Q&A Hero

Q: Figure 13-6 Refer to Figure 13-6. Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 13-2. Dell will maximize profits if it produces ________ notebook computers per month. A) 100,000 B) 200,000 C) 300,000 D) Not enough information is given to determine the profit-maximizing quantity.

Q: A monopolistically competitive firm chooses A) both the quantity of output to produce and the price at which it will sell its output. B) the price of the product it sells but market forces determine the quantity it will be able to sell. C) the quantity of output to produce but the price of the product it sells is determined collectively by all firms in the industry. D) the price of the product it sells but the quantity of output to produce is agreed upon by all firms in the industry.

Q: A monopolistically competitive firm maximizes profit in the short run by producing where A) price is less than marginal cost. B) price is less than marginal revenue. C) price is less than average revenue. D) price is greater than marginal cost.

Q: Both monopolistically competitive firms and perfectly competitive firms maximize profits A) by producing where price equals average total cost. B) by producing where marginal revenue equals average revenue. C) by producing where marginal revenue is equal to marginal cost. D) by producing where price equals average variable cost.

Q: Figure 13-5 Refer to Figure 13-5. The candy store represented in the diagram is currently selling Qa units of candy at a price of Pa. Is this candy store maximizing its profit and if it is not, what would you recommend to the firm? A) Yes, it is maximizing its profit by charging the highest price possible. B) No, it is not; since its marginal cost is constant, it should produce and sell as much candy as it can. It should sell Qd units at a price of Pd. C) No, it is not; it should lower its price to Pc and sell Qc units. D) No, it is not; it should lower its price to Pb and sell Qb units.

Q: Assume 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 $23 and marginal cost is $19, then to maximize profits the firm should A) continue to produce the same quantity. B) increase output. C) decrease output. D) shutdown.

Q: Table 13-3QuantityPrice (dollars)Total Revenue (dollars)Total Variable Cost (dollars)Total Cost (dollars)0$21$0$0$50120201666219383181318544595417685910951680751256159093143714981121628131041401909121081802301011110230280Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.Refer to Table 13-3. If this firm continues to produce, what is likely to happen to the product's price in the long run?A) It will fall.B) It will increaseC) It will remain constant.D) It cannot be determined without information on its long run demand curve.

Q: Table 13-3QuantityPrice (dollars)Total Revenue (dollars)Total Variable Cost (dollars)Total Cost (dollars)0$21$0$0$50120201666219383181318544595417685910951680751256159093143714981121628131041401909121081802301011110230280Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.Refer to Table 13-3. What is the best course of action for the firm in the short run?A) It should shut down.B) It should stay in business because it covers some of its fixed cost.C) It should increase its sales by lowering its price.D) It should not cut its price but it should increase its sales by advertising.

Q: Table 13-3QuantityPrice (dollars)Total Revenue (dollars)Total Variable Cost (dollars)Total Cost (dollars)0$21$0$0$50120201666219383181318544595417685910951680751256159093143714981121628131041401909121081802301011110230280Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.Refer to Table 13-3. What is its average variable cost of production at its optimal output level?A) $0 (because its optimal output =0)B) $15C) $14.75D) $29

Q: Table 13-3QuantityPrice (dollars)Total Revenue (dollars)Total Variable Cost (dollars)Total Cost (dollars)0$21$0$0$50120201666219383181318544595417685910951680751256159093143714981121628131041401909121081802301011110230280Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.Refer to Table 13-3. What is the amount of the firm's loss at its optimal output level?A) $0B) $41C) $45D) $50

Q: Table 13-3QuantityPrice (dollars)Total Revenue (dollars)Total Variable Cost (dollars)Total Cost (dollars)0$21$0$0$50120201666219383181318544595417685910951680751256159093143714981121628131041401909121081802301011110230280Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.Refer to Table 13-3. What are the profit-maximizing/loss-minimizing output level and price?A) Q=0 (firm should not produce)B) Q=3; P=$18C) Q=4; P=$17D) Q=5; P=$16

Q: If price exceeds average variable cost but is less than average total cost, a firm A) should further differentiate its product. B) should stay in business for a while longer until its fixed costs expire. C) is making some profit but less than maximum profit. D) should shut down.

Q: Suppose Jason owns a small pastry shop. Jason wants to maximize his profit, and thinking back to the college microeconomics class he took in college, he decides he needs to produce a quantity of pastries which will minimize his average total cost. Will Jason's strategy necessarily maximize profits for his pastry shop? A) Yes; Since jason's pastry shop is in a perfectly competitive market, the only way to maximize profit is to produce the quantity where average total cost is minimized. B) Not necessarily; This strategy will only maximize Jason's profit in the long run, but not in the short run. C) No; In order to maximize profit, Jason would never want to produce the quantity where average total cost is minimized. D) Not necessarily; Depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.

Q: In the short run, a profit-maximizing firm's decision to produce should be guided by whether A) it makes a profit. B) its marginal profit is maximized. C) its total revenue exceeds its fixed cost. D) its total revenue covers its variable cost.

Q: Figure 13-4 Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4. Should the firm represented in the diagram continue to stay in business despite its losses? A) No, it should shut down. B) Yes, its total revenue covers its variable cost. C) No, it is not able to cover its fixed cost. D) Yes, it should increase its revenue by raising its price.

Q: Figure 13-4 Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4.What is the area that represents the loss made by the firm? A) the area P0adP3 B) the area P1bcP2 C) the area P0acP2 D) the area P2cdP3

Q: Figure 13-4 Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4.What is the area that represents the total fixed cost of production? A) 0P1aQa B) P0adP3 C) P1bdP3 D) That information cannot be determined from the graph.

Q: Figure 13-4 Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4.What is the area that represents the total variable cost of production? A) 0P0aQa B) 0P1bQa C) P0abP1 D) P1bdP3

Q: Figure 13-4 Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4.What is the area that represents the total revenue made by the firm? A) 0P0aQa B) 0P1bQa C) 0P2cQa D) 0P3dQa

Q: Figure 13-4 Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged? A) P0 B) P1 C) P2 D) P3

Q: Table 13-2Quantity (cases)Price (dollars)Total Revenue (dollars)Total Cost (dollars)1$75$75$6027014085365195105460240115555275130650300155745315190840320230935315280Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.Refer to Table 13-2. What is likely to happen to the product's price in the long run?A) It will fall.B) It will increase.C) It will remain constant.D) This cannot be determined without information on its long-run demand curve.

Q: Table 13-2Quantity (cases)Price (dollars)Total Revenue (dollars)Total Cost (dollars)1$75$75$6027014085365195105460240115555275130650300155745315190840320230935315280Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.Refer to Table 13-2. What is the marginal profit from producing and selling the 5th case?A) $275B) $145C) $35D) $20

Q: Table 13-2Quantity (cases)Price (dollars)Total Revenue (dollars)Total Cost (dollars)1$75$75$6027014085365195105460240115555275130650300155745315190840320230935315280Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.Refer to Table 13-2. What is Eco Energy's profit?A) $125B) $140C) $145D) $150

Q: Table 13-2Quantity (cases)Price (dollars)Total Revenue (dollars)Total Cost (dollars)1$75$75$6027014085365195105460240115555275130650300155745315190840320230935315280Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.Refer to Table 13-2. What is the output (Q) that maximizes profit and what is the price (P) charged?A) P=$55; Q=5 casesB) P=$50; Q=6 casesC) P=$45; Q=7 casesD) P=$40; Q=8 cases

Q: Unlike a perfectly competitive firm, for a monopolistically competitive firm A) price ≠marginal cost for all output levels. B) price ≠marginal revenue for all output levels. C) price ≠average revenue for all output levels. D) marginal revenue = marginal cost at the profit-maximizing output.

Q: A monopolistically competitive firm maximizes profit where A) price = marginal revenue. B) price > marginal cost. C) marginal revenue > average revenue. D) total revenue > marginal cost.

Q: What is the profit-maximizing rule for a monopolistically competitive firm? A) to produce a quantity that maximizes market share B) to produce a quantity that maximizes total revenue C) to produce a quantity such that marginal revenue equals marginal cost D) to produce a quantity such that price equals marginal cost

Q: Complete the following table.Energy Drinks Consumed per WeekPrice (P)Total Revenue (TR)Average Revenue (AR)Marginal Revenue (MR)0$6.0015.5025.0034.5044.0053.5063.0072.5082.00

Q: Suppose that if a local McDonald's restaurant reduces the price of a Big Mac from $4.00 to $3.25, the number of Big Macs it sells per day will increase from 4 to 5. Explain the output effect and the price effect resulting from this change. Using a graph, illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac. What is the total change in revenue received which results from this price decrease?

Q: There are many cattle ranchers in the world, and there are also many McDonald's restaurants in the world. Why, then, does a McDonald's restaurant face a downward sloping demand curve while a cattle rancher faces a horizontal demand curve?

Q: Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market, but by separate curves for a firm in a monopolistically competitive market?

Q: One of the assumptions of monopolistic competition is that firms produce differentiated products. What does this assumption imply about the demand curve facing a representative firm?

Q: Explain the differences between total revenue, average revenue, and marginal revenue.

Q: What are the most important differences between perfectly competitive markets and monopolistically competitive markets?

Q: For a downward-sloping demand curve, marginal revenue decreases as quantity sold increases.

Q: Firms in monopolistic competition compete by selling similar, but not identical products.

Q: New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Q: Monopolistically competitive firms face a perfectly elastic demand curve.

Q: If marginal revenue is negative then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

Q: When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Q: In monopolistic competition, if a firm produces a highly desirable product relative to its competitors, the firm will be able to raise its price without losing any customers.

Q: Which of the following statements is true? A) The marginal revenue of a monopolistically competitive firm will be positive at high prices and negative at low prices. B) Because the demand curve for a monopolistically competitive firm is downward-sloping its marginal revenue will be negative. C) The marginal revenue of a monopolistically competitive firm will be always be positive. D) The marginal revenue of a monopolistically competitive firm will be positive at low prices and negative at high prices.

Q: Suppose a monopolistically competitive firm sells 25 units at a price of $10. Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9. A) $270 B) $20 C) $4 D) $2.50

Q: Every firm that has the ability to affect the price of the good or service it sells will A) have a perfectly elastic demand curve. B) have a marginal revenue curve that lies below its demand curve. C) earn a short-run profit but break even in the long run. D) shut down in the short run.

Q: The demand curve of a monopolistically competitive firm A) is horizontal because the firm must cut its price to sell more. B) is perfectly elastic. C) is downward-sloping because it sells an identical product. D) is downward-sloping because it must cut its price to sell more.

Q: If a monopolistically competitive firm lowers its price and, as a result, its total revenue decreases then A) the output effect of the price change was less than the price effect. B) the output effect of the price change was greater than the price effect. C) the firm's demand curve must have decreased. D) the substitution effect of the price change was greater than the income effect.

Q: The marginal revenue of a monopolistically competitive firm A) cannot be negative because the price the firm charges will always be greater than zero. B) can be negative if the firm charges a high price. C) can be negative if the firm charges a low price. D) will equal average revenue.

Q: When a firm faces a downward-sloping demand curve, marginal revenue A) must exceed price because the price effect outweighs the output effect. B) is less than price because a firm must lower its price to sell more. C) equals price because the firm sells a standardized product. D) must exceed price because the output effect outweighs the price effect.

Q: Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm? A) The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies above its demand curve. B) The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies below its demand curve. C) The monopolistically competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a perfectly competitive firm lies below its demand curve. D) The marginal revenue curve of a monopolistically competitive firm lies below its demand curve; the marginal revenue curve of a perfectly competitive firm lies above its demand curve.

Q: The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair. It sells 8 pairs of jeans per day at a price of $90 per pair. The marginal revenue of the eighth pair of jeans is A) $20. B) $90. C) $100. D) $700.

Q: For the monopolistically competitive firm A) Price (P) = Marginal Revenue (MR) = Average Revenue (AR). B) P = MR > AR. C) P = AR > MR. D) P > MR = AR.

Q: Figure 13-3 Refer to Figure 13-3. What is the marginal revenue of the sixth unit of output? A) $4 B) $5 C) $9 D) $54

Q: Figure 13-3 Refer to Figure 13-3. The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit. Based on the diagram in the figure, A) X represents the gain (price effect) and Y the loss (output effect). B) X + Z represents the loss (output effect) and Y the gain (price effect). C) Y represents the gain (output effect) and X the loss (price effect). D) X represents the loss (price effect) and Y + Z the gain (output effect).

Q: When a monopolistically competitive firm lowers it price one bad thing happens to the firm. What is this "one bad thing" called? A) the output effect B) the income effect C) the substitution effect D) the price effect

Q: When a monopolistically competitive firm lowers its price, one good thing happens to the firm. What is this "one good thing" called? A) the output effect B) the price effect C) the income effect D) the substitution effect

Q: In San Francisco there are many restaurants that specialize in a wide variety of cuisines. Patronage at these restaurants is influenced by factors such as tastes, price and location. This market is A) perfectly competitive. B) monopolistically competitive. C) oligopolistic. D) monopolistic.

Q: Which of the following is the best example of a firm that competes in a monopolistically competitive market? A) the U.S. Postal Service B) Microsoft C) a movie theater D) an automobile manufacturer

Q: In the United States, the average person mostly patronizes firms that operate in A) perfectly competitive markets. B) monopolistically competitive markets. C) oligopoly markets. D) monopoly markets.

Q: Which of the following is not a characteristic of monopolistic competition? A) There are many buyers and sellers. B) There are low barriers to entry. C) Average revenue is equal to price. D) The products sold by all firms are identical.

Q: Which of the following is not a characteristic of monopolistic competition? A) Firms are price takers. B) There are many buyers and sellers. C) Barriers to entry are low. D) Firms sell similar, but not identical, products.

Q: Monopolistic competition is a market structure in which A) firms produce and sell products for which there are no close substitutes. B) the demand curve for a typical firm is horizontal. C) firms cannot influence the market price. D) barriers to entry are low.

Q: Because the monopolistically competitive firm faces a ________ demand curve for its product, it ________ the price of its output. A) downward-sloping; cannot influence B) horizontal; can influence C) horizontal; cannot influence D) downward-sloping; can influence

Q: A monopolistically competitive market is described as one in which there are A) a few firms producing an identical product. B) a large number of firms selling similar, but not identical, products. C) a few firms producing differentiated products. D) one large firm and many small firms producing identical products.

Q: Starbucks started out small in 1971, but by 1993 Starbucks was a national chain and had coffeehouses in 38 countries. A key to the company's success was the realization by executives that A) there was a demand for coffeehouses where consumers could sit and drink high-quality coffee. B) coffee prices would have to be cut in order for Starbucks to compete with other stores that sold coffee. C) they had to keep their stores open longer hours to attract a large number of customers. D) their stores should be located close to other stores that sold similar products.

Q: Which of the following characterizes the market that Starbucks competes in? A) All coffeehouses face horizontal demand curves. B) Coffeehouses sell identical products. C) Barriers to entry are low. D) There are a small number of firms.

Q: Which of the following statements is true about marginal revenue? A) If marginal revenue is zero, it means that quantity demanded falls to zero when a firm changes its price. B) If marginal revenue is negative, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. C) If marginal revenue is positive, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. D) Marginal revenue increases as price falls and quantity sold increases.

Q: Figure 13-2 Refer to Figure 13-2. The marginal revenue from selling the additional unit Qbinstead of Qa equals A) the area (G + H). B) the area (H - E). C) the area (E + F) - (G + H). D) the area G.

Q: Figure 13-1 Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1 equals A) the area A. B) the area (B + D - A). C) the area (A - D). D) the area (C - B).

Q: Explain the significance of brand management to a firm that has differentiated its product. Comment specifically on the importance of obtaining a trademark.

Q: Table 13-1QuantityPrice (dollars)Total Revenue (dollars)1$7.50$7.5027.0014.0036.5019.5046.0024.0055.5027.5065.0030.00Refer to Table 13-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?A) output effect = $3.00; price effect = $0.50B) output effect = $1.50; price effect = $2.00C) output effect = $5.50; price effect = -$2.00D) output effect = $4.00; price effect = -$0.50

Q: What are the key factors that determine the profitability of a firm in a monopolistically competitive market?

Q: Table 13-1QuantityPrice (dollars)Total Revenue (dollars)1$7.50$7.5027.0014.0036.5019.5046.0024.0055.5027.5065.0030.00Refer to Table 13-1. What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?A) output effect = $24.00; price effect = $19.50B) output effect = $6.50; price effect = $2.00C) output effect = -$0.50; price effect = $5.00D) output effect = $6.00; price effect = -$1.50

Q: How would a marketing campaign directed at single women improve the chances of success at a place like a cigar bar?

Q: Table 13-1QuantityPrice (dollars)Total Revenue (dollars)1$7.50$7.5027.0014.0036.5019.5046.0024.0055.5027.5065.0030.00Refer to Table 13-1. The Table showsA) an elastic segment of the demand curve.B) an inelastic segment of the demand curve.C) a demand curve with an elastic segment of the demand curve from $7.50 to $6.50 followed by an inelastic segment.D) a demand curve with an inelastic segment of the demand curve from $7.50 to $6.50 followed by an elastic segment.

Q: How might a monopolistically competitive firm continually earn economic profit greater than zero?

Q: Table 13-1QuantityPrice (dollars)Total Revenue (dollars)1$7.50$7.5027.0014.0036.5019.5046.0024.0055.5027.5065.0030.00Refer to Table 13-1. What is the marginal revenue of the 3rd unit?A) $6.50B) $5.50C) $1.83D) $0.50

Q: If a firm can produce a product at a lower average cost than its competitors, it stands a better chance of earning economic profit.

Q: When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the A) substitution effect. B) income effect. C) price effect. D) output effect.

Q: The ability to engage in product differentiation is one of the factors a manager or owner of a firm can control in order to create value for consumers.

Q: When a monopolistically competitive firm cuts its price to increase its sales, it experiences a gain in revenue due to the A) substitution effect. B) income effect. C) price effect. D) output effect.