CLEP Microeconomics chapter practice4 questions

25 Monopolistic Competition

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

A monopolistically competitive firm faces downward-sloping demand primarily because

Differentiation gives each seller a group of buyers who do not view rivals as perfect substitutes, creating downward-sloping firm demand.
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B. its product differs from rivals' products

Differentiation gives each seller a group of buyers who do not view rivals as perfect substitutes, creating downward-sloping firm demand.

Question 2

Question 2 of 4

Positive economic profit in monopolistic competition will normally cause

Entry adds substitutes and divides the market, shifting each incumbent's demand left until economic profit disappears.
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A. entry, reducing each incumbent's demand

Entry adds substitutes and divides the market, shifting each incumbent's demand left until economic profit disappears.

Question 3

Question 3 of 4

In long-run equilibrium, a monopolistically competitive firm typically has

Entry eliminates economic profit, but differentiation leaves the firm on a downward-sloping demand curve where price exceeds marginal cost.
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E. zero economic profit but price above marginal cost

Entry eliminates economic profit, but differentiation leaves the firm on a downward-sloping demand curve where price exceeds marginal cost.

Question 4

Question 4 of 4

Excess capacity means that the firm

The long-run tangency occurs to the left of minimum ATC, so the firm produces below the scale that minimizes average cost.
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C. produces less than the output that minimizes ATC

The long-run tangency occurs to the left of minimum ATC, so the firm produces below the scale that minimizes average cost.

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