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Chapter 17_Chapter 17Monopolistic CompetitionMULTIPLE CHOICE(10)
Updated:2011-11-23 Category:oligopoly

TYPE: M DIFFICULTY: 2 SECTION: 17.1

107.“In a long-run equilibrium, price is equal to average total cost.” This statement applies to

a.competitive markets, but not to monopolistically competitive markets or monopolies.

b.competitive and monopolistically competitive markets, but not to monopolies.

c.competitive and monopolistically competitive markets and to monopolies.

d.None of the above are correct.

ANSWER: b.competitive and monopolistically competitive markets, but not to monopolies.

TYPE: M DIFFICULTY: 2 SECTION: 17.1

108.For a profit-maximizing monopolistically competitive firm, price exceeds marginal cost

a.in the short run but not in the long run.

b.in the long run but not in the short run.

c.in both the short run and the long run.

d.in neither the short run nor the long run.

ANSWER: c.in both the short run and the long run.

TYPE: M DIFFICULTY: 2 SECTION: 17.1

109.Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its

a.marginal revenue curve and its total-cost curve

b.marginal revenue curve and its average-total-cost curve.

c.demand curve and its total-cost curve.

d.demand curve and its average-total-cost curve.

ANSWER: d.demand curve and its average-total-cost curve.

TYPE: M DIFFICULTY: 2 SECTION: 17.1

110.The point of tangency which characterizes long-run equilibrium for a monopolistically competitive firm always occurs at a certain level of output; call that level of output Q1. Then Q1

a. exceeds the level of output at which marginal revenue equals marginal cost.

b. exceeds the level of output at which marginal cost equals average total cost.

c. falls short of the level of output at which marginal revenue equals zero.

d.All of the above are correct.

ANSWER: c.falls short of the level of output at which marginal revenue equals zero.

TYPE: M DIFFICULTY: 3 SECTION: 17.1

111.For any firm, average total cost is minimized at a certain level of output; call that level of output Q1. For a monopolistically competitive firm in long-run equilibrium, Q1

a.is also the level of output at which marginal cost equals average total cost.

b.exceeds the level of output at which there is a point of tangency between the demand curve and the average-total-cost curve.

c.exceeds the level of output at which marginal revenue equals marginal cost.

d.All of the above are correct.

ANSWER: d.All of the above are correct.

TYPE: M DIFFICULTY: 3 SECTION: 17.1

112.In a situation of long-run equilibrium,

a.a perfectly competitive firm operates at its efficient scale.

b.a monopolistically competitive firm operates at its efficient scale.

c.neither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost.

d.All of the above are correct.

ANSWER: a.a perfectly competitive firm operates at its efficient scale.

TYPE: M DIFFICULTY: 2 SECTION: 17.1

113.In a situation of long-run equilibrium, the term

a.“excess capacity” applies to monopolistically competitive firms, but not to competitive firms.

b.“zero economic profit” applies to competitive firms, but not to monopolistically competitive firms.

c.“markup over marginal cost” applies to both monopolistically competitive and competitive firms.

d.All of the above are correct.

ANSWER: a.“excess capacity” applies to monopolistically competitive firms, but not to competitive firms.

TYPE: M DIFFICULTY: 2 SECTION: 17.1

114.Firm A is a perfectly competitive firm. Firm B is a monopolistically competitive firm. Both firms are currently maximizing their respective profits. Which of the following statements is correct?

a.Both Firm A and Firm B would be eager to make an additional sale.

b.Firm A would be eager to make an additional sale, but Firm B would not care whether it made an additional sale or not.

c.Firm B would be eager to make an additional sale, but Firm A would not care whether it made an additional sale or not.

d.Neither Firm A nor Firm B would care whether they made an additional sale or not.

ANSWER: c.Firm B would be eager to make an additional sale, but Firm A would not care whether it made an additional sale or not.

TYPE: M DIFFICULTY: 2 SECTION: 17.1

115.In a monopolistically competitive market,

a.the entry of new firms creates externalities.

b.the absence of restrictions on entry by new firms ensures that there will be no deadweight loss.

c.there are always too many firms in the market relative to the socially-optimal number of firms.

d.None of the above are correct.

ANSWER: a.the entry of new firms creates externalities.

TYPE: M DIFFICULTY: 2 SECTION: 17.1

116.Entry by new firms into a monopolistically competitive market

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