Question 1

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of java. For these customers, coffee is differentiated by:
A) style.
B) location.
C) quality.
D) type.

Accepted Answer

Quality is the key factor that differentiates Starbucks from a diner that serves coffee at a lower price point. Starbucks is known for its high-quality coffee beans, roasting techniques, and brewing methods, which appeals to customers who are willing to pay more for a premium experience.

Question 2

If the toothpaste market is monopolistically competitive, product differentiation may take the form of:
A) production of many varieties of toothpaste, including those with whitening agents.
B) differentiation in the locations where certain toothpastes are available.
C) quality differences among the various brands.
D) production of many varieties of toothpaste, including those with whitening agents; differentiation in the locations where certain toothpastes are available; and quality differences among the various brands.

Accepted Answer

Monopolistically competitive markets involve different brands competing on the basis of product differentiation. In the toothpaste market, this may take the form of producing many varieties of toothpaste, including those with whitening agents, differentiating in the locations where certain toothpastes are available, and quality differences among the various brands. Therefore, choice D is the best option.

Question 3

The market for dentists in most communities can be considered _____ because the market has a large number of similar but not identical dental services.
A) monopolistic competition
B) a monopoly
C) perfect competition
D) an oligopoly

Accepted Answer

Monopolistic competition is characterized by a large number of firms that offer similar but not identical products or services. In this case, the market for dentists in most communities fits this description as there are many dentists offering similar dental services, but each dentist may provide slightly different services or have different pricing strategies. This leads to competition among the dentists to attract patients, but also allows for some differentiation among their services. A monopoly involves only one firm controlling the market, perfect competition involves many firms offering identical products, and an oligopoly involves just a few large firms dominating the market.

Question 4

A common example of monopolistic competition is the market for:
A) oranges.
B) 1-inch nails.
C) automobiles.
D) gas stations.

Accepted Answer

Gas stations are a common example of monopolistic competition as there are numerous gas stations selling similar but not identical products, such as different brands of gasoline and various convenience store items. This leads to some level of pricing power for each individual gas station, but not enough to maintain a true monopoly.

Question 5

Monopolistic competition describes an industry characterized by a _____ number of firms producing _____ products with _____ entry.
A) small; identical; barriers to
B) small; similar; relatively easy
C) large; similar; relatively easy
D) large; identical; relatively easy

Accepted Answer

Monopolistic competition is an industry with a large number of firms producing similar or differentiated products with relatively easy entry. Unlike perfect competition, firms in monopolistic competition have some control over the price they charge because their products are differentiated. However, there are no significant barriers to entry and exit, which means new firms can enter the market and existing firms can exit without much cost or difficulty.

Question 6

An industry with easy entry and exit of a large number of small firms producing a standardized product is:
A) in perfect competition.
B) in monopolistic competition.
C) an oligopoly.
D) a monopoly.

Accepted Answer

An industry with easy entry and exit of a large number of small firms producing a standardized product is a characteristic of perfect competition. In perfect competition, there are many buyers and sellers of a homogeneous product, barriers to entry are low, and firms have no market power to influence the price.

Question 7

Because most communities have a large number of similar but not identical substitutes, the market for florists is best considered:
A) a monopoly.
B) an oligopoly.
C) monopolistically competitive.
D) perfectly competitive.

Accepted Answer

Monopolistic competition is characterized by a large number of firms selling differentiated products which are close substitutes but not identical. In the market for florists, there are many businesses offering similar products, but each business usually has its own unique selling points, such as specializing in certain types of flowers or offering unique arrangements. This makes it difficult for any one business to completely dominate the market, and competition is based on price, quality, and service. Therefore, the market for florists is best considered monopolistically competitive.

Question 8

The market for soft drinks, which is dominated by Coca Cola and Pepsi, is best considered to be an example of:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.

Accepted Answer

The market for soft drinks is dominated by two major firms - Coca Cola and Pepsi, which is a classic example of an oligopoly. In an oligopoly market, a few firms dominate the market and have significant influence on the price and output of the industry.

Question 9

An industry with a single firm producing a product for which there are no close substitutes and which is protected by barriers to entry is an example of:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.

Accepted Answer

A single firm producing a product with no close substitutes and protected by barriers to entry is the definition of a monopoly. In a monopoly, the firm has full control over the price and output level of the product in the market.

Question 10

An industry with a few interdependent firms is best described as an example of:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.

Accepted Answer

An industry with a few interdependent firms is an example of an oligopoly. Oligopoly is a market structure where there are a small number of firms that dominate the market and have a significant degree of market power. These firms are interdependent and their actions have a significant impact on the overall market. This is in contrast to perfect competition, where there are many small firms that have no market power, monopolistic competition, where there are many firms selling similar, but not identical products, and monopoly, where there is only one firm in the market with complete market power.

Question 11

In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport. These Holiday Inn establishments are examples of product differentiation by:
A) type.
B) location.
C) quality.
D) style.

Accepted Answer

The fact that the Holiday Inn hotels are located in different areas (downtown, suburban, near airport) shows product differentiation based on location.

Question 12

The sources of product differentiation do NOT include:
A) differences in location.
B) differences in quality.
C) the perception by consumers that products are different, even if they are physically identical.
D) consumers' value in uniformity.

Accepted Answer

The sources of product differentiation include differences in location, quality, and perception by consumers. However, consumers' value in uniformity is not a source of product differentiation, but rather the opposite.

Question 13

Monopolistic competition is different from monopoly because firms:
A) have some power to set prices.
B) have a downward-sloping demand curve.
C) face some competition.
D) have a downward-sloping marginal revenue curve.

Accepted Answer

Monopolistic competition differs from monopoly primarily because firms in monopolistic competition face competition from other firms, whereas a monopoly has no competitors. This competition among firms in monopolistic competition limits the market power of any single firm.

Question 14

Monopolistic competition describes an industry characterized by:
A) a product with no close substitutes.
B) many firms, each with some market power.
C) a small number of firms.
D) barriers to entry and exit.

Accepted Answer

Monopolistic competition is characterized by many firms in the industry, each with some degree of market power. They are able to differentiate their products and compete on non-price factors such as branding, product design, and marketing. However, there are close substitutes available in the market. Barriers to entry and exit are generally low in monopolistic competition. Option A is incorrect because monopolistic competition does have close substitutes. Option C is incorrect because monopolistic competition involves numerous firms, not a small number of firms. Option D is incorrect because barriers to entry and exit are generally low in monopolistic competition.

Question 15

Because of the lack of substitutes, the market for newly developed brand-name prescription drugs is best considered to be:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.

Accepted Answer

Due to the lack of substitutes, the market for newly developed brand-name prescription drugs can be best considered as a monopoly, where a single firm has control over the market and can set prices accordingly without much threat of competition.

Question 16

The market for grade A large eggs in California is best considered to be an example of:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.

Accepted Answer

The answer of The market for grade A large eggs...

Question 17

Which of the following describes a feature shared by monopolistic competition and perfect competition?
A) few firms in the industry
B) no barriers to entry or exit in the long run
C) absolute market power
D) standardized products

Accepted Answer

Both monopolistic competition and perfect competition have no barriers to entry or exit in the long run, allowing for new firms to enter and compete in the market. In monopolistic competition, firms may differentiate their products to create a degree of market power, while in perfect competition, firms sell standardized products and have no market power. Few firms in the industry and absolute market power are features shared by monopolies, not monopolistic or perfect competition.

Question 18

An industry with a large number of relatively small firms producing _____ in a market with easy entry and exit is a(n) _____.
A) similar products; monopoly
B) identical products; monopolistic competition
C) differentiated products; oligopoly
D) differentiated products; monopolistic competition

Accepted Answer

A large number of relatively small firms producing differentiated products in a market with easy entry and exit is the definition of monopolistic competition.

Question 19

Which of the following is NOT a characteristic of monopolistic competition?
A) product differentiation
B) lack of barriers to entry and exit in the long run
C) many competing producers
D) tacit collusion

Accepted Answer

Monopolistic competition involves product differentiation, many competing producers, and lack of barriers to entry and exit in the long run. However, tacit collusion, or informal agreements between firms to coordinate prices or output, is not a characteristic of monopolistic competition. It is more commonly associated with oligopolies.

Question 20

Monopolistic competition describes an industry characterized by:
A) a product with many close substitutes.
B) a horizontal demand curve.
C) a small number of firms.
D) barriers to entry and exit.

Accepted Answer

Monopolistic competition is characterized by a large number of firms selling differentiated products, which means there are many close substitutes available in the market. This leads to a downward-sloping but relatively elastic demand curve for each firm, meaning that a single firm can increase its sales by lowering its price without affecting the prices of its competitors. Monopolistic competition does not have barriers to entry and exit, nor does it involve a small number of firms.

Quiz 14: Monopolistic Competition and Product Differentiation

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of java. For these customers, coffee is differentiated by:

If the toothpaste market is monopolistically competitive, product differentiation may take the form of:

The market for dentists in most communities can be considered _____ because the market has a large number of similar but not identical dental services.

A common example of monopolistic competition is the market for:

Monopolistic competition describes an industry characterized by a ___ number of firms producing _ products with ___ entry.

An industry with easy entry and exit of a large number of small firms producing a standardized product is:

Because most communities have a large number of similar but not identical substitutes, the market for florists is best considered:

The market for soft drinks, which is dominated by Coca Cola and Pepsi, is best considered to be an example of:

An industry with a single firm producing a product for which there are no close substitutes and which is protected by barriers to entry is an example of:

An industry with a few interdependent firms is best described as an example of:

In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport. These Holiday Inn establishments are examples of product differentiation by:

The sources of product differentiation do NOT include:

Monopolistic competition is different from monopoly because firms:

Monopolistic competition describes an industry characterized by:

Because of the lack of substitutes, the market for newly developed brand-name prescription drugs is best considered to be:

The market for grade A large eggs in California is best considered to be an example of:

Which of the following describes a feature shared by monopolistic competition and perfect competition?

An industry with a large number of relatively small firms producing _ in a market with easy entry and exit is a(n) _.

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

Monopolistic competition describes an industry characterized by: