Question

QUESTION 7

Monopolistic competitive firms in the long run earn:

		positive economic profits.
		zero pure economic profits.
		negative economic profits.
		Positive, zero, or negative economic profits.

QUESTION 8

Which of the following statements best describes firms under monopolistic competition?

		Profits will be positive in the long run.
		Price always equals average variable cost.
		In the long run, positive economic profit will be eliminated.
		Marginal revenue equals minimum average total cost in the short run.

QUESTION 9

Which of the following is always associated with monopolistic competition?

		Identical products
		Economic profits in the short run
		MR lies above the demand curve
		Product differentiation

QUESTION 10

Comparing perfect competition and monopolistic competition, which of the following is FALSE?

		Monopolistic competition results in deadweight loss, but perfect competition does not.
		Both monopolistic competition and perfect competition result in zero economic profit in the long run.
		Neither a monopolic competitive firm nor a perfectly competitive firm has any say about the price; namely, they are both price takers.
		There is product differentiation in monopolistic competition, but products are identical in a perfectly competitive market.

QUESTION 11

Which of the following is a characteristic of the market structure in monopolistic competition?

		Many sellers, each small in size relative to the overall market.
		Few sellers.
		All sellers produce identical products.
		There is only one seller in the market without close substitutes.

QUESTION 12

Which of the following is FALSE about monopolistic competition?

		P=MC.
		MR=MC.
		Entry is relatively easy.
		In the shirt run, economic profit can be positive, negative, or zero.

Answer 1

(7) :- Monopolistic competitive firms in the long run earn:

Zero pure economic profits.

In monopolistic competitive industry there is free entry and exit which makes zero economic profit condition applicable in the long run.

Thus, Option B is correct.

(8) :- Which of the following statements best describes firms under monopolistic competition?

In the long run, positive economic profit will be eliminated.

A monopolistic competitive market has free entry and exits so if there is profit in the short run then the new firm will enter up to the profit is eliminated in the long run and vice versa.

The market has many firms with a differentiated product, so it has some power over price, so it does not produce at the minimum average total cost in the long run but produces equal to an average total cost which is higher than the minimum average total cost.

Thus, Option C is correct.

(9) :- Which of the following is always associated with monopolistic competition?

Product Differentiation

Monopolistic competition has a characteristic of product differentiation in the market. In other words, there many firm which produces substitute good and services in this market. Firms faces downward sloping demand curve. MR curve lies below demand curve. Monopolistic competitive firm do not earn economic profit certainly. They may suffer from loss also.

Thus, Option D is correct.

(10) :- Comparing perfect competition and monopolistic competition, which of the following is FALSE?

Neither a monopolic competitive firm nor a perfectly competitive firm has any say about the price; namely, they are both price takers.

The only difference between perfect competition and the monopolistic competition is that in the latter there is product differentiation because of which the price charged by each seller would be higher than its marginal cost. However, both would earn zero economic profit in the long run.

Thus, Option C is correct.

(11) :- Which of the following is a characteristic of the market structure in monopolistic competition?

Many sellers, each small in size relative to the overall market.

An oligopoly market has few sellers, and a monopolistic market has many sellers with small size concerning industry but has differentiated product and easy entry and exit.

This characteristic of monopolistic competition market is not there in either perfect competition market of monopoly market. In perfect competition market there will be identical goods and in monopoly there will be a commodity that do not have any close substitute.

Thus, Option A is correct.

(12) :- Which of the following is FALSE about monopolistic competition?

P = MC

In monopolistic competition firm is not a price taker and has some pricing power (so that P > MC). In this market firm maximize profit at MR = MC in short run. In long run firm maximize profit at MR=MC in such a way that Price gets equals to Average cost (i.e., P = ATC). Hence, in long run firm earns zero economic profit and firm has excess capacity.

Thus, Option A is correct.

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