The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically ...

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:
 a. produce the output level at which price equals long-run marginal cost.
  b. operate at minimum long-run average cost.
  c. overutilize its insufficient capacity.
  d. produce the output level at which price equals long-run average cost.

QUESTION 2

The vertical and horizontal axes intercepts of the budget line represent the:
 a. quantity of goods that will be purchase if only that good is purchased.
  b. preference of one good compared to another good.
  c. quantity of each good that is outside the consumer's income.
  d. only two choices that will spend the entire budget.

QUESTION 3

A monopolistically competitive firm will:
 a. maximize profits by producing where MR = MC.
  b. not likely earn an economic profit in the long run.
  c. shut down if price is less than average variable cost.
  d. all of these.

QUESTION 4

The ratio of the price of good X on the horizontal axis to the price of good Y on the vertical axis is the ____ of the budget line.
 a. marginal rate
  b. slope
  c. marginal utility
  d. equalization rate

QUESTION 5

A monopolistically competitive market is characterized by:
 a. many small sellers selling a differentiated product.
  b. a single seller of a product that has few suitable substitutes.
  c. very strong barriers to entry.
  d. mutual interdependence in pricing decisions.

QUESTION 6

Assume the price of good X is Px, price of good Y is Py, and B is the budget. The formula for the budget line for these two goods is:
 a. PyQy / PxOx.
  b. PxB + PyB = B.
  c. PxX + PyY = B.
  d. (1  Py / B) Px.

QUESTION 7

In the long run, monopolistically competitive firms have:
 a. excess capacity.
  b. positive profits.
  c. minimal average costs.
  d. homogeneous production.