Which of the following statements best describes firms under monopolistic competition?
A. There is little price or quality competition.
B. The firms compete, using quality, location, advertising, and price.
C. Firms do not compete using advertising.
D. There is only one firm so there is no competition.
Answer: B
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A multi-plant firm has three plants and, at its current production levels, the marginal cost of production at each of the three plants is $2. If the firm is perfectly competitive and the market price of its product is $6, which of the following is true?
A) The firm should decrease output at each of the plants to maximize profit. B) The firm is producing the profit-maximizing total output. C) The firm should exactly triple output in each of the plants to maximize profit. D) The firm should increase output at each of the plants to maximize profit.
Firms in the market for dog food are selling in a purely competitive market. A firm producing dog food has an output of 10,000 pounds of dog food, for which it sells for $0.50 a pound. At the output level of 10,000 pounds the average variable cost is
$0.30, the average total cost is $0.70, and the marginal cost is $0.50. What would you expect the firm to do in the short run? The market in the long run? What will be an ideal response?
Refer to the information provided in Figure 3.1 below to answer the question(s) that follow.
Figure 3.1Refer to Figure 3.1. Which of the following would be most likely to cause the demand for Dr. Pepper to shift from D0 to D1?
A. a reduction in the price of sugar used to make Dr. Pepper B. an increase in the price of 7-UP, assuming 7-UP is a substitute for Dr. Pepper C. a decrease in income, assuming that Dr. Pepper is a normal good D. a decrease in the price of Dr. Pepper
Excess capacity implies:
A. Productive inefficiency B. Allocation inefficiency C. Productive efficiency D. Allocation efficiency