A monopolistically competitive firm earning profits

7) A monopolistically competitive firm earning profits in the short run will find the demand for
its product decreasing and becoming more elastic in the long run as new firms move into the
industry until
A) the original firm is driven into bankruptcy.
B) the firm's demand curve is perfectly elastic.
C) the firm's demand curve is tangent to its average total cost curve.
D) the firm exits the market.
Answer: C
8) In the long run, what happens to the demand curve facing a monopolistically competitive firm
that is earning short-run profits?
Figure 13-11
10) Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing output?
11) Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing price in the
Long Run?

12) Refer to Figure 13-11. The firm represented in the diagram
A) makes zero economic profit.
B) makes zero accounting profit.
C) should exit the industry.
D) should expand its output to take advantage of economies of scale.
Answer: A
13) Refer to Figure 13-11. What is the productively efficient output for the firm represented in
the diagram?
14) Refer to Figure 13-11. What is the allocatively efficient output for the firm represented in
the diagram?
16) Refer to Figure 13-11. What is the amount of excess capacity?
17) Why do most firms in monopolistic competition typically make zero profit in the long run?
A) because firms produce differentiated products
B) because the lack of entry barriers would compete away profits
C) because firms do not produce at their minimum efficient scale
D) because the total market is not large enough to accommodate so many firms
Answer: B
25) Which of the following describes the relative positions of the demand curve and the average
total cost ( ATC ) curve of a monopolistically competitive firm that earns a profit in the short run?