46) If price is less than average cost in a monopolistically competitive market
A) there is an incentive for firms to exit the market.
B) there is profit incentive for firms to enter the market.
C) the market must be in long-run equilibrium.
D) there is no incentive for the number of firms in the market to change.
47) If profits in a monopolistically competitive market are positive, we can conclude that
A) price is equal to average cost.
B) price is greater than average cost
C) the market is in long-run equilibrium.
D) price is less than average cost.
48) Suppose Wave detergent is sold in a monopolistically competitive market. If the price of Wave detergent is currently $6, and the average cost of producing Wave is $4, in the long run we can expect
A) firms to enter the detergent market and sell products similar to Wave, shifting the demand curve for Wave to the left.
B) firms to enter the detergent market and sell product similar to Wave, shifting the demand curve for Wave to the right.
C) the producers of Wave to go out of business.
D) the producers of Wave to earn economic profits greater than zero.
49) Suppose Toor’s beer is sold in a monopolistically competitive market. If the price of Toor’s is currently $2 and the average cost of producing Toor’s is $1, in the long run we can expect
A) the demand for Toor’s beer to increase.
B) the price of Toor’s beer to decrease, and the average cost of producing Toor’s to increase.
C) the demand curve for Toor’s beer to become horizontal.
D) no change in the price or average cost of producing Toor’s beer.
50) Suppose Toor’s beer is sold in a monopolistically competitive market. In the long run we expect the price of Toor’s beer to
A) equal the average cost of production of Toors beer.
B) exceed the average cost of production of Toors beer.
C) equal the marginal cost of production for Toors beer.
D) equal the minimum possible average cost of producing Toors beer.
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Figure 8.1
51) Figure 8.1 depicts demand and costs for a monopolistically competitive firm. At the profit maximizing output level,
A) this firm is earning economic profits equal to zero.
B) this firm is earning economic profits equal to Q1(P1 – AC1).
C) this firm is earning economic profits equal to P1(Q1 – AC1).
D) this firm is in long-run equilibrium.
52) If Figure 8.1 depicts the current situation for a monopolistically competitive firm, then in the long run we expect
A) the firm’s demand curve to shift to the left.
B) the firm’s demand curve to shift to the right.
C) the price of the good to increase.
D) the quantity of the good sold by the firm to increase.
53) If Figure 8.1 depicts the current situation for a monopolistically competitive firm, then in the long run we expect
A) the firm to charge a price higher than P1.
B) the firm to produce and sell more than Q1.
C) the average costs of production to decrease below AC1.
D) the firm to charge a price lower than P1.
54) If Figure 8.1 depicts the current situation for a monopolistically competitive firm, then in the long run we expect
A) the firm to charge a price higher than P1.
B) the firm to produce and sell more than Q1.
C) the firm’s average cost of production to rise above AC1.
D) the firm to earn higher economic profits.
55) Profits for the monopolistically competitive firm depicted in Figure 8.1
A) will increase in the long run.
B) will not change in the long run.
C) will decrease in the long run.
D) are impossible to predict in the long run.
