Deck 10: Monopolistic Competition and Oligopoly

Question 1

If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,

A) they will be unable to earn higher-than-normal profits in the short run.
B) they will wish to cooperate to make decisions about what price to charge.
C) they will wish to cooperate to make decisions about what quantity to produce.
D) they will be unable to earn higher-than-normal profits in the long run.

Answer 1

they will be unable to earn higher-than-normal profits in the long run.

Question 2

What role can advertising play with respect to differentiated products?

A) allows a firm to sell any quantity it wishes
B) shapes consumers intangible preferences
C) shapes perceived demand for a price taker
D) allows a firm to raise the prevailing market price

Answer 2

shapes consumers intangible preferences

Question 3

If the CEO of I'MaBigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are

A) larger than the payoffs that will be received.
B) smaller than the payoffs that will be perceived.
C) smaller than the rewards from pursuing self-interest.
D) larger than the rewards from pursuing self-interest.

Answer 3

larger than the rewards from pursuing self-interest.

Question 4

Oligopoly firms acting individually may seek to gain profits _______.

A) by expanding levels of output and cutting prices
B) by selling products that are distinctive in some way
C) by having a mini-monopoly on a particular brand name
D) by having a mini-monopoly or through tough competition

Question 5

If a perfectly competitive market involves many firms selling identical products, then, in the face of such competition,

A) each of these firms must act as a price-maker.
B) each of these firms must act as a price-taker.
C) collusion amongst them will most often result.
D) demand curves can become kinked in appearance.

Question 6

In the highly competitive setting in which oligopoly firms operate, which of the following are considered to be typical temptations each may face?

A) to cooperate to generate and then divide up monopoly-like profits
B) to cooperate to mutually decide what price to charge
C) to cooperate to make decisions about what quantity to produce
D) to cooperate to act as a single monopoly and all of the above

Question 7

As the name monopolistic competition implies, a firm's decisions in this setting will in certain ways resemble _______ and in other ways resemble _______.

A) monopoly; imperfect competition
B) monopoly; perfect competition
C) imperfect competition; perfect competition
D) imperfect competition; oligopoly

Question 8

Product differentiation may occur in _______ because _______ created strong preferences for certain brands.

A) shaping intangible preferences; predatory pricing
B) the minds of buyers; past habits and advertising
C) imperfect competition; the concept of differentiated products
D) imperfect competition; advertising and consumer habits

Question 9

The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to

A) sell any quantity it wishes at the prevailing market price.
B) raise its price without losing all of its customers.
C) choose any combination of price and quantity.
D) lose fewer customers than a monopoly that raised its prices.

Question 10

Perfect competition and monopoly stand at _______ of the spectrum of competition.

A) opposite ends
B) the high end
C) the low end
D) the mid-way point

Question 11

In a monopolistic competitive industry, firms can try to differentiate their products by

A) creating optimal perceptions of the product.
B) choosing optimal locations from which the product is sold.
C) enhancing the intangible aspects of the product.
D) enhancing product's physical aspects and all of the above.

Question 12

Which of the following best identifies what the concept of differentiated products is closely related to?

A) unique style.
B) the degree of monopolistic competition that exists.
C) optimal location.
D) the degree of product variety that is available.

Question 13

The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to

A) match price increases, but not price cuts.
B) stand at opposite ends of the competition spectrum.
C) match price cuts, but not price increases.
D) stand at the high point of the competition spectrum.

Question 14

The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is

A) oligopoly collusion.
B) prisoner's dilemma.
C) game theory.
D) collusion theory

Question 15

Monopolistic competitors in the food industry will often include a recyclable symbol on packaging used for their product as a means to

A) be socially responsible.
B) be environmentally responsible.
C) differentiate their product.
D) be perceived more favorably.

Question 16

Which of the following would be classified as a differentiated product produced by a monopolistic competitor?

A) natural gas
B) Channel No. 5
C) electricity
D) tap water

Question 17

A _______ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.

A) prisoner's dilemma
B) cartel
C) game theory
D) duopoly

Question 18

Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call _______.

A) a cartel
B) collusion
C) monopolistic competition
D) perfect competition

Question 19

In the competitive market for figure skate blades, manufacturers offer an array of products that are

A) distinctly different in a particular way.
B) distinctly similar in a particular way.
C) virtually identical on the competition spectrum.
D) at opposite ends of the competition spectrum.

Question 20

The demand curve as perceived by a perfectly competitive firm is _______.

A) flat
B) downward sloping
C) upward sloping
D) hump shaped

Question 21

Which of the following represents a difference in the process by which a monopolistic competitor and a monopolist make their respective decisions about quantity and price?

A) only the monopolist competitor faces a downward-sloping demand curve
B) the monopolist's perceived demand curve is market demand
C) the monopolist competitor's perceived demand curve is market demand
D) a monopolist need not fear entry and also selection b above

Question 22

The perceived demand for a monopolistic competitor

A) is steep.
B) is flat.
C) takes competitors into account.
D) disregards competitors.

Question 23

Monopolistic competitors can make a in the short-run, but in the long run,
Will drive these firms toward .

A) profit or loss; entry and exit; a zero-profit outcome
B) loss; exit; losses on their earnings
C) profit or loss; exit; economic profits
D) profit; entry; a price that lies at the very bottom of the AC curve

Question 24

Would raising the price for a product create a larger decline in quantity demanded for a monopolistic competitor's than it would for a monopoly?

A) no; a monopolistic competitor perceives demand as a price maker
B) no; conditions of imperfect competition means demand is constant
C) yes; but temporarily because price increases only create a short-run decline
D) yes; consumers will buy from competitors offering lower priced substitutes

Question 25

In a perfectly competitive market, each firm produces at a quantity where price is set

A) equal to marginal cost, in the short run.
B) equal to marginal cost, both in the short run and in the long run.
C) equal to average cost, in the long run.
D) equal to average cost, both in the short run and in the long run.

Question 26

The long-term result of entry and exit in a perfectly competitive market is that all firms end up selling at the price level determined by the lowest point on the

A) total cost curve.
B) average variable cost curve.
C) total marginal cost curve
D) average cost curve.

Question 27

If a monopoly or a monopolistic competitor raises their prices, the quantity demanded _______.

A) will expand
B) stays the same
C) will decline
D) will decline in the short run

Question 28

The demand curve as perceived by a monopolistic competitor is _______.

A) upward-sloping
B) U shaped
C) downward-sloping
D) flat

Question 29

If a monopoly or a monopolistic competitor raises their prices, then

A) decline in quantity demanded will be larger for the monopoly.
B) decline in quantity demanded will be larger for the monopolistic competitor.
C) the quantity demanded for the monopoly product falls to zero.
D) the quantity demanded for the monopolistic competitor will fall to zero.

Question 30

In monopolistic competition, the end result of entry and exist is that firms end up with a price that lies

A) on the upward-sloping portion of the average cost curve.
B) at the very bottom of the AC curve.
C) on the downward-sloping portion of the average cost curve.
D) at the very top of the AC curve.

Question 31

Perfect competition displays _______ because the social benefits of additional production, as measured by the price that people are willing to pay, are in balance with the to society of that production.

A) allocative efficiency; total costs
B) economic efficiency; total revenues
C) allocative efficiency; marginal costs
D) economic efficiency; marginal revenues

Question 32

If a perfectly competitive firm raises its price, the quantity demanded of its product _______.

A) diminishes temporarily in the short run
B) falls to zero
C) stays the same
D) falls below marginal cost

Question 33

Through the process of exit, monopolistically competitive firms remaining in the market

A) are no longer earning zero economic profits.
B) will each have ongoing negative earnings.
C) are no longer earning losses.
D) have positive earnings.

Question 34

A monopolistically competitive firm may earn abnormally high profits in the

A) short term, but the process of entry will drive those profits to zero in the long run.
B) long term, but the process of entry will drive those profits to zero in the short run.
C) short run, but after entry occurs, the long term perceived demand curve shifts to the right.
D) long run, but after entry occurs, the short term perceived demand curve shifts to the right.

Question 35

If a monopolistic competitor raises its price, it _______ customers than a perfectly
Competitive firm, but _______ that raised its prices would.

A) will lose more; it will lose as many
B) will lose more; it will lose more
C) will lose fewer; it will lose more
D) will lose fewer; it will lose as many

Question 36

The first step to be undertaken by a profit-maximizing monopolistic competitor wanting to decide what price to charge is to

A) determine total revenue, total cost, and profit
B) select the profit maximizing quantity to produce
C) determine what price to charge for the product
D) determine average costs, total revenue, and profit

Question 37

Why are the underlying economic meanings of the perceived demand curves for a monopolist and monopolistic competitor different?

A) a monopolist faces the market demand curve and a monopolist competitor does not
B) a monopolist competitor faces the market demand curve and a monopolist does not
C) because the demand curve for a monopolistic competitor is upward sloping
D) because the demand curve perceived by the monopolist is flatter than that of a monopolist competitor

Question 38

The typical slope of the demand curve as perceived by a monopolistic competitor will

A) be steeper than the demand curve perceived by a monopolist.
B) reflect that firm's ability raise its price without losing all of its customers.
C) show less of a decline in demand than would a monopoly that raised its prices.
D) be reflective of a perfectly competitive firm and all of the above.

Question 39

In a monopolistically competitive market, the rule for maximizing profit is to set MR = MC, which means

A) price is higher than marginal revenue.
B) price is equal to marginal revenue.
C) price is equal to marginal cost.
D) price is lower than marginal revenue.

Question 40

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

A) the firm's perceived demand will shift to the left.
B) the firm should keep expanding production.
C) each marginal unit adds profit by bringing in less revenue than its cost.
D) the firm is now earning zero for profit.

Question 41

How can parties who find themselves in a prisoner's dilemma situation avoid the undesired outcome and cooperate with each other?

A) one oligopoly can physically beat up another oligopoly
B) by seeking alternatives to create pressure for members to keep output up and prices up
C) find effective ways to penalize firms who do not cooperate
D) sign legally enforceable contracts setting out their mutual agreement to act like a monopoly

Question 42

If oligopolistic firms banded together with the intention of acting like a monopoly, it would likely result in their being able to

A) divide up the monopoly level of profit amongst themselves.
B) hold down output in the short-run.
C) charge a higher price in the short-run.
D) both b and c above are correct.

Question 43

A monopolistically competitive industry does not display _______ in either the short-run, when firms are making _______, nor in the long-run, when firms are earning _______.

A) allocative efficiency; profits and losses; negative profits
B) productive efficiency; profits and losses; zero profits
C) productive and allocative efficiency; profits and losses; zero profits
D) productive and allocative efficiency; profits and losses; negative profits

Question 44

When entry occurs in a monopolistically competitive industry,

A) marginal costs to society exceed the price people are willing to pay.
B) price is equal to marginal revenue gained by society.
C) the marginal revenue curve will shift to the left.
D) a smaller quantity will be demanded at any given price.

Question 45

The desire of businesses to _______, so that they can raise the prices that they charge and earn higher profits, has been well-understood by economists for a long time.

A) compete with each other
B) engage in free market activities
C) maximize profits for social benefit
D) avoid competing with each other

Question 46

The following table shows the demand curve and cost information for a firm that is a monopoly.

If they maximize their profits, what will their revenue equal?

A) $16,000
B) $32,000
C) $54,000
D) $56,000

Question 47

When P > MC in a monopolistically competitive market, that industry will most likely produce _______ than would be found in a perfectly competitive industry.
Benefits to society of providing additional quantity as measured by the price that people are willing to pay exceeds the marginal costs to society of producing those units.

A) a higher quantity of a good and charge a lower price
B) the price that people are willing to pay is lower
C) a lower quantity of a good and charge a higher price
D) the price people are willing to pay is not more

Question 48

In the framework of monopolistic competition, advertising works because it causes

A) the steeper perceived demand curve to become flatter.
B) perceived demand curve to shift to the left.
C) perceived demand curve to shift to the right.
D) a steeper perceived demand curve, as well as c above.

Question 49

A successful advertising campaign may allow competing monopolists to

A) sell a greater quantity.
B) charge a higher price.
C) increase its profits.
D) do all of the above.

Question 50

The following table shows the demand curve and cost information for a firm that is a monopoly.

What quantity should they produce to maximize their profits?

A) 200 units
B) 400 units
C) 600 units
D) 800 units

Question 51

If oligopolists compete hard against each other,

A) they end up acting very much like imperfect competitors.
B) costs for all are driven up.
C) zero profits result for all.
D) they end up acting very much like monopolistic competitors.

Question 52

If one firm operating in an oligopoly raises its price and other firms do not do so,

A) the sales of the firm with the higher price will decline slightly.
B) the egos of all the top executives will eventually lead to cooperation at that higher price.
C) the sales of the firm that increased its price will decline sharply.
D) the firm with the increased price will have its higher profits sustained through cooperation.

Question 53

When exit occurs in a monopolistically competitive industry the

A) perceived demand and marginal revenue curves will shift to the right.
B) perceived demand and marginal revenue curves will shift to the left.
C) perceived demand curve will shift to the left.
D) marginal revenue curve will shift to the left.

Question 54

Which of the following would most likely create the setting for an oligopoly?

A) government grants Alex, Trent, and Alyse each a patent for their respective molybdenum based electric car batteries
B) market demand is two or more times less than quantity needed to produce at the minimum of the AC curve
C) market demand is two or more times more than quantity needed to produce at the minimum of the MC curve
D) insurmountable technological difficulty associated with producing similar products acts as an effective barrier to entry

Question 55

The table below shows the demand curve and cost information for a firm that is a monopoly.

If they maximize their profits, what price will they charge?

A) $800
B) $600
C) $400
D) $200

Question 56

In the framework of monopolistic competition, the way advertising works can be perceived as

A) causing a firm's perceived demand curve to become more elastic.
B) causing a firm's perceived demand curve to become more inelastic.
C) causing demand for the firm's product to increase.
D) causing both b and c to occur.

Question 57

The single most common form of competition in the U.S. is

A) perfect competition among firms with differentiated products.
B) monopolistic competition among firms with differentiated products.
C) oligopolistic competition in a certain market with similar products.
D) perfect competition because it displays product and allocative efficiencies.

Question 58

In the framework of an oligopoly, what strategy can work like a silent form of cooperation?

A) always match other cartel firms' price cuts, but don't match price increases
B) always match other cartel firms' price increases, but don't match price cuts
C) immediately match price increases
D) legally enforceable agreements

Question 59

Which of the following is a question economists have struggled to address with only partial success?

A) Whether monopolistic competition provides optimal productive or allocative efficiency?
B) Whether a market-oriented economy produces the optimal amount of variety?
C) Does a market-orientated economy provide productive or allocative efficiency?
D) Does a monopolistically competitive industry displays allocative efficiency in the short run?

Question 60

If each of two competing monopolists undertakes equal advertising efforts to attract consumers away from the other, the total result is

A) they will both increase market share.
B) they will simply neutralize one another's efforts.
C) they will both lose market share.
D) they will both improve their industrial position.

Question 61

Briefly discuss how differentiated products in a monopolistic competitive framework can arise.

Question 62

A monopolistic competitor has the following information about cost and demand.

What will this firm's profits equal in the short run?

A) -$55
B) $0
C) $250
D) $280

Question 63

A monopolistic competitor has the following information about cost and demand.

What will this firm's profits equal in the long run?

A) -$55
B) $0
C) $250
D) $280

Question 64

List at least five examples of some intangible aspects that differentiate products.

Question 65

Briefly explain what quantity a profit-maximizing monopolistic competitor will seek, as well as why or why not this type of competitive firm is productively efficient.

Question 66

The following table shows the demand curve and cost information for a firm that is a monopoly.

If they maximize their profits, what will their profits equal?

A) $650
B) $1,250
C) $2,000
D) $2,250

Question 67

Briefly compare and contrast the incentives found in perfect competition with those found in imperfect competition.

Question 68

A monopolistic competitor has the following information about cost and demand.

If this industry was perfectly competitive, what price would the good sell for?

A) $15
B) $19
C) $21
D) $23

Question 69

Briefly explain whether a monopolistically competitive firm is allocatively efficient or not and why.

Question 70

A monopolistic competitor has the following information on cost and demand. What will the firm's profits equal in the long run?

A) $0
B) $91
C) $102
D) $228

Question 71

A monopolistic competitor has the following information about cost and demand.


Then, in the long run equilibrium, the firm will sell this good at what price?

A) $5
B) $7
C) $10
D) $14

Question 72

A monopolistic competitor has the following information about cost and demand.


What will the firm's profits equal in the short run?

A) 0
B) $91
C) $102
D) $228

Question 73

Identify and briefly discuss the ways to conceive how advertising works in the framework of monopolistic competition.

Question 74

Briefly compare and contrast the perceived demand curve for a monopolistic competitor and a monopolist.

Question 75

Briefly describe what an oligopoly is, as well as the circumstances that could allow oligopolists to earn their highest profits.

Question 76

Briefly contrast the level that a monopolistically competitive firm will tend to produce at and the price it will charge with that of a perfectly competitive firm.

Question 77

Joe owns a restaurant. Many of the restaurants that he competes with recently closed, shifting his perceived demand curve. The following 2 tables show his old and new perceived demand curves.


Assume that Joe can only choose from the quantities of output given in the table. By how much does the price that he charges change after the restaurants leave the market?

A) increase by 3
B) decrease by 3
C) increase by 4
D) decrease by 4

Question 78

Briefly compare and contrast the perceived demand curve for a monopolistically competitive firm and a perfectly competitive firm.

Question 79

A monopolistic competitor has the following information about cost and demand.

If this industry was perfectly competitive, what price would the good sell for?

A) $8
B) $9
C) $10
D) $11