Question

1. In monopolistic competition, the long-run equilibrium results in zero economic profit of the firms in these industries. The key factor in this is
   a.   differentiated products.
   b.   freedom of entry into and exit from the industry.
   c.   price discrimination.
   d.   brand names.

2. In the long run, a monopolistically competitive industry is characterized by all of the following, except
   a.   an efficient use of resources.
   b.   production that would exhibit lower costs per unit at higher output levels.
   c.   firms producing where price is above marginal cost.
   d.   firms earning zero economic profits.

3. For a perfectly competitive firm in the short run, if the following conditions are true, P = MR = MC > AC, then
   a.   the firm is maximizing profits and is suffering an economic loss.
   b.   the firm is not maximizing profits but is making an economic profit.
   c.   the firm is not maximizing profits and is not making an economic profit.
   d.   the firm is maximizing profits and is making an economic profit.

4. Probably the simplest approach to the problem of oligopolistic interdependence is to
   a.   increase the firm’s advertising outlay considerably.
   b.   ignore the actions of rivals.
   c.   conduct market experiments.
   d.   assume that rivals will pursue a course most detrimental to the firm concerned.

5. Which of the following is concerned with the distribution part of resource allocation?
   a.   An economy decides to produce equal quantities wheat, rice, and clothes.
   b.   An economy decides to use more labor for producing wheat and rice.
   c.   An economy decides to ration 40 percent of its output to low income groups.
   d.   An economy decides to use 25 percent of the available capital for producing clothes.

6. ”Peak” pricing can best be defined as
   a.   raising price to determine elasticity.
   b.   setting price higher when demand is more elastic.
   c.   setting higher prices to reflect higher demand.
   d.   pricing to obtain maximum profit.

Answer 1

1. .(B) freedom of entry into and exit from the industry.

reason in the long‐run. no barriers to entry exist in a monopolistically competitive market; it will increase the firms supply leads to fall in the price and leads to profit to near Average cost and firm earn zero economic profit

2. (B) production that would exhibit lower costs per unit at higher output levels.

when increase in production takes places in the monopolistic market then higher production leads to increase in per unit cost. this is not a characteristic of monopolistic competition.

3. d.   the firm is maximizing profits and is making an economic profit.

if Price =MR=MC> Ac in this situation firm will maximize profit and earning economic profit when price is higher then short run AC then it will definitely earn economic profit.

4. (B)

this is the simplest approach to problem of interdependence. oligopolist does not allow to be affected by rival action it will help them to grow and build.

5.(A) an  economy decides to produce equal quantities wheat, rice, and clothes.

efficient resources allocation follow equal distribution of resources to be used in production process so equal production of various goods take place.

6 (C) . setting higher prices to reflect higher demand.

Peak pricing is additional fee that would be charged during times of the year when demand is the highest.