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Micro Chapter 23 Practice Problems #1 Key

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 Answer D !. "n which industry is monopolistic competition most li#ely to be found? A) utilities B) a$riculture C) retail trade D) minin$ Answer C %. &ne 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 si$nificant barriers to entry. D) firms differentiate their products in pure competition. Answer B '. (he monopolistically competitive seller)s demand curve will become more elastic the A) lar$er the number of competitors. C) more si$nificant the barriers to entry. B) $reater the de$ree of product differentiation. D) smaller the number of competitors. Answer A *. A monopolistically competitive firm is producin$ at an output level in the short run where avera$e total cost is +'.*,- price is +'.,,- mar$inal revenue is +!.*,- and mar$inal cost is +!.*,. (his firm is operatin$ A) with a profit in the short run. B) with a loss in the short run. C) at the brea#.even level of output in the short run. D) at an efficient level of output in the short run. Answer B

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/. 0efer to the above $raph. "n the short run- this monopolistically competitive firm will set price at A) +/* and produce '* units of output. C) +*, and produce %* units of output. B) +/* and produce %* units of output. D) +*, and produce *, units of output. Answer B 1. 0efer to the above $raph. (his monopolistically competitive firm is A) ma#in$ economic profit in the lon$ run. C) earnin$ only normal profit in the lon$ run. B) ma#in$ economic profit in the short run. D) earnin$ only normal profit in the short run. Answer B

2. "f monopolistically competitive firms in an industry are ma#in$ an economic profit- then A) new firms will enter the industry and product demand will increase for the e3istin$ firms. B) firms will e3it the industry and product demand will decrease for the firms that remain. C) firms will e3it 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 e3istin$ firms. Answer D 4. 5uppose some firms e3it an industry characterized by monopolistic competition. We would e3pect the demand curve of a firm already in the industry to A) shift to the left. B) shift to the ri$ht. C) become more elastic. D) remain the same since enterin$ firms serve other customers in the mar#et. Answer B

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1,. 0efer to the above $raphs. A short.run e6uilibrium that would produce profits for a monopolistically competitive firm would be represented by $raph A) A. B) B. C) C. D) D. Answer A 11. 0efer to the above $raphs. A short.run e6uilibrium that would produce losses for a monopolistically competitive firm would be represented by $raph A) A. B) B. C) C. D) D. Answer D 1!. 0efer to the above $raphs. (he lon$.run e6uilibrium for a monopolistically competitive firm is represented by $raph A) A. B) B. C) C. D) D. Answer B

1%. 0efer to the above $raph of the representative firm in monopolistic competition. (he lon$.run e6uilibrium price and output for this firm will be A) A and C. B) B and D. C) A and D. D) B and C. Answer C "n monopolistic competition- there is A) allocative efficiency. C) both allocative and productive efficiency. B) productive efficiency. D) neither allocative nor productive efficiency. Answer D