry. C) in long run equilibrium. D) that is making short run losses.

Q: Figure 13-11 Refer to Figure 13-11. What is the allocatively efficient output for the firm represented in the diagram? A) Q1 units B) Q2 units C) Q3 units D) Q4 units

Q: Figure 13-11 Refer to Figure 13-11. What is the productively efficient output for the firm represented in the diagram? A) Q1 units B) Q2 units C) Q3 units D) Q4 units

Q: Figure 13-11 Refer to Figure 13-11. The firm represented in the diagram A) makes zero economic profit. B) makes zero accounting profit. C) should exit the industry. D) should expand its output to take advantage of economies of scale.

Q: Figure 13-11 Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing price? A) P1 B) P2 C) P3 D) P4

Q: Figure 13-11 Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing output? A) Q1 units B) Q2 units C) Q3 units D) Q4 units

Q: If a typical monopolistically competitive firm is making short-run losses, then A) other more competitive firms will enter the market. B) as some firms leave, the remaining firms will experience an increase in the demand for their products. C) as some firms leave, the demand for the products of the remaining firms will become more elastic. D) the industry will eventually cease to exist.

Q: In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits? A) The demand curve will shift to the left and became more elastic. B) The demand curve will shift to the left and became less elastic. C) The demand curve will shift to the right and became more elastic. D) The demand curve will shift to the right and became less elastic.

Q: A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until A) the original firm is driven into bankruptcy. B) the firm's demand curve is perfectly elastic. C) the firm's demand curve is tangent to its average total cost curve. D) the firm exits the market.

Q: You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants. Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce. What is likely to happen to your business in the long run? A) Your competitors are likely to change their menus to make their products more similar to yours. B) Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero. C) If your success continues, you will be likely to establish a franchise and expand your market size. D) If you continue to maintain consistent quality, you will be able to earn profits indefinitely.

Q: You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants. You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce. What is likely to happen in the restaurant market in your hometown after you open? A) Your competitors are likely to change their menus to make their products more similar to yours. B) The demand curve facing each restaurant owner shifts to the right. C) The demand curve facing each restaurant owner becomes more elastic. D) While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic.

Q: Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because A) new entrants into the market are more likely to have cutting edge products. B) as the firm raises its price in the long run, it will lose some customers to new entrants in the market. C) some of its customers have switched to purchasing the products of new entrants in the market. D) its costs of production rises.

Q: A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except A) new rivals entering the market. B) a decrease in demand for its product. C) demand for the firm's product becomes more elastic. D) a decrease in the number of rival products.

Q: In the long run, if price is less than average cost A) there is an incentive for firms to exit the market. B) there is profit incentive for firms to enter the market. C) the market must be in long-run equilibrium. D) there is no incentive for the number of firms in the market to change.

Q: A monopolistically competitive industry that earns economic profits in the short run will A) continue to earn economic profits in the long run. B) experience the entry of new rival firms into the industry in the long run. C) experience the exit of existing firms out of the industry in the long run. D) experience a rise in demand in the long run.

Q: Central Grocery in New Orleans is famous for its muffaletta, a large round sandwich filled with deli meats and topped with a tangy olive salad. Suppose the following table represents cost and revenue data for Central Grocery. Fill in the columns for TR, MR, MC, ATC, and profit. If Central Grocery wants to maximize profits, what price should it charge for a muffaletta, what quantity should it sell, and what will be the amount of its total profit?Muffalettas Sold per DayPrice (P)Total Revenue (TR)Marginal Revenue (MR)Total Cost (TC)Marginal Cost (MC)Average Total Cost (ATC)Profit0$15$121141821320312214112351026693078358742965210578

Q: Figure 13-6 Refer to Figure 13-6. Suppose the above graph represents the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced by Dell. On a graph, illustrate the demand, MR, MC, and ATC curves which would represent Dell maximizing profits at a quantity of 100,000 per month and identify the area on the graph which represents the profit.

Q: Figure 13-10 Figure 13-10 shows cost and demand curves for a monopolistically competitive producer of iced tea. Refer to Figure 13-10. to answer the following questions. a. What is the profit-maximizing output level? b. What is the profit-maximizing price? c. At the profit-maximizing output level, how much profit will be realized? d. Does this graph most likely represent the long run or the short run? Why?

Q: Central Grocery in New Orleans is famous for its muffaletta, a large round sandwich filled with deli meats and topped with a tangy olive salad. Suppose the following table represents cost and revenue data for Central Grocery.Muffalettas Sold per DayPrice (P)Total Revenue (TR)Marginal Revenue (MR)Total Cost (TC)Marginal Cost (MC)Average Total Cost (ATC)Profit0$15$0---$12-------$1211414$1418$6$18.00-4213261220210.00631236102117.00154114482325.75215105062635.2024695443045.0024785623555.0021875604275.25149654-252105.70210550-478167.80-28Illustrate this data by graphing the demand, MR, MC, and ATC curves. Identify the profit-maximizing price and quantity, and show the area representing the total profit received by Central Grocery.

Q: Arturo runs a Taco Bell franchise. He is selling 250 Gordita Supremes per week at a price of $2.75. If he lowers the price to $2.70, he will sell 251 Gordita Supremes. What is the marginal revenue of the 251st Gordita Supreme? If selling the extra Gordita Supreme adds $0.20 to Arturo's costs, what will be the effect on his profit from selling 251 Gordita Supremes instead of 250?

Q: Unlike a perfectly competitive firm, a monopolistic competitor does not have a short-run shut-down point.

Q: A profit-maximizing monopolistically competitive firm produces and sells an allocatively efficient quantity of output.

Q: If a perfectly competitive firm maximizes short-run profits, its marginal revenue will be positive and less than its price.

Q: A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.

Q: Assume that price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118, then to maximize profits the firm should increase its output.

Q: Consumers in a monopolistically competitive market do not receive any consumer surplus because the price paid for the product exceeds the marginal cost of production.

Q: For a profit-maximizing monopolistically competitive firm, for the last unit sold, the marginal cost of production is less than the marginal benefit received by a customer from the purchase of that unit.

Q: For a monopolistically competitive firm, price equals average revenue.

Q: Figure 13-9 Refer to Figure 13-9. Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits? A) Panel A B) Panel B C) Panel C D) Panel A and Panel B

Q: Figure 13-9 Refer to Figure 13-9. Which of the graphs in the figure depicts a monopolistically competitive firm that is minimizing its losses? A) Panel A B) Panel B C) Panel C D) Panel A and Panel C

Q: Figure 13-8 Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. Refer to Figure 13-8. Based on the diagram, one can conclude that A) some existing firms will exit the market. B) new firms will enter the market. C) the industry is in long-run equilibrium. D) firms achieve productive efficiency.

Q: Figure 13-8 Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. Refer to Figure 13-8. At the profit-maximizing output level the firm will A) earn a profit of $176. B) break even. C) earn a profit of $88. D) earn a profit of $60.

Q: Figure 13-8 Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. Refer to Figure 13-8. What is the firm's profit-maximizing price? A) $12 B) $13 C) $14 D) $16

Q: Figure 13-8 Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. Refer to Figure 13-8. What is the profit-maximizing output level? A) 22 cases B) 24 cases C) 30 cases D) 38 cases

Q: If a monopolistically competitive firm is producing 50 units of output where marginal cost equals marginal revenue, total cost is $1,674 and total revenue is $2,000, its average profit is A) $326. B) $40. C) $6.52. D) impossible to determine without additional information.

Q: Suppose a monopolistically competitive firm's output where marginal revenue equals marginal cost is 66 units and the price corresponding to this quantity is $18. If the average total cost at this output is $16.55, then its total profit is A) $1,188. B) $1,092.30. C) $95.70. D) $1.45.

Q: A monopolistically competitive firm is producing an output level where marginal revenue is greater than marginal cost. What should this firm do to increase its profit or reduce its losses? A) The firm should raise its price. B) The firm should decrease its fixed costs. C) The firm should increase its implicit costs. D) The firm should lower its price.

Q: Table 13-5QuantityPriceTotal Cost1$18$14216203142641232510386844Table 13-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.Refer to Table 13-5. At the profit-maximizing or loss-minimizing output levelA) the firm makes a profit of $12.B) the firm incurs a loss equal to its fixed cost.C) the firm makes a profit of $16.D) the firm incurs a loss of $14.

Q: Table 13-5QuantityPriceTotal Cost1$18$14216203142641232510386844Table 13-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.Refer to Table 13-5.What are the firm's profit-maximizing or loss-minimizing price and quantity?A) price = $10; quantity = 5.B) price = $12; quantity = 4.C) The firm should shut down temporarily.D) This cannot be determined from the information given.

Q: Figure 13-7 Figure 13-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. Refer to Figure 13-7. Which of the following is the area that represents the profit or loss experienced by the firm? A) A loss represented by the rectangle P2uvP1. B) A loss represented by the rectangle P2uwP0. C) A loss represented by the rectangle P1vwP0. D) An accounting profit equal to P1vwP0.

Q: Figure 13-7 Figure 13-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. Refer to Figure 13-7. Which of the following statements describes the best course of action for the firm depicted in the diagram? A) The firm should exit the industry because its price is less than its average total cost. B) The firm should minimize its losses by producing Qy units and charging a price of P0. C) The firm should minimize its losses by producing Qy units and charging a price of P2. D) The firm should minimize its losses by producing Qy units and charging a price of P1.

Q: The profit-maximizing rule for a monopolistically competitive firm is to select the quantity at which A) marginal revenue equals marginal cost. B) average revenue exceeds marginal cost by the greatest amount. C) price equals marginal cost. D) average revenue equals average total cost.

Q: Table 13-4Quantity SoldPriceTotal RevenueMarginal RevenueTotal CostMarginal CostProfit0$10$0-----$2------$21998281613372117462420552522642426Table 13-4 lists estimated revenues and costs (per week) for plastic vials (100 vials per box) for the Victoria Biological Supplies Company. Victoria sells plastic vials to university and private research laboratories.Refer to Table 13-4. At Victoria's profit-maximizing outputA) profit equals $2.B) total revenue equals $24 and total cost equals $20.C) total revenue equals $25 and total cost equals $22.D) total revenue equals $21 and total cost equals $17.

Q: Table 13-4Quantity SoldPriceTotal RevenueMarginal RevenueTotal CostMarginal CostProfit0$10$0-----$2------$21998281613372117462420552522642426Table 13-4 lists estimated revenues and costs (per week) for plastic vials (100 vials per box) for the Victoria Biological Supplies Company. Victoria sells plastic vials to university and private research laboratories.Refer to Table 13-4. Victoria's profit-maximizing output is whereA) total profit equals $3.B) marginal revenue and marginal cost both equal $4.C) marginal revenue and marginal cost both equal $3.D) marginal cost is at its minimum value.

Q: Table 13-4Quantity SoldPriceTotal RevenueMarginal RevenueTotal CostMarginal CostProfit0$10$0-----$2------$21998281613372117462420552522642426Table 13-4 lists estimated revenues and costs (per week) for plastic vials (100 vials per box) for the Victoria Biological Supplies Company. Victoria sells plastic vials to university and private research laboratories.Refer to Table 13-4. Victoria's profit-maximizing quantity sold (Q) and price (P) areA) Q = 3; P = $7.B) Q = 4; P = $6.C) Q = 5; P = $5.D) Q = 6; P = $4.

Q: Table 13-4Quantity SoldPriceTotal RevenueMarginal RevenueTotal CostMarginal CostProfit0$10$0-----$2------$21998281613372117462420552522642426Table 13-4 lists estimated revenues and costs (per week) for plastic vials (100 vials per box) for the Victoria Biological Supplies Company. Victoria sells plastic vials to university and private research laboratories.Refer to Table 13-4. Based on the data in the table, which of the following statements is true?A) The table summarizes Victoria's short-run, rather than long-run, market for plastic vials.B) Victoria could be either a monopolistically competitive or a perfectly competitive firm.C) Victoria should shut down temporarily.D) Victoria should advertise more in order to increase the demand for plastic vials.

Q: After selling 1,000 three-ring binders Tony DiFulvio realizes that the marginal revenue from selling the last binder was less than the marginal cost. From this we can conclude that A) Tony's business earns a short-run economic profit. B) Tony should shut down his business temporarily. C) Tony's profit fell after selling his 1,000th three-ring binder. D) Tony's profit would be greater if he sold an additional three-ring binder.