1) Which of the following is not true of monopolistic competition?

a.The firms produce differentiated products. b.Each of the firms faces a horizontal demand curve. c.Each of the firms acts as a mini monopoly in the market. d.There exists free entry and exit of firms. e.There are a large number of buyers and sellers.

2) If in the short run, at the profit maximizing level of output, the average revenue curve of a competitive firm lies above the average cost curve then:

a.the firm must shut down. b.the firm is just able to cover its total cost. c.the firm enjoys above-normal profits. d.the firm is barely able to cover its variable costs. e.the firm is incurring losses.

3) Which of the following is not true of monopolistic competition?

a.The firms produce differentiated products. b.Each of the firms faces a horizontal demand curve. c.Each of the firms acts as a mini monopoly in the market. d.There exists free entry and exit of firms. e.There are a large number of buyers and sellers.

3) Assume that a firm's marginal revenue curve intersects the rising portion of the marginal cost curve at 100 units of output. At this output level, the profit-maximizing firm’s total fixed cost is $600 and its total variable cost is $400. If the price of the product is $8 per unit, the firm should produce:

a.200 units of the output. b.100 units of output. c.zero units of output. d.more than 100 units of output. e.less than 100 units of output.

4) Accountants do not often report economic profits on income statements and balance sheets because:

a.the cost of capital, while easy to measure, is very difficult to report. b.it might make some firms look as though they possessed an unfair competitive advantage over other firms. c.the cost of equity capital is very difficult to measure, and opportunity costs vary from investor to investor. d.the concept of economic profit is not firmly established in economic theory. e. economic profits are exactly the same as accounting profits, and thus they do not need to be broken out in financial statements.

5) A firm's accounting profit is always equal to or greater than its economic profit. a. True b. False