If a perfectly competitive firm and a monopolistic competitive firm face the same demand and cost curves, then
a.the perfectly competitive firm will attain resource-allocative efficiency, but the monopolistic competitive firm will not.
b.the perfectly competitive firm will attain resource-allocative efficiency, but the monopolistic competitive firm may or may not, depending upon the demand for its product.
c.the perfectly competitive firm will not attain resource-allocative efficiency, but the monopolistic competitive firm will.
d.both the perfectly competitive firm and the monopolistic competitive firm will attain resource-allocative efficiency.
e.neither the perfectly competitive firm nor the monopolistic competitive firm will attain resource-allocative efficiency.
22.Which of the following statements is true?
a.Monopolistic competitive firms will earn economic profits in the long run because of their ability to control the price of the product.
b.Monopolistic competitive firms that earn economic profits in the short run commonly will find their profits competed away in the long run.
c.Monopolistic competitive firms will earn zero economic profits in both the short and the long run.
d.Monopolistic competitive firms must earn economic profits in the long run, or they will shut down.
e.Monopolistic competitive firms must earn economic profits in the short run, or they will shut down.
23.Why can't an economist say for certain that a monopolistic competitive firm will always earn zero economic profits in the long run?
a.Barriers to entry exist.
b.The very large number of buyers indicates that there will always be demand for the firm's product.
c.The firms in the industry do not produce identical products.
d.The firms practice price competition, so at least some firms will always be charging a lower price than other firms and will sell more as a result.
e.The firms face a horizontal demand curve.
24.The excess capacity theorem states that a monopolistic competitor
a.will produce an output level smaller than the one that would minimize its unit costs.
b.will produce an output level where MR > MC.
c.generally does not attain long run equilibrium, and thus charges a higher price than it should.
d.typically produces too much of a good at too low a quality.
25.A firm in a monopolistic competitive market will produce a level of output at which
b.P = MR.
c.P > MR.
d.P = MC.
26."In equilibrium, a monopolistic competitor will produce an output level that is less than the level that would minimize its average total costs." This is a statement of the
a.law of diminishing returns.
b.law of second best.
c.law of variable proportions.
d.excess capacity theorem.
27.In long run equilibrium, the monopolistic competitor will most likely
a.be earning zero economic profit.
b.be operating at the lowest point on its average total cost curve.
c.charge a price that is equal to marginal revenue.
d.charge a price that is equal to marginal cost.
e.c and d
28.Generally, the monopolistic competitor is in long run equilibrium when
a.MR = MC and P = ATC.
b.P = MC = ATC.
c.P = MC and P > ATC.
d.MR = MC = ATC.
e.b and d
29.If a perfectly competitive firm and a monopolistic competitor in long run equilibrium face the same demand and cost curves, then the competitive firm will produce a
a.greater output and charge a lower price than the monopolistic competitor.
b.greater output, but charge the same price as the monopolistic competitor.
c.greater output and charge a higher price than the monopolistic competitor.
d.smaller output and charge a lower price than the monopolistic competitor.
e.smaller output and charge a higher price than the monopolistic competitor.
30.Some economists contend that a monopolistic competitor tends to produce too __________ output, charges a price that is too __________ and __________ its present plant size.
a.little; low; underutilizes
b.little; high; underutilizes
c.much; low; overutilizes
d.much; high; overutilizes
e.much; low; underutilizes
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