CH16 - Name: _ Date: _ 1. Advertising is an economically...

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Name: __________________________ Date: _____________ 1. Advertising is an economically productive activity and not a waste of resources because: A) advertisements increase sales. B) advertisements can convey information about the product. C) advertisements can signal that firms are desperate for customers. D) advertising can decrease the costs of production. 2. A monopolistically competitive firm is operating in the long run at the optimal level of output. Which of the following must be true? A) P = ATC = MR = MC B) P > ATC > MR = MC C) P = ATC > MR > MC D) P = ATC > MR = MC 3. Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price will be: A) equal to marginal revenue. B) less than marginal revenue. C) greater than marginal revenue. D) equal to total revenue. 4. The demand curve for a firm under monopolistic competition is best described as which of the following? A) U -shaped B) upward-sloping C) downward-sloping D) horizontal Page 1
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5. A monopolistically competitive industry shares some of the same characteristics as perfect competition, including: A) many firms making economic profit in the long run. B) easy entry and exit. C) identical products. D) easy entry and exit and identical products. Use the following to answer question 6: Figure: Profit Maximization in Monopolistic Competition 6. (Figure: Profit Maximization in Monopolistic Competition). When the demand curve for a firm in monopolistic competition shifts, the marginal revenue curve: A) must also shift. B) shifts in the opposite direction. C) will stay the same. D) will shift, but the profit-maximizing quantity will not change. 7. Which of the following is true? A) Monopolistic competition and perfect competition are both inefficient. Page 2
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B) Monopolistic competition is efficient because of product differentiation. C) The inefficiency of monopolistic competition may be a small price to pay for the wide range of product choices it offers. D) The inefficiency of monopolistic competition is a result of advertising expenses. Use the following to answer question 8: Figure: Profit Maximization in Monopolistic Competition 8. (Figure: Profit Maximization in Monopolistic Competition) In panel A, if the firm raises its price above P, it will: A) lose all its customers. B) still have some customers. C) not lose any customers. D) gain many new customers. 9. If a firm under monopolistic competition is producing a quantity that generates MC > MR, then the marginal decision rule tells us that profit: A) can be increased by increasing production. B) can be increased by decreasing production. C) can be increased by decreasing the price. Page 3
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D) is maximized only if MC = P.
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CH16 - Name: _ Date: _ 1. Advertising is an economically...

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