Multiple Choice Questions
1. Which of the following conditions does NOT describe a firm in a monopolistically competitive market?
a. It makes a product different from its competitors.
b. It takes its price as given by market conditions.
c. It maximizes profit both in the short run and in the long run.
d. It has the freedom to enter or exit in the long run.
2. Which of the following goods best fits the definition of monopolistic competition?
a. Wheat
b. Tap water
c. Crude oil
d. Soft drinks
3. A monopolistically competitive firm will increase its production if
a. Marginal revenue is greater than marginal cost.
b. Marginal revenue is greater than average total cost.
c. Price is greater than marginal cost.
d. Price is greater than average total cost.
4. New firms will enter a monopolistically competitive market if
a. Marginal revenue is greater than marginal cost.
b. Marginal revenue is greater than average total cost.
c. Price is greater than marginal cost.
d. Price is greater than average total cost.
5. What is true of a monopolistically competitive market in long-run equilibrium?
a. Price is greater than marginal cost.
b. Price is equal to marginal revenue.
c. Firms make positive economic profits.
d. Firms produce at the minimum of average total cost.
6. If advertising makes consumers more loyal to particular brands, it could ______ the elasticity of demand and ______ the markup of price over marginal cost.
a. Increase, increase
b. Increase, decrease
c. Decrease, increase
d. Decrease, decrease