Practice Questions
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In a monopolistically competitive market, which of the following best describes the competitive strategy that firms employ to maximize their profits?
Firms in this market try to make their products unique. Other options are incorrect because Some might think that setting prices equal to costs is bes...
In a monopolistically competitive market, what occurs at the equilibrium point when firms are earning economic profits?
When firms make extra money, new companies want to join in. Other options are incorrect because Some might think that if firms are making money, they ...
In a monopolistically competitive market, how does the presence of consumer surplus affect the pricing and output decisions of firms?
Firms want to make the most money. Other options are incorrect because Some might think firms set prices like in perfect competition, where price equa...
In a monopolistically competitive market, how does a firm employing price discrimination maximize its economic profit in relation to marginal cost?
A firm can charge different prices to different customers based on how much they are willing to pay. Other options are incorrect because Setting the s...
In a monopolistically competitive market, how does an increase in advertising strategies typically affect consumer surplus, assuming demand remains constant?
When companies spend more on advertising, they often raise their prices. Other options are incorrect because Some might think that more advertising ma...
In a monopolistically competitive market, what shape does the demand curve faced by an individual firm typically take?
The demand curve is downward sloping. Other options are incorrect because Some might think the demand is perfectly elastic, meaning any price change w...
In a graph representing monopolistic competition, which of the following best describes the demand curve faced by an individual firm?
The demand curve for a firm in monopolistic competition slopes downwards. Other options are incorrect because Some might think the demand curve is per...
In a monopolistically competitive market, how does the demand curve for a single firm's product typically appear?
The demand curve for one firm's product slopes downwards. Other options are incorrect because Some might think the demand is perfectly elastic, meanin...
In a monopolistic competition market, a firm sets its price based on the perceived demand for its differentiated product. This is analogous to how a musician might set ticket prices based on the popularity of their music. A:B :: C:? What is the best analogy for how a firm reacts to changes in demand?
A firm changes its price based on how many customers want its product. Other options are incorrect because Some might think that a firm should just ma...
In the context of monopolistic competition, which of the following sequences correctly illustrates the process of determining the profit-maximizing output and price for a firm?
First, you find the demand curve to see how much people want to buy. Other options are incorrect because This option starts with costs instead of dema...
Which of the following statements accurately describe characteristics of monopolistic competition and its graphical representation? Select all that apply.
Other options are incorrect because Some might think that firms in this market have no control over prices; It's common to confuse marginal revenue wi...
In a monopolistically competitive market, if a firm is currently making economic profits, what is likely to happen in the long run?
When a firm makes profits, it attracts new businesses. Other options are incorrect because Some might think a firm can just cut back on production to ...
A local coffee shop operates in a monopolistically competitive market and notices that an increase in the price of coffee beans has raised its costs. After analyzing its demand curve and marginal revenue, the owner decides to raise coffee prices. What is the most likely outcome of this decision considering the characteristics of monopolistic competition?
When the shop raises prices, some customers may choose to buy coffee from other shops instead. Other options are incorrect because The idea here is th...
If a monopolistically competitive firm experiences a decrease in demand for its product, resulting in a lower price and reduced economic profit, which of the following is the most likely underlying cause of this change?
When more substitutes are available, customers have more choices. Other options are incorrect because Lower production costs might help a firm make mo...
In a monopolistically competitive market, the firm's demand curve is _____ due to the availability of close substitutes.
The demand curve slopes downwards because there are similar products available. Other options are incorrect because Some might think the demand is per...
Which of the following scenarios best represents a firm operating under monopolistic competition and illustrates why it can sustain economic profit in the short run?
A restaurant in a busy area can raise prices when many people want to eat there. Other options are incorrect because This option suggests a single com...
In a monopolistically competitive market, what effect does an increase in the number of firms have on the individual firm's demand curve?
When more firms enter the market, there are more choices for consumers. Other options are incorrect because Some might think that more firms mean less...
Master Graphing Monopolistic Competition
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