1. Which is a characteristic of monopolistic competition? A) standardized product C) absence of nonprice competition B) a relatively small number of firms D) relatively easy entry 2. In which industry is monopolistic competition most likely to be found? A) utilities B) agriculture C) retail trade D) mining 3. One difference between monopolistic competition and pure competition is that: A) products can be standardized or differentiated in pure competition. B) there is some control over price in monopolistic competition. C) monopolistic competition has significant barriers to entry. D) firms differentiate their products in pure competition. 4. The monopolistically competitive seller's demand curve will become more elastic the: A) larger the number of competitors. C) more significant the barriers to entry. B) greater the degree of product differentiation. D) smaller the number of competitors. 5. A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating: A) with a profit in the short run. B) with a loss in the short run. C) at the break-even level of output in the short run. D) at an efficient level of output in the short run. 6. Refer to the above graph. In the short run, this monopolistically competitive firm will set price at: A) $65 and produce 45 units of output. C) $50 and produce 35 units of output. B) $65 and produce 35 units of output. D) $50 and produce 50 units of output. 7. Refer to the above graph. This monopolistically competitive firm is: A) making economic profit in the long run. C) earning only normal profit in the long run. B) making economic profit in the short run. D) earning only normal profit in the short run. 8. If monopolistically competitive firms in an industry are making an economic profit, then: A) new firms will enter the industry and product demand will increase for the existing firms. B) firms will exit the industry and product demand will decrease for the firms that remain. C) firms will exit the industry and product demand will increase for the firms that remain. D) new firms will enter the industry and product demand will decrease for the existing firms. 9. Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to: A) shift to the left. B) shift to the right. C) become more elastic. D) remain the same since entering firms serve other customers in the market. 10. Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph: A) A. B) B. C) C. D) D. 11. Refer to the above graphs. A short-run equilibrium that would produce losses for a monopolistically competitive firm would be represented by graph: A) A. B) B. C) ...

1. 1. Which is a characteristic of monopolistic competition?
A) standardized product C) absence of nonprice
competition
B) a relatively small number of firms D) relatively
easy entry
2. In which industry is monopolistic competition most likely to
be found?
A) utilities B) agriculture C) retail trade D)
mining
3. One difference between monopolistic competition and pure
competition is that:
A) products can be standardized or differentiated in pure
competition.
B) there is some control over price in monopolistic
competition.
C) monopolistic competition has significant barriers to
entry.
D) firms differentiate their products in pure competition.
4. The monopolistically competitive seller's demand curve will
become more elastic the:
A) larger the number of competitors. C) more
significant the barriers to entry.
B) greater the degree of product differentiation. D)
smaller the number of competitors.
5. A monopolistically competitive firm is producing at an
output level in the short run where average total cost is $4.50,
price is $4.00, marginal revenue is $2.50, and marginal cost is
$2.50. This firm is operating:

2. A) with a profit in the short run.
B) with a loss in the short run.
C) at the break-even level of output in the short run.
D) at an efficient level of output in the short run.
6. Refer to the above graph. In the short run, this
monopolistically competitive firm will set price at:
A) $65 and produce 45 units of output. C) $50 and
produce 35 units of output.
B) $65 and produce 35 units of output. D) $50 and
produce 50 units of output.
7. Refer to the above graph. This monopolistically competitive
firm is:
A) making economic profit in the long run. C) earning
only normal profit in the long run.
B) making economic profit in the short run. D) earning
only normal profit in the short run.
8. If monopolistically competitive firms in an industry are
making an economic profit, then:
A) new firms will enter the industry and product demand
will increase for the existing firms.
B) firms will exit the industry and product demand will
decrease for the firms that remain.
C) firms will exit the industry and product demand will
increase for the firms that remain.
D) new firms will enter the industry and product demand
will decrease for the existing firms.
9. Suppose some firms exit an industry characterized by
monopolistic competition. We would expect the demand curve
of a firm already in the industry to:
A) shift to the left.
B) shift to the right.

3. C) become more elastic.
D) remain the same since entering firms serve other
customers in the market.
10. Refer to the above graphs. A short-run equilibrium that
would produce profits for a monopolistically competitive firm
would be represented by graph:
A) A. B) B. C) C. D) D.
11. Refer to the above graphs. A short-run equilibrium that
would produce losses for a monopolistically competitive firm
would be represented by graph:
A) A. B) B. C) C. D) D.
12. Refer to the above graphs. The long-run equilibrium for a
monopolistically competitive firm is represented by graph:
A) A. B) B. C) C. D) D.
13. Refer to the above graph of the representative firm in
monopolistic competition. The long-run equilibrium price and
output for this firm will be:
A) A and C. B) B and D. C) A and D. D) B and
C.
In monopolistic competition, there is:
A) allocative efficiency. C) both allocative and
productive efficiency.
B) productive efficiency. D) neither allocative nor
productive efficiency.
Micro Chapter 20 Practice Problems #2 Key

4. 1. Refer to the above table. The total variable cost of
producing 5 units is:
A) $10. B) $14.60. C) $63. D) $73.
2. Refer to the above table. The average total cost of
producing 3 units of output is:
A) $9.33. B) $10. C) $12.67. D) $38.
3. Refer to the above table. The average fixed cost for
producing 3 units of output is:
A) $3.33. B) $10. C) $12.67. D) $38.
4. Refer to the above table. The marginal cost of producing the
sixth unit of output is:
A) $10. B) $16.33. C) $25. D) $98.
5. Refer to the above table. The average variable cost of
producing the first unit of output is:
A) $10. B) $20. C) $30. D) Unable to be
determined from the information given.
6. If you know that total fixed cost is $200, total variable cost is
$600, and total product is 4 units, then:
A) marginal cost is $50. C) average total cost is
$100.
B) average fixed cost is $100. D) average variable
cost is $150.
7. If you know that when a firm produces 10 units of output,
total costs are $1,030 and average fixed costs are $10, then total
fixed costs are:

5. A) $5. B) $100. C) $1,020. D) $1,040.
8. If you know that with 8 units of output, average fixed cost is
$12.50 and average variable cost is $81.25, then total cost at
this output level is:
A) $93.75. B) $97.78. C) $750. D) $880.
9. If average variable cost is $74 and total fixed cost is $100 at
5 units of output, then average total cost at this output level is:
A) $91. B) $94. C) $97. D) $100.
10. A firm has fixed costs of $5,000. Its average variable cost
is $2.00. At an output of 5,000 units its average total cost is:
A) $2.50. B) $3.00. C) $3.50. D) $4.00.
11. With fixed costs of $400, a firm has average total costs of
$3 and average variable costs of $2.50. Its output is:
A) 200 units. B) 400 units. C) 800 units. D)
1,600 units.
12. At an output of 1,000 units per year, a firm's variable costs
are $5,000 and its average fixed costs are $3. Its total costs per
year are:
A) $10,000. B) $8,000. C) $6,000. D) $5,000.
13. At an output level of 50 units per day a firm has average
total costs of $60 and average variable costs of $35. Its total
fixed costs are:
A) $925. B) $1,250. C) $1,750. D) $3,000.
14. Refer to the above graph. It shows the total cost curves.
Total fixed cost at output level Q2 is measured by:

6. A) 0B. B) AC. C) CD. D) DE.
15. At any level of output:
A) average variable cost will exceed average total cost in
the short run.
B) marginal cost will exceed average variable cost by the
level of average fixed cost.
C) average variable cost will exceed average fixed cost
by the level of average total cost.
D) average total cost will exceed average variable cost
by the level of average fixed cost.
16. Marginal cost can be defined as the:
A) change in fixed cost resulting from one more unit of
production.
B) difference between fixed and variable cost at any
level of output.
C) amount which one more unit of output adds to total
cost.
D) difference between price and average total cost at the
profit-maximizing level of output.
17. When marginal cost is increasing:
A) total cost must be increasing.
B) average total cost must be increasing.
C) average total cost must be decreasing.
D) average fixed costs might be increasing or decreasing.
The fixed cost of the firm is $500. The firm's total variable cost
is indicated in the table.
18. Refer to the above table and information. The average
variable cost of the firm when 5 units of output are produced is:
A) $100. B) $200. C) $300. D) $400.

7. 19. Refer to the above table and information. The average total
cost of the firm when 3 units of output are being produced is:
A) $350. B) $400. C) $500. D) $700.
20. Refer to the above table and information. The marginal cost
of the sixth unit of output is:
A) $400. B) $600. C) $1400. D) $1600.
21. Refer to the above table. The total cost of five units of
output will be:
A) $290. B) $320. C) $420. D) $500.
Answer: C
22. Refer to the above table. The average fixed cost of four
units of output will be:
A) $40.00. B) $50.00. C) $66.67. D) $100.00.
23. Refer to the above table. The average total cost of two units
of output will be:
A) $90.00. B) $106.67. C) $145.00. D) $250.00.
24. Refer to the above table. The marginal cost of the third unit
of output is:
A) $30. B) $40. C) $45. D) $50.
25. Refer to the above table. If output is zero, total cost is:
A) $90. B) $50. C) $40. D) $0.

8. 26. Refer to the above table. The total cost of producing 20
units of output is:
A) $50. B) $80. C) $120. D) $130.
27. Refer to the above table. The total variable cost of
producing 35 units of output is:
A) $90. B) $120. C) $160. D) $210.
28. Refer to the above table. The average total cost of
producing 35 units of output is:
A) $1.41. B) $4.57. C) $6.00. D) $7.00.
29. Refer to the above graph. At which point is marginal
product (MP) at its maximum?
A) point A B) point B C) point C D) point D
30. Refer to the above graph. At which point does marginal
product (MP) equal average product (AP) at a level of output?
A) point A B) point B C) point C D) point D
31. If marginal cost is below average variable cost:
A) average total cost is increasing but average variable
cost is decreasing.
B) both average total cost and average variable cost are
decreasing.
C) both average total cost and average variable cost are
increasing.
D) average variable cost is less than average fixed cost.
The following cost data are for a firm in the short run:

9. 32. What is the firm's average variable cost at an output of 5
units?
A) $30 B) $60 C) $120 D) $140
33. If marginal cost exceeds average variable cost, then:
A) average variable cost must be increasing.C) average
fixed costs must be increasing.
B) average total cost must be increasing. D)
marginal cost must be decreasing.
34. At an output of 20,000 units per year, a firm's variable costs
are $80,000 and its average fixed costs are $3. The total costs
per year for the firm are:
A) $80,000. B) $100,000. C) $140,000. D)
$240,000.
35. A firm encountering economies of scale over some range of
output will have a:
A) rising long-run average cost curve.
B) falling long-run average cost curve.
C) constant long-run average cost curve.
D) rising, then falling, then rising long-run average cost
curve.
36. The term diseconomies of scale is reflected in:
A) decreasing short-run average costs. C) increasing
short-run marginal costs.
B) increasing long-run average costs. D) decreasing
long-run prices.
37. If the long-run average total cost curve for a firm is
horizontal in the relevant range of production, then it indicates
that there:
A) is a minimum efficient scale. C) are diseconomies
of scale.

10. B) are constant returns to scale. D) are economies of
scale.
38. Refer to the above graph. There are economies of scale:
A) to the left of point A. C) at points A and B.
B) to the right of point B. D) between points A and
B.
39. Refer to the above graph. There are diseconomies of scale:
A) to the left of point A. C) at points A and B.
B) to the right of point B. D) between points A and
B.
Output
Tota
l variable cost
1
$ 400
2
720
3
1000
4

11. 1400
5
2000
6
3600
Total
Total
Average
fixed
variable
variable
Output
cost
cost
cost
$ 0
$200

12. $ 0
1
200
50
$50.00
2
200
90
45.00
3
200
120
4
0.00
4
200
160
40.00

13. 5
200
220
44.00
Input
workers)
Output
TFC
TVC
Total cost
0
0
50
0

14. 1
8
50
40
90
2
20
50
80
3
28
50
120
170
4

15. 35
50
210
5
41
50
200
250
Output
Total cost
0
$
400
1
500
2

16. 550
3
600
4
650
5
700
Q
$
0
M
i
n
i
m
u
n
A
T
C
A
B
LRATC
0

17. 10
20
35
45
50
50
55
65
80
90
MC
ATC
D
MR
Quantity of output (units)
D
o
l
l
a
r
s
(
$
)
P
MC
ATC
(A)
D
Q
MR
0
P
0

18. MR
Q
D
ATC
MC
(B)
P
MR
Q
D
ATC
MC
(D)
P
MC
ATC
0
0
Q
(C)
D=MR
Output
Total cost
0
$10
1
20
2

19. 28
3
38
4
53
5
73
6
98
1.
Which is a characteristic of monopolistic competition?
A)
standardized product
C)

20. absence of nonprice competition
B)
a relatively small number of firms
D)
relatively easy entry
2.
In which industry
is monopolistic competition most likely to be found?
A)
utilities B) agriculture C) retail trade D) mining
3.
One difference between monopolistic competition and pure
competition is that:
A)
products can be standardized or different
iated in pure competition.
B)

21. there is some control over price in monopolistic competition.
C)
monopolistic competition has significant barriers to entry.
D)
firms differentiate their products in pure competition.
4.
The monopolistically compe
titive seller's demand curve will become more elastic the:
A)
larger the number of competitors.
C)
more significant the barriers to entry.
B)
greater the degree of product differentiation.
D)
smaller the number of
competitors.

22. 5.
A monopolistic
ally competitive firm is producing at an output level in the short
run where average total cost is
$4.50, price is $4.00, marginal revenue is $2.50, and marginal
cost is $2.50. This firm is operating:
A)
with a profit in the short run.
B)
with a loss in
the short run.
C)
at the break
-
even level of output in the short run.
D)
at an efficient level of output in the short run.
6.
Refer to the above graph. In the short run, this

23. monopolistically competitive firm will set price at:
A)
$65 and
produce 45 units of output.
C)
$50 and produce 35 units of output.
B)
$65 and produce 35 units of output.
D)
$50 and produce 50 units of output.
7.
Refer to the above graph. This monopolistically competitive
firm is:
A)
making economic profit
in the long run.
C)
earning only normal profit in the long run.

24. B)
making economic profit in the short run.
D)
earning only normal profit in the short run.
8.
If monopolistically competitive firms in an industry are making
an economic profit,
then:
0
10
20
35
45
50
50
55
65
80
90
MC
ATC
D
MR
Quantity of output (units)
D
o
l
l

25. a
r
s
(
$
)
1. Which is a characteristic of monopolistic competition?
A) standardized product C) absence of nonprice competition
B) a relatively small number of firms D) relatively easy entry
2. In which industry is monopolistic competition most likely to
be found?
A) utilities B) agriculture C) retail trade D) mining
3. One difference between monopolistic competition and pure
competition is that:
A) products can be standardized or differentiated in pure
competition.
B) there is some control over price in monopolistic
competition.
C) monopolistic competition has significant barriers to entry.
D) firms differentiate their products in pure competition.
4. The monopolistically competitive seller's demand curve will
become more elastic the:
A) larger the number of competitors. C) more significant the
barriers to entry.
B) greater the degree of product differentiation. D) smaller the
number of
competitors.
5. A monopolistically competitive firm is producing at an
output level in the short run where average total cost is

26. $4.50, price is $4.00, marginal revenue is $2.50, and marginal
cost is $2.50. This firm is operating:
A) with a profit in the short run.
B) with a loss in the short run.
C) at the break-even level of output in the short run.
D) at an efficient level of output in the short run.
6. Refer to the above graph. In the short run, this
monopolistically competitive firm will set price at:
A) $65 and produce 45 units of output. C) $50 and produce 35
units of output.
B) $65 and produce 35 units of output. D) $50 and produce 50
units of output.
7. Refer to the above graph. This monopolistically competitive
firm is:
A) making economic profit in the long run. C) earning only
normal profit in the long run.
B) making economic profit in the short run. D) earning only
normal profit in the short run.
8. If monopolistically competitive firms in an industry are
making an economic profit, then:
0
1020354550
50
55
65
80
90
MC
ATC
D
MR
Quantity of output (units)

27. D
o
l
l
a
r
s
(
$
)