Deck 10: Monopolistic Competition and Oligopoly

Question 1

Monopolistically competitive industries consist of _____

A)one firm selling several products.
B)one firm selling one product.
C)many firms, all selling identical products.
D)many firms, each selling a slightly different product.
E)many firms, each selling a completely different product.

Answer 1

D

Question 2

The demand curve facing Imelda's Shoe Boutique,a monopolistically competitive firm,_____

A)is horizontal because Imelda's supply is small relative to the market as a whole.
B)is horizontal because Imelda's supply is large relative to the market as a whole.
C)slopes downward because Imelda's supply is small relative to the market as a whole.
D)slopes downward because Imelda sells a differentiated product.
E)slopes downward because Imelda's products are identical to its rival's products.

Answer 2

D

Question 3

The term "monopolistic competition" _____

A)is an alternate expression for monopoly.
B)is used to describe perfect competition that has strong entry barriers.
C)denotes an industry characterized by one seller of many differentiated products.
D)denotes an industry characterized by many sellers of homogeneous products.
E)denotes an industry characterized by many sellers of differentiated products.

Answer 3

E

Question 4

Collusion among firms to raise prices is rare in monopolistically competitive markets because _____

A)there are too many firms.
B)there are too few firms.
C)there is only one firm.
D)products are homogeneous.
E)there are price leaders.

Question 5

FlyHigh Travel Agency,a monopolistic competitor,offers services that are differentiated from the services of other producers in the industry.This implies that it _____

A)faces a perfectly elastic demand curve.
B)is a price taker.
C)has some control over the price it charges.
D)faces a perfectly inelastic demand curve.
E)produces a product with no close substitutes.

Question 6

Monopolistic competition is different from perfect competition because monopolistic competitors _____

A)produce homogeneous products.
B)are price takers.
C)have high barriers to entry.
D)produce differentiated products.
E)act interdependently.

Question 7

Which of the following is most likely produced in a monopolistically competitive market?

A)soybeans
B)automobiles
C)fast food
D)oil
E)wheat

Question 8

Which of the following is true of the relationship between price and marginal cost under monopolistic competition?

A)Price equals marginal cost at all levels of output.
B)Price equals marginal cost only at the profit-maximizing quantity.
C)Price exceeds marginal cost at the profit-maximizing level of output.
D)Price is less than marginal cost at the profit-maximizing quantity.
E)Price is less than marginal cost at all levels of output.

Question 9

If a monopolistically competitive firm raises its price,it _____

A)earns a higher economic profit.
B)loses some, but not all, of its customers.
C)shuts down.
D)has to pay higher taxes.
E)gains customers.

Question 10

Monopolistically competitive firms ignore the effect of their decisions upon other firms in the industry because _____

A)each firm is large relative to the market.
B)each firm is small relative to the market.
C)there are few sellers in the market.
D)there is only one seller in the market.
E)all firms follow the same pricing rule.

Question 11

All of the following are examples of product differentiation,except one.Which of the following is the exception?

A)developing a new video game or a computer program called "How to Teach Your New Dog Old Tricks"
B)manufacturing a car that minimizes outside noise more than other cars do
C)lowering the price of a good for a special sale
D)providing movies and special meals on airline flights
E)making sodium-free, caffeine-free colas

Question 12

When firms differentiate their products,they _____

A)usually create barriers to entry into the market in which they operate.
B)always increase their profits.
C)always increase product prices.
D)frequently create artificial or superficial differences among products, thus raising production costs.
E)usually strain the physical capacity of their plants.

Question 13

A monopolistic competitor's demand curve is _____

A)perfectly elastic.
B)less elastic than a monopolist's or oligopolist's but more elastic than a perfect competitor's demand curve.
C)as elastic as an oligopolist's demand curve.
D)more elastic than a monopolist's or oligopolist's but less elastic than a perfect competitor's demand curve.
E)perfectly inelastic.

Question 14

If firms in an industry produce differentiated products,they are likely to _____

A)earn zero economic profit in the long run.
B)earn positive economic profit in the short run.
C)face perfectly elastic demand curves.
D)face downward-sloping demand curves.
E)incur lower production costs.

Question 15

The demand curve facing a firm is likely to be relatively elastic if _____

A)the firm has few competing firms.
B)the firm sells more differentiated products.
C)there are many substitutes for its product.
D)the firm is a price maker.
E)the firm has control over the supply of a key resource.

Question 16

Economic analysis of product differentiation leads to all of the following conclusions,except one.Which of the following is the exception?

A)Product differentiation makes it harder for firms to collude.
B)Product differentiation makes price leadership harder to maintain.
C)Product differentiation sometimes contributes to wasteful allocation of resources.
D)Product differentiation must be based on real, substantive differences among products.
E)Product differentiation makes it easier for firms to liquidate assets.

Question 17

Compared to regular grocery stores,convenience stores have _____

A)higher prices and a limited selection of goods.
B)higher prices and a greater selection of goods.
C)lower prices and a limited selection of goods.
D)lower prices and a greater selection of goods.
E)equal prices and an equal selection of goods.

Question 18

Which of the following factors makes a monopolistically competitive firm a price maker?

A)product differentiation
B)barriers to entry
C)product similarity
D)homogeneity of products
E)high tariffs

Question 19

A common feature of monopolistic competition,pure monopoly,and perfect competition is that _____

A)entry is free in each market structure.
B)producers in each market structure earn economic profit in the long run.
C)producers in each market structure sell differentiated products.
D)firms in these market structures act as price takers.
E)the profit-maximizing condition in each market is the same.

Question 20

Monopolistically competitive firms _____

A)are price takers.
B)are price makers.
C)produce homogeneous products.
D)face high barriers to entry.
E)act interdependently.

Question 21

Table 10.1
$$\begin{array} { c c c } \mathrm { Q } & \mathrm { P } ( \$ ) & \mathrm { TC } ( \$ ) \\\hline 1 & 27 & 10 \\2 & 24 & 17 \\3 & 21 & 32 \\4 & 18 & 47 \\5 & 15 & 67\end{array}$$

-Refer to Table 10.1,which shows the output,price,and total cost for a monopolistic competitor.The profit-maximizing price for the firm is _____

A)$0.
B)$27.
C)$21.
D)$15.
E)$18.

Question 22

A monopolistically competitive firm is producing at an output level where marginal revenue is greater than marginal cost.This firm should _____ quantity and _____ price to increase profit or reduce losses.

A)increase, increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease
E)increase; not change

Question 23

Table 10.1
$$\begin{array} { c c c } \mathrm { Q } & \mathrm { P } ( \$ ) & \mathrm { TC } ( \$ ) \\\hline 1 & 27 & 10 \\2 & 24 & 17 \\3 & 21 & 32 \\4 & 18 & 47 \\5 & 15 & 67\end{array}$$

-Refer to Table 10.1,which shows the output,price,and total cost for a monopolistic competitor.The profit-maximizing output for the monopolistic competitor is _____

A)0 units.
B)1 unit.
C)3 units.
D)5 units.
E)2 units.

Question 24

If there is an increase in the demand for restaurant meals in an economy in the short run,_____

A)the losses incurred by each restaurant will increase.
B)the price charged by each restaurant will fall.
C)there will be an increase in the number of restaurants in the economy.
D)there will be a decrease in the number of restaurants in the economy.
E)the profit incurred by each restaurant will increase.

Question 25

Table 10.1
$$\begin{array} { c c c } \mathrm { Q } & \mathrm { P } ( \$ ) & \mathrm { TC } ( \$ ) \\\hline 1 & 27 & 10 \\2 & 24 & 17 \\3 & 21 & 32 \\4 & 18 & 47 \\5 & 15 & 67\end{array}$$

-Refer to Table 10.1,which shows the output,price,and total cost for a monopolistic competitor.At the profit-maximizing output,the monopolistically competitive firm is in _____

A)long-run equilibrium, and price equals average total cost.
B)long-run equilibrium, and price is less than average total cost.
C)short-run equilibrium, and price is greater than average total cost.
D)short-run equilibrium, and incurs an economic loss.
E)short-run equilibrium, and there is zero economic profit.

Question 26

Exhibit 10.4

Exhibit 10.4 shows the demand,marginal revenue,and cost curves for a monopolistic competitor.At the profit-maximizing output level,the firm is _____

A)earning an economic profit of $760.
B)earning an economic profit of $950.
C)earning zero economic profit.
D)earning an economic profit of $990.
E)suffering a loss of $1,000.

Question 27

Exhibit 10.3

Exhibit 10.3 shows the demand,marginal revenue,and cost curves for a monopolistic competitor.In the short run,the firm will _____

A)produce 10 units at a price of $36 per unit.
B)produce 10 units at a price of $24 per unit.
C)produce 10 units at a price of $40 per unit.
D)produce 15 units at a price of $32 per unit.
E)produce 15 units at a price of $24 per unit.

Question 28

Exhibit 10.4

Exhibit 10.4 shows the demand,marginal revenue,and cost curves for a monopolistic competitor.If the firm is producing at a profit-maximizing level of output,its total revenue is _____

A)$5,320.
B)$5,700.
C)$4,750.
D)$8,120.
E)$8,100.

Question 29

Exhibit 10.1

Exhibit 10.1 shows the demand,marginal revenue,and cost curves for a monopolistic competitor.The price that the monopolistic competitor will charge at the profit-maximizing level of output is _____

A)$2.
B)$4.
C)$8.
D)$9.
E)$10.

Question 30

Exhibit 10.1

Exhibit 10.1 shows the demand,marginal revenue,and cost curves for a monopolistic competitor.The monopolistic competitor's total economic profit at the profit-maximizing level of output is _____

A)$0.
B)$4.
C)$600.
D)$6.
E)$750.

Question 31

Table 10.1
$$\begin{array} { c c c } \mathrm { Q } & \mathrm { P } ( \$ ) & \mathrm { TC } ( \$ ) \\\hline 1 & 27 & 10 \\2 & 24 & 17 \\3 & 21 & 32 \\4 & 18 & 47 \\5 & 15 & 67\end{array}$$

-Refer to Table 10.1,which shows the output,price,and total cost for a monopolistic competitor.At the profit-maximizing output,the firm _____

A)earns an economic profit of $31.
B)earns an economic profit, but the amount cannot be determined.
C)earns zero economic profit.
D)earns an economic profit of $32.
E)suffers an economic loss.

Question 32

Exhibit 10.1

Exhibit 10.1 shows the demand,marginal revenue,and cost curves for a monopolistic competitor.The monopolistic competitor is in _____

A)long-run equilibrium because price equals average total cost.
B)long-run equilibrium because marginal cost equals marginal revenue.
C)long-run equilibrium because price exceeds marginal cost.
D)short-run equilibrium because it is earning a positive economic profit.
E)short-run equilibrium because price equals average total cost.

Question 33

Suppose a monopolistically competitive firm is earning an economic profit.The marginal revenue from selling an additional unit is $30,and the marginal cost of producing that additional unit is $23.The firm should _____

A)change neither its price nor its output level.
B)reduce its price and increase its output level.
C)increase its price and reduce its output level.
D)reduce both its price and its output level.
E)increase both its price and its output level.

Question 34

Exhibit 10.3

Exhibit 10.3 shows the demand,marginal revenue,and cost curves for a monopolistic competitor.In the long run,_____

A)new technology will lower average total costs and increase profits for the firm.
B)firms will exit this market, causing economic profit to increase.
C)product differentiation will lead to an increase in profits earned by the firm.
D)new firms will enter the market, driving economic profit to zero.
E)firms will produce 15 units of output.

Question 35

In the short run,a monopolistically competitive firm is _____

A)likely to shut down.
B)likely to charge a price that is less than the average cost of production.
C)guaranteed to incur an economic loss.
D)guaranteed to earn either zero or positive economic profit.
E)not guaranteed any level of economic profit.

Question 36

A profit-maximizing firm in monopolistic competition should shut down in the short run if _____

A)marginal revenue is less than price.
B)price is more than average total cost.
C)price is less than average fixed cost.
D)price is less than average variable cost.
E)marginal revenue is equal to marginal cost.

Question 37

Exhibit 10.1

Exhibit 10.1 shows the demand,marginal revenue,and cost curves for a monopolistic competitor.The monopolistic competitor's profit-maximizing level of output is _____

A)75 units.
B)100 units.
C)125 units.
D)150 units.
E)137.5 units.

Question 38

In the short run,a monopolistically competitive firm continues to increase production _____ if it can at least cover its variable cost.

A)as long as MR > AVC
B)until MR = ATC
C)as long as MC > MR
D)until MR = AR
E)until MR = MC

Question 39

Exhibit 10.4

Exhibit 10.4 shows the demand,marginal revenue,and cost curves for a monopolistic competitor.At the profit-maximizing output level,the total cost incurred by the firm is approximately _____

A)$5,700.
B)$5,320.
C)$4,750.
D)$4,940.
E)$8,100.

Question 40

Exhibit 10.1

Exhibit 10.2 shows a firm that charges price P* for output q*.In order to minimize loss in the short run,the firm should _____

A)shut down, because price is greater than average variable cost.
B)shut down, because price is greater than marginal cost.
C)shut down, because price is less than marginal revenue.
D)continue to produce, because price is greater than average variable cost.
E)continue to produce, because price is greater than marginal cost.

Question 41

In the long run,a monopolistically competitive firm will not produce at the output level that minimizes average cost because _____

A)MC is less than MR at that output level.
B)MC is greater than MR at that output level.
C)price is greater than MR at that output level.
D)the demand curve is horizontal.
E)that would leave the firm with excess capacity.

Question 42

In both monopolistic competition and a non-price-discriminating monopoly,_____

A)the marginal revenue curve lies above the average revenue curve.
B)the marginal revenue curve lies above the demand curve.
C)the marginal revenue curve lies below the demand curve.
D)marginal revenue is equal to average revenue.
E)marginal revenue is equal to price.

Question 43

Which of the following characteristics does perfect competition share with monopolistic competition?

A)price-taking firms
B)zero long-run economic profit
C)homogeneous products
D)strong barriers to entry
E)economies of scale in production

Question 44

Exhibit 10.5

Exhibit 10.5 shows the demand,marginal revenue,and cost curves for a monopolistically competitive firm.The profit-maximizing (or loss-minimizing)output for the firm is _____

A)0 units.
B)700 units.
C)1,000 units.
D)more than 700 units and less than 1,000 units.
E)more than 1,000 units.

Question 45

In the long run,economic profit earned by a monopolistically competitive firm _____

A)is zero because of the lack of barriers to entry.
B)is zero because of the production of homogenous goods.
C)may be positive because of strong barriers to entry.
D)may be positive because of product differentiation.
E)may be positive because of advertising and product promotion.

Question 46

Monopolistically competitive firms _____

A)are guaranteed to earn short-run economic profit.
B)may earn short-run economic profit, but long-run economic profit is typically zero.
C)may earn economic profit both in the short run and in the long run.
D)earn zero economic profit both in the short run and in the long run.
E)can earn an economic profit only if they operate along the inelastic portion of their demand curves.

Question 47

In the long run,a monopolistically competitive firm will _____

A)produce a greater variety of goods than firms in other market structures.
B)produce at a greater output level than a perfectly competitive firm.
C)produce where price equals long-run average cost (LAC) cost.
D)earn an economic profit.
E)suffer a loss because of its advertising budget.

Question 48

Suppose a monopolistically competitive firm is producing at an output level where marginal revenue is less than marginal cost.This firm should _____quantity and _____ price to increase profit or reduce losses.

A)increase, increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease
E)increase; not change

Question 49

Exhibit 10.5

Exhibit 10.5 shows the demand,marginal revenue,and cost curves for a monopolistically competitive firm.At the profit-maximizing (or loss-minimizing)output and price,the firm would _____

A)be earning zero economic profit.
B)be earning an economic profit.
C)be experiencing an economic loss.
D)be better off shutting down, since total revenue does not cover fixed costs.
E)have to expand to stay in business in the long run.

Question 50

Exhibit 10.4

Exhibit 10.4 shows the demand,marginal revenue,and cost curves for a monopolistic competitor.In the long run,the firm can expect:

A)to earn an economic profit of $760.
B)to earn an economic profit of $950.
C)to earn zero economic profit.
D)to earn an economic profit of $990.
E)to suffer a loss of $1,000.

Question 51

In the long run,the demand curve facing a monopolistically competitive firm _____

A)is perfectly elastic.
B)slopes upward.
C)is tangent to the firm's average total cost curve.
D)lies above the firm's average total cost curve.
E)is perfectly inelastic.

Question 52

In long-run equilibrium,a monopolistically competitive firm will produce _____

A)at its minimum average cost.
B)at full capacity.
C)along the downward-sloping portion of its long-run average cost curve (LAC).
D)along the upward-sloping portion of its LAC curve.
E)at the minimum point of its marginal cost curve.

Question 53

Suppose a monopolistically competitive firm is in long-run equilibrium.The firm's demand curve is tangent to its average cost curve at Q = 25.Average cost is minimized at Q = 35,where average cost is $50.Which of the following is true?

A)This firm maximizes profit at an output level of 25 units.
B)This firm maximizes profit at an output level of 35 units.
C)This firm maximizes profit at an output level lower than 25 units.
D)This firm maximizes profit at an output level greater than 35 units.
E)This firm incurs an economic loss in the long run.

Question 54

Bubba's Baby Boutique is a monopolistically competitive firm.In the long run,it earns _____

A)zero normal profit but positive economic profit.
B)normal profit but zero economic profit.
C)both normal and economic profits.
D)zero normal and economic profits.
E)lower revenue than in the short run.

Question 55

Monopolistically competitive firms do not achieve allocative efficiency in the long run because _____

A)marginal cost equals marginal revenue.
B)marginal cost is greater than marginal revenue.
C)marginal cost is less than marginal revenue.
D)price is less than marginal cost.
E)price is greater than marginal cost.

Question 56

Suppose firms in a monopolistically competitive industry are currently earning short-run economic profits.In the long run,the demand curve facing each individual firm is likely to _____

A)shift to the left and become flatter.
B)shift to the left and become steeper.
C)shift to the right and become flatter.
D)shift to the right and become steeper.
E)remain unchanged.

Question 57

Exhibit 10.5

Exhibit 10.5 shows the demand,marginal revenue,and cost curves for a monopolistically competitive firm.The profit-maximizing (or loss-minimizing)price for the firm is _____

A)higher than $3.25.
B)$3.25.
C)$3.00.
D)$2.50.
E)between $2.50 and $3.00.

Question 58

A rise in the demand for restaurant meals is likely to _____ in the long run.

A)increase losses for each restaurant
B)lower the price of restaurant meals
C)decrease the number of restaurants
D)increase the number of restaurants in the industry
E)increase the economic profit earned by restaurants

Question 59

If there occurs a permanent decrease in the demand for convenience store services,_____ in the long run

A)each store will incur an economic loss
B)the price charged by each store will increase
C)there will be a decrease in the number of such stores
D)there will be an increase in the number of such stores
E)each store will earn an economic profit

Question 60

Because of the ease of entry of new firms into monopolistically competitive markets in the long run,existing firms in these markets _____

A)produce at the lowest average total cost.
B)charge a price equal to marginal cost.
C)earn no economic profit in the long run.
D)take advantage of economies of scope.
E)earn no economic profit in the short run.

Question 61

In the long run,the profit-maximizing output of a monopolistically competitive firm _____

A)exceeds that of an otherwise similar perfectly competitive firm.
B)is less than that of an otherwise similar perfectly competitive firm.
C)occurs where average revenue equals marginal revenue.
D)equals that of an otherwise similar perfectly competitive firm.
E)is less than its profit-maximizing output in the short run.

Question 62

Which of the following is a unique feature of perfect competition?

A)An individual firm cannot earn economic profit in the long run.
B)It is easy for new firms to enter the industry.
C)The market demand curve slopes downward.
D)The demand curve facing an individual firm is perfectly elastic.
E)The firms in the industry produce differentiated products.

Question 63

Which of the following characteristics distinguishes oligopoly from other market structures?

A)a horizontal demand curve
B)a downward-sloping demand curve
C)the production of homogeneous products
D)the production of differentiated products
E)interdependence among firms in the industry

Question 64

Suppose a monopolistically competitive firm is in long-run equilibrium.The firm's demand curve is tangent to its average cost curve at Q = 25.Average cost is minimized at Q = 35,where average cost is $50.Which of the following is true?

A)This firm charges $50 for the good.
B)This firm charges more than $50 for the good.
C)This firm charges less than $50 for the good.
D)The firm has excess capacity at all output levels greater than 35 units.
E)Average cost is $50 at the profit-maximizing output level.

Question 65

Monopolistically competitive firms are unlikely to _____

A)operate where price equals marginal cost.
B)charge a higher price than firms in perfect competition.
C)produce a smaller quantity than firms in perfect competition.
D)produce where price equals average total cost.
E)exit the industry when demand falls below long-run average costs.

Question 66

An oligopoly consists of _____

A)a few independent firms.
B)a few interdependent firms.
C)many interdependent firms.
D)many independent firms.
E)only one firm.

Question 67

An oligopoly _____

A)can be an industry dominated by many firms.
B)can be an industry dominated by one firm.
C)has to be differentiated.
D)has to be undifferentiated.
E)differentiated or undifferentiated.

Question 68

Which of the following industries best illustrates an undifferentiated oligopoly?

A)automobiles
B)airlines
C)steel
D)breakfast cereals
E)beer

Question 69

What does each firm have to consider in the oligopolistic industry?

A)diminishing marginal returns
B)a rising long-run average cost curve
C)low barriers to entry
D)many competitors.
E)interdependence

Question 70

Firms in monopolistic competition and perfect competition typically _____

A)are price takers.
B)produce identical products.
C)earn zero economic profit in the long run.
D)face a downward-sloping demand curve.
E)face a downward-sloping total revenue curve at all rates of output.

Question 71

Which of the following characteristics do firms in perfect competition have in common with firms in monopolistic competition?

A)Firms in both markets are price takers.
B)Firms in both markets produce homogeneous products.
C)Firms in both markets face competition from new entrants.
D)Firms in both markets face a horizontal demand curve.
E)Firms in both markets advertise their products.

Question 72

The automobile,breakfast cereal,and tobacco industries are examples of _____

A)monopolistic competition.
B)oligopolies.
C)perfect competition.
D)monopolies.
E)monopsonies.

Question 73

What is an undifferentiated oligopoly?

A)an oligopoly that sells products that differ across producers
B)an oligopoly that sells products that are the same across producers
C)an oligopoly that sells products that are similar across producers
D)an oligopoly that sells products to other producers
E)an oligopoly that buys products from other producers

Question 74

Which of the following is true of firms in monopolistic competition and perfect competition?

A)Firms face a horizontal demand curve.
B)Price exceeds marginal revenue.
C)Firms can enter and leave the industry with relative ease.
D)Price exceeds marginal cost.
E)Products are differentiated.

Question 75

Which of the following is inconsistent with the model of perfect competition?

A)ease of entry into the industry
B)ease of exit from the industry
C)many buyers and sellers in the industry
D)advertising of product differences in the industry
E)a horizontal demand curve facing each firm in the industry

Question 76

Which of the following industries is an example of an oligopoly?

A)fast food
B)steel
C)utilities
D)farming
E)retail fashion

Question 77

One difference between perfect competition and monopolistic competition is that _____

A)firms in perfect competition cannot earn a long-run economic profit, whereas firms in monopolistic competition can earn a long-run economic profit.
B)firms in perfect competition take full advantage of economies of scale in long-run equilibrium, whereas firms in monopolistic competition do not take advantage of economies of scale in long-run equilibrium.
C)firms in perfect competition can easily exit the market, whereas firms in monopolistic competition find it difficult to exit the market.
D)firms in perfect competition face a downward-sloping demand curve, whereas firms in monopolistic competition face a horizontal demand curve.
E)there are many firms in a perfectly competitive market, whereas there are a few firms in a monopolistically competitive market.

Question 78

What is an oligopoly?

A)an industry dominated by a few independent firms
B)an industry dominated by just a few firms
C)an industry dominated by many interdependent firms
D)an industry dominated by many independent firms
E)an industry dominated by only one firm

Question 79

What is an industry dominated by just a few firms?

A)perfectly competitive
B)a monopoly
C)an oligopoly
D)monopolistic competition
E)a monopsony

Question 80

Compared to a firm in perfect competition,a monopolistically competitive firm tends to _____

A)produce less and charge a higher price.
B)produce less and charge a lower price.
C)produce more and charge a lower price.
D)produce more and charge a higher price.
E)produce the same quantity.