Deck 9: Monopolistic Competition and Oligopoly

Question 1

Refer to the above graph.A monopolistically competitive firm was initially successful,but then its rivals started an advertising campaign that undercut its market position.This situation would cause the demand curve for the monopolistically competitive firm to shift from:

A) A to B and become more elastic.
B) A to B and become less elastic.
C) B to A and become more elastic.
D) B to A and become less elastic.

Answer 1

C

Question 2

A monopolistically competitive industry is like a purely competitive industry in that:

A) each industry produces a standardized product.
B) nonprice competition is a feature in both industries.
C) neither industry has significant barriers to entry.
D) firms in both industries face a horizontal demand curve.

Answer 2

C

Question 3

Which industry would be considered to be monopolistically competitive?

A) Asphalt paving
B) Breakfast cereals
C) Vacuum cleaners
D) Small-arms ammunition

Answer 3

B

Question 4

The goal of product differentiation and advertising in monopolistic competition is to make:

A) the firm allocatively efficient even if it is not productively efficient.
B) the firm productively efficient even if it is not allocatively efficient.
C) price less of a factor and product differences more of a factor in consumer purchases.
D) price more of a factor and product differences less of a factor in consumer purchases.

Question 5

Which market model is characterized by many firms,differentiated products,and relatively easy entry?

A) Pure competition
B) Pure monopoly
C) Monopolistic competition
D) Oligopoly

Question 6

In which industry is monopolistic competition most likely to be found?

A) Utilities
B) Agriculture
C) Retail trade
D) Mining

Question 7

A feature of monopolistic competition is:

A) a patent-protected product.
B) homogeneous or standardized products.
C) considerable control over price.
D) nonprice competition.

Question 8

An example of a monopolistically competitive industry would be:

A) steel.
B) soybeans.
C) electricity.
D) retail clothing.

Question 9

Which set best describes the basic features of monopolistic competition?

A) Easy entry,few firms,and standardized products
B) Barriers to entry,few firms,and differentiated products
C) Easy entry,many firms,and differentiated products
D) Barriers to entry,many firms,and standardized products

Question 10

A major characteristic of monopolistic competition is:

A) mutual interdependence.
B) a high degree of collusion among firms.
C) a relatively large number of firms selling the product.
D) relatively easy entry into an industry but a relatively difficult exit from the industry.

Question 11

Refer to the above graph.A successful advertising campaign by a monopolistically competitive firm will cause the demand curve for that firm to shift from:

A) A to B and become more elastic.
B) A to B and become less elastic.
C) B to A and become more elastic.
D) B to A and become less elastic.

Question 12

The demand curve for a monopolistically competitive firm has a:

A) positive slope and the marginal revenue curve has a negative slope.
B) positive slope and the marginal revenue curve has a positive slope.
C) negative slope and the marginal revenue curve has a negative slope.
D) negative slope and the marginal revenue curve has a positive slope.

Question 13

Which is not a form of product differentiation for the monopolistically competitive firm?

A) Brand names and trademarks
B) Promotion and packaging
C) Location and accessibility
D) Standard weekday and weekend hours

Question 14

Monopolistically competitive firms have a:

A) horizontal demand curve.
B) perfectly inelastic demand curve.
C) perfectly elastic demand curve.
D) downward-sloping demand curve.

Question 15

One difference between monopolistic competition and pure competition is that:

A) products can be standardized or differentiated in pure competition.
B) there is some control over price in monopolistic competition.
C) monopolistic competition has significant barriers to entry.
D) firms differentiate their products in pure competition.

Question 16

Which would be characteristic of monopolistic competition?

A) A potential for price-fixing through collusion
B) Relatively small market share for each firm
C) Mutual interdependence among the few firms
D) Product standardization

Question 17

Which is a characteristic of monopolistic competition?

A) Standardized product
B) A relatively small number of firms
C) Absence of nonprice competition
D) Relatively easy entry

Question 18

Monopolistic competition is characterized by firms:

A) producing differentiated products.
B) making economic profits in the long run.
C) producing at optimal productive efficiency.
D) producing where price equals marginal cost.

Question 19

Which assumption is part of the model of monopolistic competition?

A) Firms make identical products.
B) There is no collusion among firms.
C) There are significant barriers to entry into the market.
D) There are few buyers and sellers.

Question 20

Which industry would be considered to be monopolistically competitive?

A) Electronic computers
B) Electric light bulbs
C) Local dry cleaners
D) Men's slacks and jeans

Question 21

A monopolistically competitive firm is operating at a short-run level of output where price is $21,average total cost is $15,marginal cost is $13,and marginal revenue is $13.In the short run this firm should:

A) reduce product price.
B) increase the level of output.
C) decrease the level of output.
D) make no change in the level of output.

Question 22

Refer to the above graph of a representative firm in monopolistic competition.What does line 1 represent?

A) Demand
B) Marginal cost
C) Marginal revenue
D) Average total cost

Question 23

Refer to the above graph of a representative firm in monopolistic competition.What does line 3 represent?

A) Demand
B) Marginal cost
C) Marginal revenue
D) Average total cost

Question 24

The monopolistically competitive seller's demand curve will become more elastic the:

A) larger the number of competitors.
B) greater the degree of product differentiation.
C) more significant the barriers to entry.
D) smaller the number of competitors.

Question 25

The demand curve faced by a monopolistically competitive firm:

A) is more elastic than the monopolist's demand curve.
B) is less elastic than the monopolist's demand curve.
C) will shift outward as new firms enter the industry.
D) is more elastic than the demand curve faced by the purely competitive firm.

Question 26

Which would make an individual firm's demand curve less elastic?

A) The purchase of more efficient machinery
B) A reduction in the price of the firm's product
C) Increased brand loyalty toward the firm's product
D) A reduction in advertising expenditures by the firm

Question 27

A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50.To maximize profits:

A) the firm should continue to produce this quantity.
B) the firm should increase output and decrease price.
C) the firm should decrease output and increase price.
D) the firm should produce the level of output where marginal revenue is $1.50.

Question 28

The downward-sloping demand curve of a monopolistic competitor:

A) reflects product differentiation.
B) becomes horizontal in the long run.
C) indicates collusion among the members of the product group.
D) ensures that the firm will produce at minimum average cost in the long run.

Question 29

The marginal cost curve intersects the average total cost curve in monopolistic competition:

A) at the market price.
B) at the minimum average total cost.
C) to the left of the minimum average total cost.
D) to the right of the minimum average total cost.

Question 30

Refer to the above graph of a representative firm in monopolistic competition.What does line 2 represent?

A) Demand
B) Marginal cost
C) Marginal revenue
D) Average total cost

Question 31

The graph depicts a monopolistically competitive firm. Refer to the above graph.This monopolistically competitive firm is:

A) making economic profit in the long run.
B) making economic profit in the short run
C) making a loss in the long run.
D) making a loss in the short run.

Question 32

A major difference between pure competition and monopolistic competition is that under pure competition:

A) individual firms have more elastic demand curves.
B) the market demand curve is less elastic.
C) there are a smaller number of producers.
D) there are barriers to entry.

Question 33

Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because:

A) there is free entry and exit.
B) product differentiation allows each firm some degree of monopoly power.
C) there are a few large firms in the industry and each acts as a monopolist.
D) mutual interdependence among all firms in the industry leads to collusion.

Question 34

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00,marginal cost is $5.00,marginal revenue is $6.00,and price is $12.00.In the short run,the firm should:

A) decrease the level of output.
B) increase the level of output.
C) make no change in the level of output.
D) increase product price.

Question 35

If monopolistically competitive firms in an industry are making an economic profit,then:

A) new firms will enter the industry and product demand will increase for the existing firms.
B) firms will exit the industry and product demand will decrease for the firms that remain.
C) firms will exit the industry and product demand will increase for the firms that remain.
D) new firms will enter the industry and product demand will decrease for the existing firms.

Question 36

In monopolistic competition,a firm has a limited degree of "price-making" ability.This means that the firm will:

A) always earn an economic profit.
B) set price equal to marginal cost.
C) set price above marginal cost.
D) produce at minimum average total cost.

Question 37

Assume that in a monopolistically competitive industry,firms are earning economic profit.This situation will:

A) reduce the excess capacity in the industry as firms expand production.
B) attract other firms to enter the industry since the barriers to entry are low.
C) cause firms to standardize their product to limit the degree of competition.
D) make the industry allocatively efficient as each firm seeks to maintain its profits.

Question 38

The graph depicts a monopolistically competitive firm. Refer to the above graph representing an individual firm.In the short run,this monopolistically competitive firm will set price at:

A) $65 and produce 45 units of output.
B) $65 and produce 35 units of output.
C) $50 and produce 35 units of output.
D) $50 and produce 50 units of output.

Question 39

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50,price is $4.00,marginal revenue is $2.50,and marginal cost is $2.50.This firm is operating:

A) with a profit in the short run.
B) with a loss in the short run.
C) at the break-even level of output in the short run.
D) at an efficient level of output in the short run.

Question 40

The demand curve faced by a monopolistically competitive firm is:

A) vertical.
B) horizontal.
C) highly elastic.
D) highly inelastic.

Question 41

Refer to the above graph of the representative firm in monopolistic competition.Demand is tangent to average total cost at point:

A) a.
B) b.
C) c.
D) d.

Question 42

Refer to the above graph of the representative firm in monopolistic competition.The intersection of marginal cost and average total cost is represented by point:

A) a.
B) b.
C) c.
D) d.

Question 43

Which statement concerning monopolistic competition is false?

A) In the long run P = AC > MC.
B) Firms may experience losses in the short run.
C) Firms differentiate their products,but the products are relatively substitutable.
D) Firms may experience positive economic profits in the long run since barriers to entry are significant.

Question 44

Refer to the above graphs.Which graph would not be a possible depiction of short-run or long-run outcomes for a monopolistically competitive firm?

A) A
B) B
C) C
D) D

Question 45

In the long run,a representative firm in a monopolistically competitive industry will typically:

A) have an elasticity of demand that will be less than it was in the short run.
B) have a larger number of competitors than it will in the short run.
C) produce a level of output at which marginal cost and price are equal.
D) earn a normal profit,but not an economic profit.

Question 46

Firms in an industry cannot earn long-run economic profits if:

A) fixed costs are zero.
B) the number of firms in the industry is fixed.
C) there is free entry and exit of firms in the industry.
D) production costs for a given level of output are minimized.

Question 47

In long-run equilibrium in a monopolistically competitive industry:

A) P = minimum AC.
B) P > minimum AC.
C) P = MC.
D) P < MC.

Question 48

The long-run equilibrium position of a monopolistically competitive firm is where average costs are:

A) constant.
B) increasing.
C) decreasing.
D) at their minimum point.

Question 49

In long-run equilibrium,a profit-maximizing firm in a monopolistically competitive industry produces the quantity of output where:

A) AC = P,MR = MC = P.
B) AC < P,MR = MC = P.
C) AC < P,MR + MC < P.
D) AC = P,MR = MC < P.

Question 50

Suppose some firms exit a monopolistic competition industry.We would expect the demand curve of a firm already in the industry to:

A) shift to the left.
B) shift to the right.
C) become more elastic.
D) remain the same since entering firms serve other customers in the market.

Question 51

A representative firm in monopolistic competition will tend to make economic profits:

A) in the short run and long run.
B) and losses in the short run and long run.
C) or losses in the short run,but the firm will break even in the long run.
D) or losses in the short run,but the firm will make economic profits in the long run.

Question 52

In the long run,profits for a monopolistic competitor will be:

A) the same as the profits for a monopolist.
B) slightly less than the profits of a monopolist.
C) the same as the profits for a purely competitive firm.
D) slightly more than the profits of a purely competitive firm.

Question 53

Refer to the above graph.It represents a monopolistically competitive firm in a constant-cost industry.In long-run equilibrium this firm will:

A) continue to earn economic profits because it has monopolistic power to set its price.
B) become a perfectly competitive firm because there are no significant barriers to entry.
C) break even because average total cost (ATC)and marginal cost (MC)will increase as more firms enter the market.
D) break even because its demand curve will fall and become more elastic as it loses sales to other firms entering the market.

Question 54

Refer to the above graph.It represents a monopolistically competitive firm in a constant-cost industry.The firm:

A) will produce less than Q₀.
B) will produce more than Q₀.
C) is earning an economic profit at Q₀.
D) is suffering an economic loss at Q₀.

Question 55

In the short run,the monopolistically competitive firm will experience:

A) an economic profit,and also one in the long run.
B) a normal profit,but in the long run only an economic profit.
C) economic profits or losses,but in the long run only a normal profit.
D) economic profits or losses,but in the long run only an economic profit.

Question 56

Refer to the above graph of the representative firm in monopolistic competition.Marginal revenue and marginal cost intersect at point:

A) a.
B) b.
C) c.
D) d.

Question 57

Refer to the above graph of a representative firm in monopolistic competition.What does line 4 represent?

A) Demand
B) Marginal cost
C) Marginal revenue
D) Average total cost

Question 58

If a monopolistically competitive industry is in long-run equilibrium,a firm in that industry might be able to increase its economic profits by:

A) decreasing the price of its product.
B) increasing the price of its product.
C) increasing the demand for its product.
D) decreasing the demand for its product.

Question 59

Refer to the above graph of the representative firm in monopolistic competition.Point c is the intersection of the:

A) marginal cost and marginal revenue curves.
B) marginal cost and average total cost curves.
C) marginal cost and demand curves.
D) average total cost and demand curves.

Question 60

A characteristic of monopolistically competitive industries is that:

A) there is product differentiation but only limited advertising of products by the representative firm.
B) the entry and exit of firms causes the representative firm to break even in the long run.
C) the representative firm is not very responsive to changes in consumer demand.
D) the representative firm produces at that level of output where marginal cost equals minimum average total cost.

Question 61

Monopolistic competition is characterized by excess capacity because:

A) firms are always profitable in the long run.
B) firms charge a price that is less than marginal cost.
C) firms produce at an output level less than the least-cost output.
D) the demand for a product is perfectly elastic in this type of industry.

Question 62

The characteristic most closely associated with oligopoly is:

A) easy entry into the industry.
B) a few large producers.
C) product standardization.
D) no control over price.

Question 63

In monopolistic competition,we usually observe:

A) significant diseconomies of scale.
B) more reliance on misleading advertising than in monopoly or oligopoly.
C) slower rates of technological advance and product development due to higher advertising costs.
D) a large number of firms,each operating with excess capacity.

Question 64

In monopolistic competition,there is:

A) allocative efficiency.
B) productive efficiency.
C) both allocative and productive efficiency.
D) neither allocative nor productive efficiency.

Question 65

Which statement is true?

A) Monopoly will result in a higher price and a larger output than pure competition.
B) Monopoly will result in a higher price and a larger output than monopolistic competition.
C) Pure competition will result in a lower price and a higher output than monopolistic competition.
D) Monopolistic competition will result in a lower price and a lower output than pure competition.

Question 66

In long-run equilibrium,a monopolistically competitive firm achieves:

A) productive and allocative efficiency.
B) productive efficiency but not allocative efficiency.
C) allocative efficiency but not productive efficiency.
D) neither allocative efficiency nor productive efficiency.

Question 67

Refer to the above graph.Assume that in long-run equilibrium a purely competitive firm has the same cost curves as that of the monopolistically competitive firm shown.It can be concluded that the:

A) purely competitive firm would have lower profits.
B) purely competitive firm would have higher profits.
C) purely competitive producer would produce less at a higher ATC.
D) monopolistically competitive producer would produce less at a higher ATC.

Question 68

Which statement concerning monopolistic competition is false?

A) Long-run equilibrium under monopolistic competition is achieved where economic profits are zero.
B) Monopolistic competition is likely to result in a greater variety of product brands than pure competition.
C) The monopolistically competitive demand curve is more elastic than the demand curve facing a monopolistic firm.
D) Monopolistic competition does not lead to any economic inefficiency since firms in this industry cannot sustain economic profits.

Question 69

When the excess capacity problem under monopolistic competition becomes greater,there will be:

A) a narrower range of consumer choice.
B) fewer advertisements and promotions.
C) a wider range of consumer choice.
D) more entry by firms into the market.

Question 70

Compared to a purely competitive firm in long-run equilibrium,the monopolistic competitor has a:

A) lower price and lower output.
B) higher price and lower output.
C) higher price and higher output.
D) price and output that may be higher or lower.

Question 71

In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output,which means that:

A) minimum ATC is less than MC.
B) minimum ATC is less than MR.
C) price is greater than minimum ATC.
D) price is greater than MC.

Question 72

In an oligopolistic market there are:

A) many buyers.
B) few buyers.
C) few sellers.
D) many sellers.

Question 73

Refer to the above graph.This monopolistically competitive firm is:

A) suffering an economic loss.
B) earning an economic profit.
C) allocatively and productively efficient.
D) neither allocatively nor productively efficient.

Question 74

The variety of products and product features that consumers may choose from in monopolistically competitive industries:

A) at least partially offsets the economic inefficiencies of this market structure.
B) leads to an optimal allocation of resources in the market structure.
C) guarantees that firms produce at full-capacity output levels.
D) makes the demand curves facing firms in these industries more elastic.

Question 75

Compared to pure competition,monopolistic competition:

A) provides greater product differentiation at the cost of some excess capacity.
B) offers less product differentiation but attains equal productive efficiency.
C) provides greater product differentiation and achieves greater productive efficiency.
D) offers less product differentiation and lower productive efficiency.

Question 76

The economic inefficiency of monopolistic competition means that:

A) industries tend to evolve into oligopolies rather than become more competitive.
B) industries spend money on advertising and sales promotion.
C) firms produce at an output short of,and charge a price greater than,minimum average total cost.
D) firms do not maximize profits at the MC equals MR output.

Question 77

The U.S.primary steel industry is best described as a:

A) cartel.
B) monopoly.
C) differentiated oligopoly.
D) homogeneous oligopoly.

Question 78

Monopolistically competitive firms are productively inefficient because production occurs where:

A) marginal cost is greater than marginal revenue.
B) marginal cost is less than marginal revenue.
C) average total cost is greater than the minimum average total cost.
D) average total cost is less than the difference between average total cost and average variable cost.

Question 79

One prediction about monopolistic competition is that firms:

A) operate at minimum average total cost in the long run.
B) will not engage in brand advertising.
C) will be inefficient in the long run.
D) must make economic profits in the short run.

Question 80

In the long run,the representative firm in monopolistic competition tends to have:

A) excess capacity.
B) economic profits.
C) limited product differentiation.
D) a perfectly elastic demand curve.