Deck 15: Monopolistic Competition and Product Differentiation

Question 1

Because of the existence of a large number of similar but not identical substitutes in most communities, the market for financial planners is best considered to be:

A)a monopoly.
B)an oligopoly.
C)a perfect competition.
D)monopolistically competitive.

Answer 1

D

Question 2

Monopolistic competition describes an industry characterized by a ________ number of firms producing products with for firms.

A)small; identical; barriers to entry
B)small; similar; relatively easy entry .C.large; similar; relatively easy entry .D.large; identical; relatively easy entry

Answer 2

C

Question 3

A monopolistically competitive industry is characterized by a:

A)small number of firms producing identical products, with barriers to entry for firms.
B)small number of firms producing similar products, with relatively easy entry for firms.
C)large number of firms producing similar products, with relatively easy entry for firms.
D)large number of firms producing identical products, with relatively easy entry for firms.

Answer 3

C

Question 4

Which of the following is not a characteristic of monopolistic competition? product differentiation

Question 5

Which of the following industries is most likely to be monopolistically competitive?

A)automobile production
B)fresh bagel shops
C)corn farming
D)electric utility production

Question 6

A market structure characterized by many competitors, each producing identical products, with free entry and exit into the industry, is described as a(n):

A)monopolistically competitive industry.
B)oligopoly.
C)perfectly competitive industry.
D)monopoly.

Question 7

In monopolistic competition:

A)there is free entry and exit in the long run.
B)each firm produces a standardized product.
C)there are few producers.
D)there are barriers to entry.

Question 8

An industry characterized by many firms producing similar but differentiated products in a market with easy entry and exit is called:

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

Question 9

Monopolistic competition is an industry structure characterized by:

A)a product with no close substitutes.
B)a horizontal demand curve.
C)a large number of firms.
D)barriers to entry and exit.

Question 10

In monopolistic competition, each firm:

A)is a price-taker.
B)has some ability to set the price of its differentiated good.
C)will set price equal to marginal cost.
D)has marginal revenue that is greater than price.

Question 11

Monopolistic competition is similar to perfect competition because firms in both market structures:

A)are price-takers.
B)produce goods that are perfect substitutes.
C)find it beneficial to advertise.
D)do not face any barriers to entry into the industry in the long run.

Question 12

A feature of monopolistic competition that makes it different from monopoly is the:

A)fact that firms in monopolistically competitive industries follow the marginal decision rule, while monopolies do not.
B)downward-sloping demand curve.
C)downward-sloping marginal revenue curve.
D)number of firms in the industry.

Question 13

A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, like wheat farming, are alike in that:

A)firms in both types of industries produce identical products.
B)firms in both types of industries produce similar but not identical products.
C)barriers to entry in both industries are large.
D)there are many firms in each industry.

Question 14

The wedding dress industry is monopolistically competitive.As a result, which of the following conditions applies to this industry?

A)There are thousands of dress suppliers, all selling identical products.
B)Dresses tend to be differentiated among the many sellers serving this market.
C)There is freedom of entry but not exit in this industry.
D)Prices tend to be lower than if the dress industry approximated perfect competition.

Question 15

Because of the existence of a large number of similar but not identical substitutes in most communities, the market for chiropractors is best considered to be:

A)an oligopoly.
B)a perfect competition.
C)monopolistically competitive.
D)a monopoly.

Question 16

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

A)few firms competing in the industry
B)no barriers to entry or exit in the long run
C)absolute market power
D)standardized products

Question 17

In large shopping malls, the retail market is most illustrative of:

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

Question 18

The downward-sloping demand curve for a monopolistically competitive firm:

A)reflects product differentiation.
B)eventually will become perfectly elastic as more firms enter.
C)indicates collusion among firms in the industry.
D)ensures that the firm will produce at minimum average cost in the long run.

Question 19

An industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit of firms is:

A)a monopoly.
B)a duopoly.
C)an oligopoly.
D)monopolistically competitive.

Question 20

For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is , and there are producers of seafood.

A)downward sloping; few .B.upward sloping; many .C.vertical; few
D)downward sloping; many

Question 21

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.

Question 22

The profit-maximizing rule MC = MR is followed by firms operating within:

A)monopolistic competition but not perfect competition.
B)perfect competition but not monopolistic competition.
C)either monopolistic competition or perfect competition, depending on the costs of production.
D)both monopolistic competition and perfect competition.

Question 23

Product differentiation under monopolistic competition means that each firm:

A)charges slightly different prices.
B)has a pure monopoly.
C)maximizes profit where MC = P.
D)faces a horizontal demand curve.

Question 24

If the toothpaste market is monopolistically competitive, product differentiation will take place in which of the following ways?

A)the production of different 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)the production of different varieties of toothpaste, including those with whitening agents, differentiation in the locations where certain toothpastes are available, and quality differences among the various brands

Question 25

The demand curve for a firm operating within a monopolistically competitive industry is:

A)U-shaped.
B)upward sloping.
C)downward sloping.
D)vertical.

Question 26

Monopolistic competition describes an industry characterized by which of the following?

A)a product with many close substitutes
B)a horizontal demand curve
C)a small number of firms .D.barriers to entry and exit

Question 27

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.

Question 28

In a monopolistically competitive industry:

A)a firm maximizes profits when MR = MC yet P > MC.
B)people would be better off if output were reduced.
C)output could be increased without an increase in total cost.
D)to maximize profits, firms set MR = MC, and people would be better off if output were reduced.

Question 29

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

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

Question 30

Product differentiation under monopolistic competition means that each firm:

A)charges the same price.
B)maximizes profit where MC = P.
C)faces a downward-sloping demand curve.
D)receives economic profits.

Question 31

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:

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

Question 32

Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price will be:

A)equal to marginal revenue.
B)less than marginal revenue.
C)greater than marginal revenue.
D)equal to total revenue.

Question 33

A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily because:

A)there exist no barriers to entry or exit in the long run.
B)there are many sellers in the industry.
C)the firm sells a product distinct from products sold by competing firms.
D)the price is greater than the marginal revenue.

Question 34

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

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

Question 35

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

A)style.
B)location.
C)quality.
D)type.

Question 36

The demand curve for a firm under monopolistic competition is:

A)downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.
B)horizontal, unlike the downward-sloping demand curve facing a perfectly competitive firm.
C)horizontal, the same as that facing a perfectly competitive firm.
D)downward sloping, the same as that facing a perfectly competitive firm.

Question 37

Monopolistic competition is different from monopoly because of which one of the following features?

A)firms with some power to set prices
B)downward-sloping demand curve
C)firms facing some competition
D)downward-sloping marginal revenue curve

Question 38

The market for dentists in most communities can be considered a because there are a large number of similar but not identical substitutes in the market.

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

Question 39

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.

Question 40

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

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

Question 41

Suppose a monopolistically competitive firm can increase its profits by decreasing its output.Then it must be the case that at the current output:

A)marginal revenue is less than zero.
B)price is less than marginal revenue.
C)marginal revenue is less than marginal cost.
D)price is less than average total cost.

Question 42

A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning negative economic profits.Which of the following must be true?

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

Question 43

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits.Which of the following must be true for this firm?

A)MR = MC and P = ATC.
B)MR = MC and P > ATC.
C)MR > MC and P = ATC.
D)P = MR = MC > ATC.

Question 44

Figure: Monopolistic Competition (Figure: Monopolistic Competition) The monopolistic competitor in the figure Monopolistic Competition is producing at the output level that maximizes profits (minimizes losses).The shaded rectangle depicts the level of:

A)profit.
B)loss.
C)fixed cost.
D)variable cost.

Question 45

If a firm operating within monopolistic competition is producing a quantity that generates MC = MR, then the marginal decision rule tells us that profit:

A)is maximized.
B)can be increased by decreasing production.
C)can be increased by decreasing the price.
D)is maximized only if MC = P.

Question 46

To maximize profit, a monopolistically competitive firm should produce the level of output at which:

A)marginal revenue equals marginal cost.
B)price equals marginal cost.
C)price equals total cost.
D)marginal revenue equals price.

Question 47

The _________ demand curve for a firm operating in a monopolistically competitive market _.

A)downward-sloping; is the same as the demand curve facing a perfectly competitive firm.
B)downward-sloping; differs from the horizontal demand curve facing a perfectly competitive firm.
C)horizontal; differs from the downward-sloping demand curve facing a perfectly competitive firm.
D)horizontal; is the same as the demand curve facing a perfectly competitive firm.

Question 48

If a monopolistically competitive firm is in long-run equilibrium, then price _.

A)equals marginal revenue.
B)equals average total cost.
C)is greater than average total cost.
D)equals marginal cost.

Question 49

Suppose Susan owns a business that operates in a market characterized by monopolistic competition.Susan's profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits are $1,800 per week.Susan decides that she needs more profits and therefore raises her price to $15.At the new price of $15:

A)profits will increase.
B)profits will remain at $1,800.
C)marginal revenue will be greater than marginal cost.
D)marginal revenue will be less than marginal cost.

Question 50

If a firm operating in monopolistic competition is producing a quantity at which MC < MR, then profit can be ________ by _.

A)increased; decreasing production
B)increased; increasing production
C)increased; increasing the price
D)maximized; decreasing production

Question 51

In order to maximize profits, a firm in monopolistic competition will likely produce:

A)at the output level at which marginal cost equals average total cost.
B)at the output level at which marginal cost is greater than marginal revenue.
C)at the output level at which marginal cost equals marginal revenue.
D)at the output level at which marginal cost equals price.

Question 52

In the long run, monopolistically competitive firms:

A)produce output at the level that minimizes average total cost.
B)set marginal revenue equal to price.
C)cannot earn an economic profit.
D)produce so that marginal cost equals price.

Question 53

The demand curve for a firm operating in a monopolistically competitive market is best described as:

A)U-shaped.
B)upward sloping.
C)downward sloping.D.horizontal.

Question 54

If a firm operating within monopolistic competition is producing a quantity that generates MC < MR, then the marginal decision rule tells us that profit:

A)can be increased by increasing production.
B)can be increased by decreasing production.
C)can be increased by increasing the price.
D)is maximized only if MC = P.

Question 55

The price for a firm under monopolistic competition is:

A)equal to marginal revenue.
B)greater than marginal revenue.
C)less than marginal revenue.
D)greater than total revenue.

Question 56

Suppose a monopolistically competitive firm is making a profit but it can increase its profits by increasing output.Then it must be the case that at the current level of output:

A)marginal revenue is greater than marginal cost.
B)price is less than marginal cost.
C)price is less than average total cost.
D)marginal revenue is less than marginal cost.

Question 57

Suppose a monopolistically competitive firm is in long-run equilibrium.Then:

A)price equals average total cost.
B)price equals marginal cost.
C)marginal revenue equals price.
D)price is greater than average total cost.

Question 58

If a firm operating in monopolistic competition is producing a quantity at which , then the marginal decision rule tells us that profit _.

A)MC > MR; can be increased by increasing production
B)MC < MR; can be increased by decreasing production
C)MC < MR; can be increased by increasing production
D)MC > MR; is maximized

Question 59

A firm operating in a monopolistically competitive market is producing a quantity at which MC = MR.Profit:

A)can be increased by increasing production.
B)is maximized.
C)can be increased by decreasing the price.
D)is maximized only if MC = P.

Question 60

A gas station operates in a monopolistically competitive market and is in short-run equilibrium.Suppose that a fixed cost for this firm decreases.As a result, the firm's price will ________, the firm's output will , and the firm's economic profit will ________.

A)increase; increase;
B)increase increase; increase; decrease
C)stay the same; stay the same; increase
D)decrease; stay the same; increase

Question 61

Which of the following statements is correct?

A)In the long run, monopolistically competitive firms always experience high economic profits.
B)In the long run, monopolistically competitive firms tend to experience zero economic profits.
C)In the long run, it is likely that monopolistically competitive firms experience negative economic profits.
D)In the long run, it is likely that monopolistically competitive firms experience substantial economic losses.

Question 62

If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run:

A)firms will leave the industry.
B)the demand curves faced by existing firms will move to the right.
C)economic profits will increase.
D)economic profits will be reduced to zero.

Question 63

The model of monopolistic competition can characterize the market for plumbing services in a city.This market is initially in long-run equilibrium, but then there is an increase in demand for plumbing services.We expect that in the long run:

A)firms will leave the plumbing market.
B)there will be a short-run increase in the number of firms, but then the number will return to the original level.
C)new firms will enter the plumbing market.
D)firms will shut down, but they will not leave the industry.

Question 64

General Snacks is a typical firm in a market characterized by the model of monopolistic competition.If the market is in long-run equilibrium, then the price General Snacks charges for its snack goods would:

A)equal average total cost.
B)exceed average total cost.
C)be less than average total cost.
D)be greater than the average for all other firms in the market.

Question 65

In the long run, monopolistically competitive firms tend to experience:

A)high economic profits.
B)zero economic profits.
C)negative economic profits.
D)substantial economic losses.

Question 66

General Snacks is a typical firm in a market characterized by the model of monopolistic competition.Initially, the market is initially in long-run equilibrium, and then there is an increase in demand for snacks.In the long run, the economic profits of typical firms in the industry will be:

A)typical of those earned by monopoly firms.
B)positive but less than the level typically earned by monopoly firms.
C)zero.
D)negative.

Question 67

Figure: Firms in Monopolistic Competition (Figure: Firms in Monopolistic Competition) In panel B of the figure Firms in Monopolistic Competition, the profit-maximizing
Quantity of output is determined by the intersection at point:

A)Q.
B)R.
C)S.
D)T.

Question 68

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits.Which of the following describes how this firm will adjust in the long run?

A)The entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output and the price the firm can charge until price equals average total cost.
B)The entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output and increasing the price the firm can charge until price equals average total cost.
C)The entry of new firms shifts the firm's marginal cost and average cost curves downward, decreasing the firm's level of output and the price the firm can charge until price equals average total cost.
D)The exit of firms shifts the firm's demand and marginal revenue curves rightward, increasing the firm's level of output and the price the firm can charge until price equals average total cost.

Question 69

Figure: Firms in Monopolistic Competition (Figure: Firms in Monopolistic Competition) In panel A of the figure Firms in Monopolistic Competition, economic profit per unit is:

A)KL.
B)LM.
C)MN.
D)NO.

Question 70

Toby operates a small deli downtown.The deli industry is monopolistically competitive.If some delis leave the industry, Toby's ________ curve will shift to the _.

A)marginal cost; left
B)marginal cost; right .C.demand; left
D)demand; right

Question 71

Figure: Firms in Monopolistic Competition (Figure: Firms in Monopolistic Competition) In panel C of the figure Firms in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:

A)U.
B)V.
C)W.
D)X.

Question 72

Figure: Firms in Monopolistic Competition (Figure: Firms in Monopolistic Competition) In panel A of the figure Firms in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:

A)K.
B)P.
C)N.
D)O.

Question 73

In a long-run equilibrium, firms in a monopolistically competitive industry sell at a price:

A)equal to marginal cost.
B)less than marginal cost.
C)greater than marginal cost.
D)less than marginal revenue.

Question 74

Monopolistically competitive firms have zero economic profits in the long run because of:

A)excess capacity.
B)price wars among firms.
C)easy entry and exit.
D)excessive advertising.

Question 75

The model of monopolistic competition can characterize the market for plumbing services in a city.Suppose that the market is in long-run equilibrium.For a typical plumbing firm, price:

A)equals average total cost.
B)exceeds average total cost.
C)is less than average total cost.
D)is greater than the average for all other firms in the market.

Question 76

Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year.In the long run, the demand for any one firm's dry-cleaning services will ________ as more firms enter the industry, causing profits to _.

A)decrease; become economic losses .B.decrease; fall to zero
C)not change; fall
D)increase; increase

Question 77

In monopolistic competition:

A)firms advertise to increase demand for their product.
B)entry of new firms shifts the demand curve for existing firms to the right.
C)when some firms exit, the demand curve for the firms that remain in the industry shifts to the left.
D)firms earn large economic profits in the long run.

Question 78

Toby operates a small deli downtown.The deli industry is monopolistically competitive.In the long run, Toby will produce where:

A)marginal revenue equals marginal cost.
B)price equals minimum average total cost.
C)price equals marginal cost.
D)price equals marginal revenue.

Question 79

Figure: Firms in Monopolistic Competition (Figure: Firms in Monopolistic Competition) In panel C of the figure Firms in Monopolistic Competition, economic loss per unit is:

A)XT.
B)UW.
C)VW.
D)VT.

Question 80

When a monopolistically competitive firm is making zero economic profits, it is producing at the output level at which the average total cost curve is tangent to the demand curve faced by the firm.At this output:

A)the firm is maximizing profits, and marginal cost must equal marginal revenue.
B)the firm is not maximizing profits, and a slight increase or decrease in output will lead to positive profits.
C)since economic profits are equal to zero, the condition that marginal revenue equals marginal cost is irrelevant and need not hold.
D)the condition that marginal revenue equals marginal cost continues to be relevant, but the marginal revenue and marginal cost curves need not intersect directly below the point of tangency between the average total cost curve and the demand curve faced by the firm.