In the follow scenarios keep the model of monopolistic competition in mind. Scen
ID: 1109898 • Letter: I
Question
In the follow scenarios keep the model of monopolistic competition in mind.
Scenario A: A firm’s (using a technology with increasing returns to scale as described in class) average costs of production depend on
A. how firms discount the future
B. the size of the market.
C. whether the country engages in intra-industry trade.
D. the capital structure of the firm (i.e. how it finances its assets via equity vs. debt).
Scenario B: If a firm (using a technology with increasing returns to scale as described in class) charges a price equal to ________, then profit will be ________.
A. marginal cost; negative
B. marginal revenue; maximized
C. marginal cost; maximized
D. marginal cost; positive
Scenario C: The linear demand curve for the monopolistic competition model implies that if a firm’s price is _______ the industry average, its quantity sold will be ______ the industry average.
A. above; above
B. above; below
C. below; below
D. the same as; above
Scenario D: A(an) ________ in the number of firms in the industry will cause ________ to ________.
A. increase; marginal cost; decrease
B. increase; average cost; decrease
C. increase; markup; decrease
D. decrease; markup; decrease
In the follow scenarios keep the model of monopolistic competition in mind.
Explanation / Answer
Scenario A: A firm’s (using a technology with increasing returns to scale as described in class) average costs of production depend on
B. the size of the market.
Scenario B: If a firm (using a technology with increasing returns to scale as described in class) charges a price equal to ________, then profit will be ________.
D. marginal cost; positive
Scenario C: The linear demand curve for the monopolistic competition model implies that if a firm’s price is _______ the industry average, its quantity sold will be ______ the industry average.
B. above; below
Scenario D: A(an) ________ in the number of firms in the industry will cause ________ to ________.
A. increase; marginal cost; decrease
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