1. Total economic profits equal

a. marginal revenue minus explicit and implicit marginal cost.
b. total revenue minus total explicit costs.
c. total revenue minus total explicit and implicit costs.
d. none of the above.

2. When we say that a firm earns "normal profits," we mean

a. marginal revenue minus explicit and implicit marginal costs is greater than zero.
b. total revenue minus total explicit costs equals zero.
c. total revenue minus total explicit and implicit costs is greater than zero.
d. total revenue minus total explicit and implicit equals zero.

3. Figure 1 shows the cost and demand curves for a monopolistic competitor. If the firm chooses the optimal level of output, it will

a. earn zero profits.
b. earn positive profits.
c. lose money.
d. We are not given sufficient information to say.

        Figure 1

4. Figure 1 therefore depicts a monopolistic competitor

a. who is a near monopolist.
b. in the long run.
c. in the short run.
d. none of the above.

5. In the long run, a monopolistic competitor

a. will face a downward sloping demand curve.
b. will earn zero profits.
c. will have a demand curve that is tangent to the ATC.
d. all of the above.

6. In the long run, a firm in a perfectly competitive market

a. will have positive fixed costs.
b. will produce at the level of output with the lowest cost.
c. will earn positive profits.
d. all of the above.
e. none of the above.

7. In the long run, a monopolistically competitive firm will

a. have positive fixed costs.
b. produce at the level of output with the lowest cost.
c. earn positive profits.
d. all of the above.
e. none of the above.

8. Gadgets Inc. is a perfectly competitive manufacturer of mousetraps in Freedonia, a country that does not grant patents for new inventions. Suppose Gadgets Inc. invents a better, cheaper mousetrap. In the long run,

a. other firms will adopt the invention.
b. Gadgets Inc. will earn positive economic profits from its invention.
c. Gadgets Inc.will become a monopolist.
d. Gadgets Inc. will become a price maker in the Freedonian mousetrap market.

9. For a firm in a perfectly competitive market, marginal revenue is

a. less than price.
b. greater than price.
c. equal to price.
d. We do not know enough to know.

10. For a monopolist, marginal revenue is

a. less than price.
b. greater than price.
c. equal to price.
d. We do not know enough to know.

11. Compared to a perfectly competitive firm with the same cost structure, a monopoly will charge a

a. higher price and sell more.
b. lower price and sell more.
c. higher price and sell less.
d. lower price and sell less.
e. similar price and sell the same quantity.

12. In the long run, a monopoly will earn

a. positive profits.
b. zero profits.
c. lower profits than a monopolistic competitor.
d. a and c.
e. b and c.

13. In the long run, a firm in a monopolistically competitive market is

a. more efficient than if it were a perfectly competitive firm.
b. less efficient than if it were a perfectly competitive.
c. equally efficient as if it were a perfectly competitive firm.
d. none of the above.

14. Schumpeter's hypothesis says that

a. a monopoly always charges a higher price than if the same market were competitive.
b. a monopoly may charge a lower price than if the same market were competitive.
c. monopolistically competitive firms always become monopolies.
d. there is no such thing as a perfectly competitive market in the real world.

15. Electronics Inc. is a monopolistic competitor and is earning positive economic profits. In the long run, other firms will enter the market,

a. and Electronics Inc.'s profits will drop to zero.
b. but Electronics Inc.'s profits will remain positive.
c. and the demand curve observed by Electronics Inc. will become steeper.
d. and the demand curve observed by Electronics Inc. will shift to the right.