Deck 7: In Between the Extremes: Imperfect Competition  

Question 1

Which of the following is NOT a feature of a monopolistic competitor?

A) Relatively easy entry
B) Differentiated product
C) Advertising
D) Homogenous product

Answer 1

Homogenous product

Question 2

The type of product sold by a monopolistically competitive business

A) is differentiated.
B) is homogeneous.
C) can be either homogeneous or differentiated.
D) is neither homogeneous nor differentiated.

Answer 2

is differentiated.

Question 3

The most common form of market structure in the U.S. is

A) perfect competition.
B) pure monopoly.
C) oligopoly.
D) monopolistic competition.

Answer 3

monopolistic competition.

Question 4

One difference between perfect competition and monopolistic competition is that

A) in perfect competition the products are differentiated while in monopolistic competition the products are homogeneous.
B) in perfect competition the products are homogeneous while in monopolistic competition the products are differentiated.
C) in perfect competition there are a large number of sellers while in monopolistic competition there is only one seller.
D) in perfect competition the firm faces a perfectly inelastic demand while in monopolistic competition the firm faces a perfectly elastic demand.

Question 5

One difference between perfect competition and monopolistic competition is that

A) monopolistic competitors advertise to increase sales of their product, whereas perfect competitors do not.
B) monopolistic competitors earn positive economic profits in the long run, whereas perfect competitors do not.
C) perfect competitors earn positive economic profits in the long run, whereas monopolistic competitors do not.
D) monopolistic competitors face a perfectly elastic demand for their product, whereas perfect competitors do not.

Question 6

Monopolistic competition is a form of

A) barrier to entry.
B) market structure.
C) cartel.
D) monopoly.

Question 7

In the long run, the monopolistic competitor will

A) face a perfectly elastic demand curve.
B) charge a price equal to average total cost.
C) earn positive economic profits.
D) drive his other competitors out of the industry.

Question 8

One difference between monopoly and monopolistic competition is that

A) the monopolist can earn positive economic profits in the long run, whereas the monopolistic competitor will earn zero economic profit in the long run.
B) the monopolist seeks to maximize profit, whereas the monopolistic competitor does not.
C) the monopolist produces the quantity at which marginal revenue equals marginal cost, whereas the monopolistic competitor does not.
D) the monopolist faces a downward-sloping demand curve, whereas the monopolistic competitor does not.

Question 9

One of the differences between perfect competition and monopolistic competition is that

A) the monopolistic competitor charges a price above average total cost in the long run, whereas the perfect competitor does not.
B) the monopolistic competitor sells a homogeneous product, whereas the perfect competitor does not.
C) the monopolistic competitor seeks to maximize profits, whereas the perfect competitor does not.
D) the monopolistic competitor has some control over price, whereas the perfect competitor does not.

Question 10

Which of the following is the best example of a product likely to be found in a monopolistically competitive market structure?

A) Fast food restaurants
B) Coal
C) Wheat
D) Electricity

Question 11

Which one of the following is true of perfect competition but NOT true of monopolistic competition?

A) The firm seeks to maximize profit.
B) The firm's profit is equal to its total revenue minus its total cost.
C) The firm will incur a loss if price falls below ATC.
D) In the long run, the firm produces at a point where average total cost is minimized.

Question 12

In the long run, the monopolistic competitor will charge a price that is equal to

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

Question 13

A monopolistically competitive firm uses advertising to

A) differentiate its product.
B) lower its costs.
C) motivate its work force.
D) signal its competitors that it is serious about staying in business.

Question 14

Which of the following is true of monopolistic competition but is NOT true of perfect competition?

A) The firm has some control over price.
B) The firm faces a perfectly elastic demand curve.
C) In the long run, the firm will earn zero economic profit.
D) In the long run, the firm will charge a price equal to ATC.

Question 15

When Crest toothpaste claims that their product whitens teeth more than their competitor they are practicing

A) product differentiation.
B) irrational behavior.
C) marginal revenue pricing.
D) marginal cost pricing.

Question 16

Figure 7.1

-In Figure 7.1, the profit maximizing output and price for this monopolistic competitor is

A) 80 and $11.
B) 50 and $8.
C) 60 and $9.
D) 60 and $14.

Question 17

Figure 7.1

-In Figure 7.1, what is the total revenue at the profit maximizing point?

A) $540
B) $840
C) $360
D) $880

Question 18

Figure 7.1

-In Figure 7.1, what would happen in the long run?

A) More producers would enter the market and the share of the market to this firm would fall until there was zero economic profit.
B) More producers would exit the market and the share of the market to this firm would fall until there was zero economic profit.
C) More producers would enter the market and the share of the market to this firm would rise until there was zero economic profit.
D) More producers would enter the market and the share of the market to this firm would fall until there was negative economic profit.

Question 19

For the monopolistic competitor, which is INCORRECT?

A) Because the firm has some control over price, its demand curve slopes downward.
B) The marginal revenue curve is downward sloping and lies below the demand curve.
C) The profit maximizing rate of output is where the marginal cost curve intersects the marginal revenue curve.
D) If the firm in a monopolistically competitive industry were making economic losses, firms would enter the industry.

Question 20

The monopolistic competitor depicted below would find that which of the following is INCORRECT?
Figure 7.2

A) The profit-maximizing rate of output is q_e, and the profit maximizing price is P.
B) The demand curve shows that the firm faces a perfectly elastic demand.
C) The profit maximizing rate of output is indicated by E, where MR intersects MC.
D) A downward sloping marginal revenue curve lies below the demand curve.

Question 21

Figure 7.3

-For the monopolistic competitor depicted in Figure 7.3, what is the profit-maximizing quantity?

A) 0
B) 75
C) 100
D) 120

Question 22

Figure 7.3

-For the monopolistic competitor depicted in Figure 7.3, what is the profit-maximizing price?

A) 8
B) 10
C) 11
D) 14

Question 23

Figure 7.3

-For the monopolistic competitor depicted in Figure 7.3, what quantity would have to be produced in order for the firm to engage in marginal-cost pricing?

A) 0
B) 75
C) 100
D) 120

Question 24

Figure 7.3

-For the monopolistic competitor depicted in Figure 7.3, what quantity would have to be produced in order for the firm to be at its breakeven point?

A) 0
B) 75
C) 100
D) 120

Question 25

Figure 7.3

-If the monopolistic competitor in Figure 7.3 produced 120 units and sold them at a price of $10 each, how much profit would it make?

A) $0.
B) $200.
C) $240.
D) Over $300.

Question 26

Figure 7.3

-If the monopolistic competitor in Figure 7.3 is free to choose the profit-maximizing price and quantity, how much profit will be earned?

A) $525.
B) $300.
C) $225.
D) Less than $100.

Question 27

Table 7.1 depicts price, quantity, and the marginal revenue and marginal costs the campus bookstore faces. Based on marginal analysis, what is the profit maximizing level of output for the bookstore?
Table 7.1

A) 1 book
B) 2 books
C) 3 books
D) 4 books

Question 28

Table 7.1 Refer to Table 7.1. What price will the bookstore charge in order to maximize profit?

A) $7.00
B) $6.00
C) $5.00
D) $4.00

Question 29

A firm in a monopolistically competitive market determines the profit maximizing output where

A) MR = P.
B) MR =ATC.
C) MR = AVC.
D) MR = MC.

Question 30

At the profit maximizing level of output for the monopolistic competitor

A) P $\gt$ MC.
B) P = MC.
C) P = MR.
D) P < MC.

Question 31

A monopolistic competitor will maximize its profits at the output level where

A) average total cost is minimized.
B) marginal cost equals marginal revenue.
C) marginal cost intersects the demand curve.
D) marginal revenue equals average total cost.

Question 32

In the long run, what kind of profits can a monopolistic competitor expect to receive?

A) Greater than normal rate of return
B) A normal rate of accounting profit
C) Less than a normal rate of return
D) Zero accounting profits

Question 33

Figure 7.4

-Using Figure 7.4, the profit maximizing output and price for this firm is

A) 100 and $19.
B) 160 and $13.
C) 160 and $16.
D) 210 and $16.

Question 34

Figure 7.4

-Using Figure 7.4, the total revenue earned by this firm is

A) $2,560.
B) $1,600.
C) $480.
D) $1,900.

Question 35

Figure 7.4

-Using Figure 7.4, the total profit earned by this firm is

A) $2,560.
B) $1,600.
C) $480.
D) $1,900

Question 36

Figure 7.5

-Using Figure 7.5, the firm depicted in the figure

A) is earning an economic profit.
B) is earning an accounting profit.
C) is producing at a loss.
D) must increase output in order to earn an economic profit.

Question 37

Figure 7.5

-Using Figure 7.5, the firm depicted in the figure

A) will minimize losses by producing the quantity at which average total cost is minimized.
B) will minimize losses by producing the quantity at which marginal cost is minimized.
C) will minimize losses by producing the quantity at which marginal revenue equals marginal cost, as long as average variable cost is covered.
D) will minimize losses by producing the quantity at which marginal cost intersects the demand curve, as long as average variable cost is covered.

Question 38

Which of the following statements is true for the monopolistically competitive firm in the long-run?

A) P $\gt$ MC and P = ATC.
B) MC $\gt$ P $\gt$ ATC.
C) P $\gt$ MC $\gt$ ATC.
D) P = MC = MR.

Question 39

Which one of the following is true of perfect competition but not of monopolistic competition?

A) The firm will incur a loss if price falls below ATC.
B) The firm advertises in order to signal product quality to consumers.
C) The firm will earn zero economic profits in the long run.
D) The firm will produce the quantity that minimizes ATC.

Question 40

The industry of fine art auction houses is

A) a duopoly.
B) a monopoly.
C) monopolistically competitive.
D) perfectly competitive.

Question 41

To the extent that an oligopolist has market power, he can

A) determine his own quantity of production.
B) influence the market price of the product.
C) raise the barriers to entry to the industry.
D) affect government regulation of the industry.

Question 42

The industry concentration ratio is a measure of

A) how closely the firms cluster geographically.
B) how closely the advertising campaigns of each firm mirror one another.
C) the percentage of industry sales accounted for by the four largest firms.
D) the length of time considered to be the long run.

Question 43

By saying that firms in an oligopoly are interdependent, we mean that

A) actions by one will prompt reactions by others.
B) if one increases its profits, all others will lose profits.
C) if one increases its profits, all others will increase profits as well.
D) all firms sell identical products.

Question 44

The monopolistic competitor advertises in order to

A) attract good employees.
B) achieve product differentiation.
C) signal the nature of his cost structure to his competitors.
D) make the demand curve he faces more elastic.

Question 45

Which of the following is NOT a characteristic of monopolistic competition?

A) Zero economic profits in the long run
B) Producing the quantity at which marginal revenue equals marginal cost
C) Average total cost is minimized.
D) The firm has some degree of control over price.

Question 46

Price discrimination occurs when

A) a poor person cannot afford a high-priced good.
B) some firms in an industry charge higher prices than others.
C) the firm has one published price, but customers who are savvy can bargain for a lower one.
D) different consumers are charged different prices for the same product, even when there is no difference in the cost of providing the product for each consumer.

Question 47

Oligopoly is a market situation in which

A) there is no product differentiation.
B) there are very few sellers.
C) firms seldom react to price changes.
D) only homogenous products are sold.

Question 48

Firms engage in price discrimination in order to

A) favor poor consumers.
B) favor wealthy consumers.
C) enhance profits.
D) determine a fair price.

Question 49

If an industry had 25 firms which collectively had $150 million in total sales and the top four firms in this industry accounted for $90 million in sales, what would be the four-firm concentration ratio?

A) 70%
B) 42%
C) 80%
D) 60%

Question 50

All of the following are characteristics of an oligopoly EXCEPT

A) firms engage in marginal-cost pricing.
B) small number of firms.
C) high barriers to entry.
D) interdependence.

Question 51

A pricing campaign designed to capture additional market share by repeatedly cutting prices leads to

A) a price war.
B) price leadership.
C) inflation.
D) limit pricing.

Question 52

Nonprice competition is found in all of the following market structures EXCEPT

A) oligopoly.
B) perfect competition.
C) monopolistic competition.
D) monopoly.

Question 53

Profitable price discrimination involves

A) charging a higher price to new customers and a low price to old ones.
B) charging a higher price to customers with a relatively low elasticity of demand.
C) charging a higher price for goods that cost more to produce.
D) charging a higher price to wealthier customers.

Question 54

Oligopoly is characterized by _________ among firms in the industry.

A) cooperation.
B) collusion.
C) interdependence.
D) opportunistic behavior.

Question 55

Collusion occurs when firms

A) engage in opportunistic behavior.
B) engage in noncooperative behavior.
C) are interdependent.
D) influence the market price by their collective action.

Question 56

Which market structure(s) is (are) characterized by strategic dependence?

A) perfect competition.
B) oligopoly.
C) perfect competition and monopoly.
D) monopoly and oligopoly.

Question 57

Signaling occurs as part of

A) advertising.
B) opportunistic behavior.
C) noncooperative behavior.
D) price leadership.

Question 58

Which of the following situations characterizes price discrimination?

A) Different customers pay different prices for the same good.
B) A dominant firm in a price leadership dynamic charges a higher price than does her competitors.
C) A dominant firm in a price leadership dynamic charges a lower price than does her competitors.
D) Noncooperative behavior on the part of several firms within an industry encourages all firms to engage in the same opportunistic behavior.

Question 59

Which of the following is a characteristic of both perfect competition and oligopoly?

A) There are no barriers to entry of new firms.
B) Firms sell a differentiated product.
C) The firm seeks to maximize profit.
D) The firm recognizes its strategic dependence on its competitors.

Question 60

Which of the following is a characteristic of both monopolistic competition and oligopoly?

A) There are no barriers to the entry of new firms.
B) Firms engage in nonprice competition.
C) Firms will produce the level of output that minimizes average total cost.
D) The industry sells a homogeneous product.

Question 61

Which of the following is a characteristic of both perfect competition and monopolistic competition?

A) The firm seeks to differentiate its product from those of its competitors.
B) Firms sell a homogeneous product.
C) In the long run, the firm will produce the output which minimizes average total cost.
D) In the long run, the firm will earn zero economic profit.

Question 62

Which of the following is a characteristic of monopolistic competition but NOT of perfect competition?

A) The firm seeks to differentiate its product from those of its competitors.
B) Firms sell a homogeneous product.
C) In the long run, the firm will earn zero economic profit.
D) There are no barriers to the entry of new firms.

Question 63

Which of the following is TRUE?

A) The strategic dependence that characterizes oligopoly means that no firms can earn positive accounting profits.
B) In the model of price leadership, the dominant firm consistently charges the lowest price.
C) Opportunistic behavior is discouraged by the desire to have repeat transactions.
D) Price wars are most common in perfect competition.

Question 64

Which of the following is TRUE?

A) In both perfect competition and oligopoly, the strategic dependence of the firms means that none can earn positive economic profits.
B) Whether firms in an industry can consistently earn positive economic profits depends on whether there are barriers to the entry of new firms.
C) A duopoly arises when firms engage in a price war.
D) An oligopoly arises when one firm can lower its cost below those of its competitors.

Question 65

Textbook publishing is an example of

A) oligopoly.
B) duopoly.
C) perfect competition.
D) monopoly.

Question 66

When airlines charge different ticket price to different passengers in the same type of seats on the same flights, they are engaging in

A) illegal behavior.
B) price discrimination.
C) price leadership.
D) collusion.

Question 67

The fact that an industry can be described by the price leadership model is evidence that the industry is characterized by

A) noncooperative behavior.
B) opportunistic behavior.
C) strategic dependence.
D) collusion.

Question 68

The fact that firms seek to have repeat transactions with their customers means that they have an incentive to

A) engage in price wars.
B) avoid opportunistic behavior.
C) collude with other firms in the industry.
D) engage in price discrimination.

Question 69

Figure 7.6

-Using Figure 7.6, which quantity is the profit-maximizing quantity for this monopolistic competitor?

A) 70.
B) 60.
C) 40.
D) 0.

Question 70

Figure 7.6

-Using Figure 7.6, which price-and-quantity combination would simulate the perfectly competitive outcome of marginal-cost pricing?

A) Price of $90 and quantity of 60.
B) Price of $90 and quantity of 40.
C) Price of $60 and quantity of 40.
D) Price of $80 and quantity of 70.

Question 71

Figure 7.6

-Using Figure 7.6, which price-and-quantity combination would generate the outcome in which economic profits are zero?

A) Price of $90 and quantity of 60.
B) Price of $90 and quantity of 40.
C) Price of $60 and quantity of 40.
D) Price of $80 and quantity of 70.

Question 72

Figure 7.6

-Using Figure 7.6, how much profit would this monopolistic competitor earn if she were regulated by the government to produce 60 units and to charge a price corresponding to that quantity on the demand curve?

A) $0.
B) Less than $1000.
C) Between $1000 and $2000.
D) Over $2000.

Question 73

Which of the following is true of oligopoly but NOT true of perfect competition?

A) The firm seeks to maximize profit.
B) The industry produces a homogeneous product.
C) There are no barriers to the entry of new firms.
D) The firm recognizes its strategic dependence on its competitors.

Question 74

Which of the following is true of monopolistic competition but not of monopoly?

A) The firm will earn zero economic profit in the long run.
B) The firm will produce at the point where average total cost is minimized.
C) There are barriers to the entry of new firms.
D) The firm will produce at the point where marginal revenue equals marginal cost.

Question 75

Price leadership is a form of

A) opportunistic behavior.
B) barrier to entry.
C) tacit collusion.
D) noncooperative behavior.

Question 76

In a price war,

A) the nondominant firms cut prices below what the dominant firm sets.
B) opportunistic behavior by one firm results in higher prices for consumers.
C) an industry seeks to permanently increase the size of its market.
D) all firms become more profitable.

Question 77

In _________ competition, there are many firms, each selling a differentiated product within the industry.

Question 78

For the monopolistic competitor, marginal revenue is _________ than price.

Question 79

The monopolistic competitor produces the quantity at which marginal _________ equals marginal cost.

Question 80

The monopolistic competitor will produce a quantity _________ than the one which minimizes average total cost.