26) For a monopolistically competitive firm the firm’s demand curve is A) downward sloping. B) horizontal. C) upward sloping. D) none of the above 27) Which of the following is a characteristic of a monopolistically competitive market? I. Firms sell differentiated products. II. Each firm’s product is a close substitute for other firms’ products. III. Firms freely enter and exit the market. A) I only B) I and III only C) II and III only D) I II and III 28) Which of the following is a characteristic of a monopolistically competitive market? I. Firms sell differentiated products. II. Each firm earns a positive economic profit in the long-run. III. Firms freely enter and exit the market. A) II only B) I and II only C) I and III only D) I II and III 29) Which of the following is a characteristic of a monopolistically competitive market? I. Firms sell differentiated products. II. Each firm is earning a zero economic profit in the long-run. III. Potential entrants face artificial barriers to entry. A) I only B) I and II only C) II and III only D) I II and III 30) Suppose you operate in a monopolistically competitive market. If you sell your good at a price of $10 and your average cost of production is $8 A) your market is in long-run equilibrium. B) we can expect firms to enter your market and sell a similar good in the long run. C) there will be no incentive for competing firms to enter your market in the long-run. D) you cannot be in short-run equilibrium. 31) Suppose you operate in a monopolistically competitive market. If you sell your good at a price of $20 and your average cost of production is $15 A) your market may be in long-run equilibrium. B) you cannot be in short-run equilibrium. C) you should expect competing firms to enter your market and shift the demand curve for your good to the left. D) you should expect competing firms to enter your market and shift the demand curve for your good to the right. 32) Under the conditions of monopolistic competition A) firm profits are higher in the long run than in the short run. B) average costs of production are the same in the short run as they are in the long run. C) economic profit is zero in the long run. D) price equals marginal cost. 33) If short-run economic profits are greater than zero for firms in a monopolistically competitive market in the long run we expect A) entry barriers to prevent competing firms from entering this market. B) the demand curve for firms in the market to shift to the right. C) competing firms to enter the market and sell similar products. D) profits to increase. 34) If short-run economic profits are greater than zero for firms in a monopolistically competitive market in the long run we expect A) entry barriers to prevent competing firms from entering this market. B) the demand curve for firms in the market to shift to the right. C) the average cost of production to decrease. D) the average cost of production to increase. 35) Suppose in the city of Smugsburg DVD rental stores operate in a monopolistically competitive market. If the price of DVD rentals in Smugsburg is currently equal to $5 per tape and the average cost of renting videos is $1 per DVD in the long run we expect the price of renting DVDs to A) increase. B) stay the same. C) decrease and the average cost of producing DVD rentals to increase. D) decrease and the average cost of producing DVD rentals to decrease.
