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Scenario 16-3 Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.) Scenario 16-3 Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.) -Refer to Scenario 16-3. When Peter maximizes his profits, what is his total cost per day? -Refer to Scenario 16-3. When Peter maximizes his profits, what is his total cost per day?

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A markup of price over marginal cost is inconsistent with free entry and zero profit.

A) True
B) False

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Figure 16-4 Figure 16-4 -Refer to Figure 16-4. The firm in this figure is monopolistically competitive. This firm A) is operating in the long run. B) is earning a short-run economic profit. C) is incurring a short-run loss. D) The answer cannot be determined from the information given. -Refer to Figure 16-4. The firm in this figure is monopolistically competitive. This firm


A) is operating in the long run.
B) is earning a short-run economic profit.
C) is incurring a short-run loss.
D) The answer cannot be determined from the information given.

E) All of the above
F) B) and D)

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When a firm operates with excess capacity, it must be in a monopolistically competitive market.

A) True
B) False

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Figure 16-2. The figure is drawn for a monopolistically competitive firm. Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. In order to maximize profit, the firm will charge a price of A) $16. B) $24. C) $32. D) $36. -Refer to Figure 16-2. In order to maximize profit, the firm will charge a price of


A) $16.
B) $24.
C) $32.
D) $36.

E) B) and C)
F) C) and D)

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A monopolistically competitive firm


A) has the usual deadweight loss of monopoly pricing.
B) experiences a zero profit in a long-run equilibrium.
C) is said to have excess capacity.
D) All of the above are correct.

E) A) and D)
F) B) and C)

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Figure 16-5 Figure 16-5 -Refer to Figure 16-5. Panel a shows a profit-maximizing monopolistically competitive firm that is A) earning zero economic profit. B) likely to exit the market in the long run. C) producing its efficient scale of output. D) not maximizing its profit. -Refer to Figure 16-5. Panel a shows a profit-maximizing monopolistically competitive firm that is


A) earning zero economic profit.
B) likely to exit the market in the long run.
C) producing its efficient scale of output.
D) not maximizing its profit.

E) B) and C)
F) A) and B)

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Among the following situations, which one is least likely to apply to a monopolistically competitive firm?


A) profit is positive in the short run
B) total cost exceeds total revenue in the short run
C) profit is positive in the long run
D) total revenue equals total cost in the long run

E) All of the above
F) A) and B)

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An oligopoly is a market in which


A) there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market.
B) firms are price takers.
C) the actions of one seller in the market have no impact on the other sellers' profits.
D) there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.

E) C) and D)
F) A) and B)

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Excess capacity is


A) an example of the inefficiencies of monopolistically competitive markets.
B) a short-run problem but not a long-run problem.
C) a characteristic of rising average total cost curves.
D) Both a and b are correct.

E) None of the above
F) B) and D)

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Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what price would a profit-maximizing monopolist charge for the product?


A) P = 0
B) P = 5
C) P = 10
D) P = 20

E) None of the above
F) C) and D)

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Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry.

A) True
B) False

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A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?


A) average revenue exceeds marginal revenue
B) marginal revenue exceeds average revenue
C) average revenue is equal to marginal revenue
D) revenue is always maximized along with profit

E) None of the above
F) A) and B)

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Figure 16-9 The figure is drawn for a monopolistically-competitive firm. Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. In response to the situation represented by the figure, we would expect A) new firms to enter the market. B) some of the firms that are currently in the market to exit. C) this firm's profit to move from its current value toward a positive value. D) None of the above are correct. -Refer to Figure 16-9. In response to the situation represented by the figure, we would expect


A) new firms to enter the market.
B) some of the firms that are currently in the market to exit.
C) this firm's profit to move from its current value toward a positive value.
D) None of the above are correct.

E) A) and B)
F) B) and C)

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Which of the following goods are likely to be sold in a monopolistically competitive market?


A) jeans
B) breakfast cereal
C) electricity distribution in Chicago
D) postage stamps

E) A) and B)
F) A) and C)

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Figure 16-2. The figure is drawn for a monopolistically competitive firm. Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. If the average variable cost is $26 at the profit­maximizing quantity, and if the firm's profit is $40 at that quantity, then its fixed costs amount to A) $12. B) $152. C) $200. D) $240. -Refer to Figure 16-2. If the average variable cost is $26 at the profit­maximizing quantity, and if the firm's profit is $40 at that quantity, then its fixed costs amount to


A) $12.
B) $152.
C) $200.
D) $240.

E) All of the above
F) C) and D)

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New firms will likely enter a monopolistically competitive market when price exceeds


A) marginal revenue.
B) average revenue.
C) marginal cost.
D) average total cost.

E) All of the above
F) C) and D)

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Figure 16-14 Figure 16-14 -Refer to Figure 16-14. Which letter identifies the efficient level of output for this firm? -Refer to Figure 16-14. Which letter identifies the efficient level of output for this firm?

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Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with


A) information about the availability of the product.
B) information about product price.
C) a signal of product quality.
D) a good example of wasted resources.

E) None of the above
F) B) and C)

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Figure 16-12 Figure 16-12 -Refer to Figure 16-12. What, if any, long run adjustment will take place in this industry? -Refer to Figure 16-12. What, if any, long run adjustment will take place in this industry?

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