Question

1.)The monopolistically competitive firm faces a perfectly elastic demand curve.

True

False

2.)A local store noticed that when it increased the price of milk from $2.50 to $3.50 it sold exactly the same amount. Which statement below best describes what that means?

	A.	Demand is perfectly elastic.
	B.	Demand is relatively inelastic.
	C.	Demand is unitary elastic.
	D.	The law of demand is irrelevant.
	E.	The demand is perfectly inelastic.

3.)The increase in total cost from one more unit of output is ____.

	A.	total variable cost
	B.	marginal fixed cost
	C.	marginal variable cost
	D.	marginal cost

4.)When MR and MC intersect in two places, the profit-maximizing output will be the one from which MC crosses MR from below.

True

False

5.)For a perfectly competitive firm, the marginal revenue curve _____.

	A.	is horizontal
	B.	is vertical
	C.	is same as demand curve
	D.	lies above demand curve
	E.	lies below demand curve

Answer 1

Q1. False. A perfectly elastic demand curve is horizontal whereas a monopolistically competitive firm faces a downward facing demand curve

Q2. Option E. As the demand is inelastic the demand for good does not change

Q3. Option D. Increase in additional cost for an increase in output

Q4. True

Q5. Option A. As the price is constant for a perfectly competitive firm