Question

1. Monopolistically competitive industries differ from perfectly competitive industries in that:

a. there are barriers to entry in the former but not the latter

b. there are few producers in monopolistically competitive industries and many in perfect competition

c. there is product differentiation in monopolistically competitive industries but not in perfect competition

d. monopolistic competition has easy entry

2. In the market for peaches, we observe both market equilibrium price and quantity increase.  What could have caused this change?

a. an increase in supply and a decrease in demand

b. an increase in demand

c. an increase in supply

d. a decrease in supply

3. A decrease in the price of inputs into production causes:

a. market supply to decrease, driving market equilibrium price down

b. market supply to increase, increasing market equilibrium price

c. market supply to increase, decreasing market equilibrium price

d. quantity supplied to increase, raising market equilibrium price

4. A decrease in the price of vacuum cleaners causes a decrease in the total revenue of vacuum cleaner manufacturers. The price elasticity of demand for vacuum cleaners is:

a. positive and elastic

b. inelastic

c. elastic

d. positive and inelastic

Answer 1

1. The right answer is option C, in the monopolistically competitive industries there is a product differentiation which leads to different price system in this industry, on the other hand , there is no product differentiation in the perfect competition and each firm charges the same price level.

2. The right answer is option B, an increase in demand will lead to shift in the demand curve that will increase both the market equilibrium price and quantity.

3. The right answer is option C, a decrease in the price of inputs will make it cheaper to hire more inputs and increase the output. As the output increases the market supply will increase which will lead to decrease in the market equilibrium price.

4. The right answer is option B, when the price elasticity of demand is inelastic both the price and total revenue changes in the same direction, that is, if the price decreases the total revenue decreases and if the price increases the total revenue increases.