1. Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

a. this producer is setting MR = MC.
b. this producer should increase production.
c. this producer is losing $2,000 a week.
d. this producer is making an economic profit of $400.
e. new tombstone firms will want to enter.

2. In the long run in monopolistic competition,

a. firms have an incentive to leave.
b. the demand curve is tangent to the MC curve.
c. P = MC.
d. P = minimum ATC.
e. economic profits are zero.

3. Which of the following is the result of competing through advertising for a monopolistically competitive firm?

a. The firm's demand curve keeps the same slope and shifts inward.
b. The firm's demand curve become flatter and shifts inward.
c. Long-run average costs shift upward.
d. Long-run average costs shift downward.

4. Which of the following is true about advertising?

a. If monopolistically competitive firms compete through advertising, that creates brand loyalty, then advertising can be an effective entry cost.
b. Advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms.
c. Advertising has no impact on entry costs or market structure.
d. Both a and b above are correct. 

5. Supporters of advertising claim that it:

a. increases the variety of products.
b. attacks established brand loyalties.
c. allows new firms to compete.
d. all of the above.