Question

36) When a monopolist sells the same product at different prices and the prices are not related to cost differences, we have B) price differentiation. D) monopoly pricing A) price discrimination C) marginal cost pricing. 37) 37) Monopolies misallocate resources because A) price does not equal marginal cost B) profits are usually positive. C) marginal cost does not equal average total cost. D) price does not equal average total cost. 38) 38) Which of the following assumptions is true about monopolistic competition? A) There are few producers of the product. B) The firm's products are differentiated C) It is difficult for firms to enter this industry D) Firms will not advertise. 39) The number of firms in a monopolistically competitive industry means 39) that A) firms will try to set a common price. B) firms will collude. Q firms will not cooperate to set a pure monopoly price. existing firms in the industry will make sure new firms do not enter 40) The demand curve for a monopolistic competitor firm is 40) A) inelastic because of barriers to entry. B) elastic because the products produced are homogeneous. C) inelastic because of the profit maximizing behavior of the firm. D) elastic because of product differentiation. 41) When firms make short-run profits in monopolistic competition, we expect to see A) new firms trying to enter the industry, but unable to do so because of barriers to entry. B) existing firms altering their scale of plant to try to capture larger profits. The combined effect is to cause all firms to make zero profits. existing firms increasing prices to try to capture larger profits D)Sew firms entering the industry, shifting the demand curves of the existing firms to the left until firms make zero profits. Mic MR 42) 42) Refer to the above figure. The profit maximizing quantity for a monopolistic competitor is B) 02 D) Q4 C) Q3 A) 01, 43) 43) Refer to the above figure. This firm is operating in the A) long-run since profits are greater than 0. B) short-run since profits are less than 0 C) long-run since profits are less than 0, D) short-run since profits are greater than 0. 4) The long-run equilibrium of a monopolistic competitor differs from the 4) long-run equilibrium of a perfect competitor in that A) the monopolistic competitor makes economic profits. B) the monopolistic competitor produces at the minimum point of its average total cost curve. C) the monopolistic competitor sets price equal to marginal cost. D) the monopolistic competitor charges a higher price. 45) 45) It has been argued that a monopolistically competitive industry involves waste" because A) there is too much product differentiation making shelves too B) they end up producing to the right of the minimum of the average C) the firms do not produce at the minimum of the average total cost D) the firms do crowded. total cost curve and the price is below the marginal cost. curve and price is above marginal cost. the profit maximizing price and output not equate marginal cost to marginal revenue to find 46) In order to differentiate their product brand from its competition, 46)-- monopolistically competitive firms A) take their competitor's reactions to changes in their policies into account B) advertise their product equate marginal cost to marginal revenue to determine the profit maximizing quantity. D) spread false rumors about their competitors.

Answer 1

36. Price discrimination is said to occur when the monopolist sells a product to different buyers at different prices for reasons not associated with differences in costs.

Answer: A. Price discrimination.

37. Efficiency in the allocation of resources is related to productive efficiency. A productive or efficient allocation of resources occurs when the firm produces maximum output with minimum cost where the marginal cost equates with average total cost.

Answer: C. marginal cost does not equal average total cost.

38. The monopolistic competition is characterized by large number of buyers, freedom of entry and exit and selling cost (advertisement).

Answer: B. the firm’s products are differentiated.

39. Monopolistic competition is a combination of monopoly and competition. Since there is large number of firms, the firms compete to each other. There is no tendency of collusion or monopoly pricing. Since there is freedom of entry, firm expect that other firms will enter into the industry in longrun. Since there is competition among firms, firms will not cooperate to set a pure monopoly price.

Answer: C. firms will not cooperate to set a pure monopoly price.

40. The products under a monopolistically competitive market are somewhat differentiated but are close substitute to the other. Close substitute means that the consumer can substitute the product of one seller to other if the seller charges a high price. Since the products are homogenous in use, the demand curve faced by the monopolistic competitive firm is elastic.

Answer: B. elastic because the products produced are homogenous.

41. If the existing firms make profit in shortrun, new firm will enter into the industry in longrun shift the demand curve of the existing firm down until firms make zero economic profit.

Answer: D. new firms entering the industry, shifting the demand curves of the existing firms to the left until firms make zero profits.

42. A monopolistic competitor set the quantity of output at the point where MC=MR.

Answer: A. Q1.

43. Answer: D. shortrun since the profit are greater than 0.

44. While a competitive firm makes zero economic profit in longrun, a monopolistic competitor makes economic profit.

Answer: A. a monopolistic competitor makes economic profit.

45. A monopolistic completive firm set the output at a point which is somewhat early of the minimum point of the average cost. Since cause under utilization of the productive capacity. This is the waste of available resources.

Answer: C. the firms do not produce at the minimum of the average total cost curve and price is above the marginal cost.

46. The product of a monopolistic competitor is somewhat differentiated from the other in respect of colour, shape, size and brand name. Hence the firms advertise to make aware the consumers about this differentiation.

B. Advertise their product.