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ECON 402 EX 3 || A+ Verified Solutions.
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Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it? A) productive efficiency B) allocative efficiency C) marginal efficiency D) profit maxim...

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  • August 16, 2024
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  • 2024/2025
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ECON 402 EX 3 || A+ Verified Solutions.
Which of the following describes a situation in which every good or service is produced up to the
point where the last unit provides a marginal benefit to consumers equal to the marginal cost of
producing it?
A) productive efficiency B) allocative efficiency C) marginal efficiency D) profit maximizatio
correct answers B) Allocative efficiency

One reason why the coffeehouse market is competitive is that...
A) demand for specialty coffee is very high.
B) it is trendy and therefore is likely to have a customer following.
C) barriers to entry are low.
D) consumption takes place in public. correct answers C) Barriers to entry are low

The key characteristics of a monopolistically competitive market structure include
A) many small (relative to the total market) sellers acting independently.
B) all sellers sell a homogeneous product. C) barriers to entry are strong.
D) sellers have no incentive to advertise their products. correct answers A) Many small (relative
to the total land market) sellers acting independently

Which of the following characteristics is common to monopolistic competition and perfect
competition?
A) Firms produce identical products.
B) Entry barriers into the industry are low.
C) Each firm faces a downward -sloping demand curve.
D) Firms take market prices as given correct answers B) Entry barriers into the industry are low

What is the profit-maximizing rule for a monopolistically competitive firm?
A) to produce a quantity that maximizes market share
B) to produce a quantity that maximizes total revenue
C) to produce a quantity such that marginal revenue equals marginal cost
D) to produce a quantity such that price equals marginal cost correct answers C) to produce a
quantity such that marginal revenue equals marginal cost

Unlike a perfectly competitive firm, for a monopolistically competitive firm...
A) price ≠ marginal cost for all output levels.
B) price ≠ marginal revenue for all output levels.
C) price ≠ average revenue for all output levels.
D) marginal revenue = marginal cost at the profit-maximizing output. correct answers B) price ≠
marginal revenue for all output levels.

A monopolistically competitive industry that earns economic profits in the short run will
A) continue to earn economic profits in the long run.
B) experience the entry of new rival firms into the industry in the long run.
C) experience the exit of existing firms out of the industry in the long run.

, D) experience a rise in demand in the long run. correct answers B) experience the entry of new
rival firms into the industry in the long run.

A monopolistically competitive firm that is earning profits will, in the long run, experience all of
the following except
A) new rivals entering the market.
B) a decrease in demand for its product. C) demand for the firm's product becomes more elastic.
D) a decrease in the number of rival products. correct answers D) a decrease in the number of
rival products

You are planning to open a new Italian restaurant in your hometown where there are three other
Italian restaurants. You plan to distinguish your restaurant from your competitors by offering
northern Italian cuisine and using locally grown organic produce. What is likely to happen in the
restaurant market in your hometown after you open?
A) Your competitors are likely to change their menus to make their products more similar to
yours.
B) The demand curve facing each restaurant owner shifts to the right.
C) The demand curve facing each restaurant owner becomes more elastic.
D) While the demand curves facing your competitors becomes more elastic, your demand curve
will be inelastic. correct answers C) the demand curve facing each restaurant owner becomes
more elastic

How does the long run equilibrium of a monopolistically competitive industry differ from that of
a perfectly competitive industry?
A) A firm in monopolistic competition will earn economic profits but a firm in perfect
competition earns zero profit.
B) A firm in monopolistic competition will charge a price higher than the average cost of
production
but a firm in perfect competition charges a price equal to the average cost of production.
C) A firm in monopolistic competition does not take full advantage of its economies of scale but
a firm in perfect competition produces at the lowest average cost possible.
D) A firm in monopolistic competition produces an allocatively efficient output level while a
firm in perfect competition produces a productively efficient output level. correct answers C) A
firm in monopolistic competition does not take full advantage of its economies of scale but a
firm in perfect competition produces at the lowest average cost possible.

Which of the following is not a characteristic of long-run equilibrium in a monopolistically
competitive market?
A) Selling price equals average total cost.
B) Production is at minimum average total cost.
C) Marginal revenue equals marginal cost.
D) Selling price is greater than marginal cost. correct answers B) Production is at minimum
average total cost

For allocative efficiency to hold....
A) price must equal marginal revenue of the last unit sold.

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