Question 1

A major difference between monopolistic competition and perfect competition is
A) the number of sellers in the markets.
B) the degree by which the market demand curves slope downwards.
C) that products are not standardized in monopolistic competition unlike in perfect competition.
D) the barriers to entry in the two markets.

Accepted Answer

In monopolistic competition, products are not standardized and firms can differentiate their products through branding, quality, and packaging. In perfect competition, products are homogeneous and identical, so there is no room for differentiation. The other options (A, B, and D) may be differences between the two market structures as well, but they are not the major distinguishing factor between the two.

Question 2

A monopolistically competitive firm faces a downward-sloping demand curve because
A) it is able to control price and quantity demanded.
B) there are few substitutes for its product.
C) of product differentiation.
D) its market decisions are affected by the decisions of its rivals.

Accepted Answer

Monopolistically competitive firms differentiate their products from their competitors, which leads to a downward-sloping demand curve. Consumers have a range of substitutes from closer substitutes to more dissimilar products. The firm's ability to differentiate their product makes their demand curve less elastic than a perfectly competitive firm. Therefore, the firm can increase their price without losing all of their customers.

Question 3

A monopolistically competitive firm will
A) charge the same price as its competitors do.
B) always produce at the minimum efficient scale of production.
C) have some control over its price because its product is differentiated.
D) produce an output level that is productively and allocatively efficient.

Accepted Answer

A monopolistically competitive firm has some control over the price it charges because its product is differentiated, meaning consumers perceive it as unique or different from its competitors. The firm can charge a slightly higher price due to this differentiation, but it is still competing with other firms in the market. The firm may not produce at the minimum efficient scale of production because it may not have enough market power to fully take advantage of economies of scale. It may also not produce a level of output that is both productively and allocatively efficient due to market competition and differentiation.

Question 4

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a gain in revenue due to the
A) substitution effect.
B) income effect.
C) price effect.
D) output effect.

Accepted Answer

The answer of When a monopolistically competitive firm cuts its...

Question 5

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because
A) barriers to entry are very low.
B) there are many firms in the market.
C) products are differentiated.
D) entry into the market is blocked.

Accepted Answer

The coffeehouse market is monopolistically competitive because products are differentiated, meaning that each firm produces a slightly different product that appeals to a particular group of consumers. This allows firms to have some pricing power and to differentiate themselves from their competitors, which is not possible in a perfectly competitive market. Barriers to entry may be low, and there may be many firms in the market, but these do not necessarily define the market structure.

Question 6

For a monopolistically competitive firm,marginal revenue
A) equals the price.
B) is greater than the price.
C) is less than the price.
D) and price are unrelated.

Accepted Answer

In monopolistic competition, a firm has some power to set its own price due to product differentiation. However, since there are close substitutes available in the market, the firm faces a downward-sloping demand curve. This means that the marginal revenue (MR) curve lies below the demand curve and is downward-sloping as well. Therefore, for a monopolistically competitive firm, the marginal revenue is less than the price.

Question 7

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the
A) substitution effect.
B) income effect.
C) price effect.
D) output effect.

Accepted Answer

The answer of When a monopolistically competitive firm cuts its...

Question 8

Which of the following characteristics is not common to monopolistic competition and perfect competition?
A) Firms act to maximize profit.
B) Entry barriers into the industry are low.
C) The market demand curve is downward -sloping.
D) Firms take market prices as given.

Accepted Answer

The answer of Which of the following characteristics is not...

Question 9

Table 13-1
 
-Refer to Table 13-1.What is the marginal revenue of the 3rd unit?
A) $6.50
B) $5.50
C) $1.83
D) $0.50

Accepted Answer

The formula for marginal revenue is the change in total revenue divided by the change in quantity. Looking at the table, the change in total revenue from 2 units to 3 units is $12.50 - $7.00 = $5.50. The change in quantity is 1. Therefore, the marginal revenue of the 3rd unit is $5.50. 
The best choice is to produce 3 units because at that level, marginal revenue is greater than marginal cost (which is $2.00 for each unit). Beyond this point, marginal cost becomes greater than marginal revenue, so producing additional units would result in a decrease in profit.

Question 10

Table 13-1
 
-Refer to Table 13-1.The Table shows
A) an elastic segment of the demand curve.
B) an inelastic segment of the demand curve.
C) a demand curve with an elastic segment of the demand curve from $7.50 to $6.50 followed by an inelastic segment.
D) a demand curve with an inelastic segment of the demand curve from $7.50 to $6.50 followed by an elastic segment.

Accepted Answer

The answer of Table 13-1
 
-Refer to Table 13-1.The Table...

Question 11

If the demand curve for a firm is downward-sloping,its marginal revenue curve
A) will lie above the demand curve.
B) will lie below the demand curve.
C) is the same as the demand curve.
D) is horizontal.

Accepted Answer

The marginal revenue curve is always below the demand curve for firms with downward-sloping demand curves because they have to lower prices to sell additional units of output. This means that the additional revenue generated by selling one more unit of output is less than the price of that unit, leading to a downward-sloping marginal revenue curve that lies below the demand curve.

Question 12

The key characteristics of a monopolistically competitive market structure include
A) few sellers.
B) sellers selling similar but differentiated products.
C) high barriers to entry.
D) sellers acting to maximize revenue.

Accepted Answer

Monopolistically competitive market structure is characterized by a large number of sellers who sell similar but differentiated products. This means that each seller can slightly differentiate their product from others and create a brand image for themselves. This gives them some market power and they can charge a slightly higher price for their product compared to their competitors. However, there are no significant barriers to entry, which means that new firms can easily enter the market and compete with existing firms, thereby keeping the prices in check. Since there are many sellers, each seller only has a small market share, hence they try to maximize their revenue rather than profit.

Question 13

Which of the following is true for a firm with a downward-sloping demand curve for its product?
A) Price, average revenue, and marginal revenue are all equal.
B) Price, average revenue, and marginal revenue are all different.
C) Price equals average revenue but is greater than marginal revenue.
D) Price equals average revenue but is less than marginal revenue.

Accepted Answer

The answer of Which of the following is true for...

Question 14

In monopolistic competition there is/are
A) many sellers who each face a downward-sloping demand curve.
B) a few sellers who each face a downward-sloping demand curve.
C) only one seller who faces a downward-sloping demand curve.
D) many sellers who each face a perfectly elastic demand curve.

Accepted Answer

Monopolistic competition is characterized by many sellers who offer slightly differentiated products, leading to each seller facing a downward-sloping demand curve. This means that as the seller raises their price, they will lose some customers, but may gain others due to the differentiated nature of their product.

Question 15

Which of the following characteristics is common to monopolistic competition and perfect competition?
A) Firms produce identical products.
B) Entry barriers into the industry are low.
C) Each firm faces a downward -sloping demand curve.
D) Firms take market prices as given.

Accepted Answer

The answer of Which of the following characteristics is common...

Question 16

Which of the following is not an example of a monopolistically competitive market?
A) automobile producers
B) supermarkets
C) video stores
D) makers of women's clothing

Accepted Answer

Automobile producers operate in an oligopolistic market rather than a monopolistically competitive one, as there are only a few major firms dominating the industry.

Question 17

The key characteristics of a monopolistically competitive market structure include
A) many small (relative to the total market) sellers acting independently.
B) all sellers sell a homogeneous product.
C) barriers to entry are strong.
D) sellers have no incentive to advertise their products.

Accepted Answer

Monopolistically competitive markets have many small firms that have some degree of pricing power due to differentiation of their products. This differentiation creates some barriers to entry, but not enough to prevent new firms from entering the market. Additionally, firms in this market structure often engage in advertising and promotion to differentiate their products further. Therefore, choices B, C, and D are incorrect as they do not accurately describe monopolistically competitive markets.

Question 18

One reason why the coffeehouse market is competitive is that
A) demand for specialty coffee is very high.
B) it is trendy and therefore is likely to have a customer following.
C) barriers to entry are low.
D) consumption takes place in public.

Accepted Answer

One reason why the coffeehouse market is competitive is that barriers to entry are low. This means that it is relatively easy for new firms to enter the market and compete with existing firms, leading to increased competition.

Question 19

If a firm faces a downward-sloping demand curve
A) the demand for its product must be inelastic.
B) it can control both price and quantity sold.
C) it must reduce its price to sell more units.
D) it will always make a profit.

Accepted Answer

When a firm faces a downward-sloping demand curve, it means that as the price of the product increases, the demand for the product decreases. Therefore, to sell more units, the firm must reduce its price. This is because the price reduction will increase the quantity of products demanded. However, the degree to which the quantity demanded increases will depend on the price elasticity of demand. If the demand for the product is elastic, a small reduction in price will lead to a significant increase in quantity demanded. If the demand is inelastic, a reduction in price will lead to a smaller increase in quantity demanded. Therefore, the firm must set its price based on the price elasticity of demand.

Question 20

Which of the following is true of a typical firm in a monopolistically competitive industry?
A) Product differentiation allows a successful firm to emerge as a market leader in the industry.
B) All firms have identical cost structures.
C) The more successful firms have an incentive to merge in order to exert greater market power.
D) Each firm acts independently.

Accepted Answer

In a monopolistically competitive industry, firms have a degree of market power, but because of product differentiation, they also face competition from other firms. Therefore, each firm acts independently to set its own price and output levels based on its own cost structure and product differentiation strategy. While successful firms may have advantages in the market, such as brand recognition or a loyal customer base, there is no incentive for firms to merge to exert greater market power because the industry as a whole is still relatively competitive.

Quiz 13: Monopolistic Competition: the Competitive Model in a More Realistic Setting

A major difference between monopolistic competition and perfect competition is

A monopolistically competitive firm faces a downward-sloping demand curve because

A monopolistically competitive firm will

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a gain in revenue due to the

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because

For a monopolistically competitive firm,marginal revenue

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the

Which of the following characteristics is not common to monopolistic competition and perfect competition?

Table 13-1 -Refer to Table 13-1.What is the marginal revenue of the 3rd unit?

Table 13-1 -Refer to Table 13-1.The Table shows

If the demand curve for a firm is downward-sloping,its marginal revenue curve

The key characteristics of a monopolistically competitive market structure include

Which of the following is true for a firm with a downward-sloping demand curve for its product?

In monopolistic competition there is/are

Which of the following characteristics is common to monopolistic competition and perfect competition?

Which of the following is not an example of a monopolistically competitive market?

The key characteristics of a monopolistically competitive market structure include

One reason why the coffeehouse market is competitive is that

If a firm faces a downward-sloping demand curve

Which of the following is true of a typical firm in a monopolistically competitive industry?