Deck 9: Monopolistic Competition and Oligopoly

Question 1

Firms in monopolistically competitive markets can differentiate their products on the basis of:

A)geographical location.
B)service.
C)credit terms.
D)packaging.
E)all of the above.

Answer 1

E

Question 2

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

A)Free entry
B)Many sellers
C)Elimination of long run economic profits
D)Product differentiation

Answer 2

D

Question 3

Characteristics shared by monopolistically and perfectly competitive markets alike include:

A)differentiated products.
B)advertising.
C)many sellers.
D)brand identity.

Answer 3

C

Question 4

In a monopolistically competitive industry, the competitive element results from ____ and the monopoly element results from ____.

A)product differentiation; substantial barriers to entry.
B)a large number of firms and free entry; product differentiation.
C)advertising; product differentiation.
D)product differentiation; the small number of large producers.

Question 5

Monopolistic competition is characterized by:

A)a small number of firms selling differentiated products.
B)a large number of firms selling identical products.
C)high barriers to entry.
D)a large number of firms selling differentiated products.
E)firms that are all price takers.

Question 6

Which of the following industries would most likely represent monopolistic competition?

A)clothing
B)wheat
C)water utilities
D)soft drinks

Question 7

A monopolistically competitive firm derives its ability to influence price from:

A)the perfectly elastic demand curve it faces.
B)barriers to entry.
C)its product, which is differentiated in some way from competing products.
D)its position as the sole supplier in the market.

Question 8

Monopolistic competition is characterized by which of the following attributes: i.Many sellers
ii.Praduct differentiation
iii.Siprificant bariers to entry

A)(i) and (iii) only
B)(i) and (ii) only
C)(ii) and (iii) only
D)(i), (ii), and (iii)

Question 9

In most areas, there are a large number of qualified primary care physicians whose services are highly personalized.In addition to price, factors such as age, sex, location, and personality influence the choice of physician.The primary care physician market is probably:

A)perfectly competitive.
B)oligopolistic.
C)monopolistic.
D)monopolistically competitive.

Question 10

Firms in monopolistically competitive markets can differentiate their products on the basis of:

A)brand identity.
B)quality.
C)convenience.
D)product guarantees.
E)all of the above.

Question 11

Monopolistic competition is common in:

A)retail selling.
B)farming.
C)basic manufacturing.
D)electric power generation.

Question 12

A monopolistically competitive firm:

A)tries to differentiate its product from the products of competitors.
B)faces a perfectly elastic demand curve for its product.
C)unlike a perfectly competitive firm, is able to earn positive economic profits in the long run.
D)is always a retail establishment.

Question 13

Characteristics of a monopolistically competitive market include all of the following except:

A)some influence over price.
B)a large number of sellers.
C)barriers to entry.
D)differentiated products.

Question 14

When many sellers are involved in selling their products in a market, the market structure may be which of the following? i. perfect competition
ii. monopolistic competition
iii. monopoly

A)(i) only
B)either (i) or (ii)
C)(ii) only
D)(i), (ii), or (iii)

Question 15

Under monopolistic competition:

A)there are significant barriers to entry.
B)there are few barriers to entry.
C)firms sell identical products.
D)firms face perfectly elastic demand curves.

Question 16

Which of the following conditions distinguishes perfect competition from monopolistic competition?

A)the number of sellers
B)freedom of entry and exit
C)homogeneity of the product
D)none of the above

Question 17

Monopolistic competition is characterized by:

A)homogeneous products.
B)barriers to entry
C)firms earning economic profits in the long run.
D)differentiated products.
E)firms facing perfectly elastic demand curves.

Question 18

Which of the following is not a source of product differentiation?

A)physical differences in products
B)differences in service provided by firms
C)differences in the location of sales outlets
D)differences in a product's image created through advertising
E)All of the above are sources of product differentiation.

Question 19

Monopolistic competition is characterized by:

A)one firm selling several products.
B)many firms selling the same product.
C)many firms selling slightly different products.
D)one firm selling one product.

Question 20

In a monopolistically competitive market:

A)there are significant barriers to the entry of new sellers.
B)firms sell differentiated products.
C)firms face horizontal demand curves.
D)there are a few producers selling standardized products.

Question 21

In equilibrium under monopolistic competition:

A)marginal revenue exceeds average revenue.
B)marginal revenue exceeds marginal cost.
C)marginal revenue is equal to marginal cost.
D)marginal revenue is less than marginal cost.
E)marginal revenue is always greater than average total cost.

Question 22

Monopolistic competition is similar to monopoly in that:

A)firms face perfectly elastic demand curves.
B)firms sell products for which there are no close substitutes.
C)there is relatively free entry and exit.
D)firms have some influence over the product price.

Question 23

If the firm in the graph below represents the typical firm in a monopolistically competitive industry, what would be most likely to occur?

A)New firms would be likely to enter this industry.
B)Existing firms would be likely to exit this industry.
C)Firms would neither enter nor exit this industry.
D)New firms would like to enter but since there are substantial barriers to entry they cannot do so.
E)There is not sufficient information in this graph to draw a conclusion on entry or exit of firms.

Question 24

Based on the graph below, what would total cost be at the profit maximizing level of output?

A)$560
B)$665
C)$875
D)$900

Question 25

Characteristics shared by monopolistically competitive and monopoly markets alike include:

A)strategic interactions among sellers.
B)many sellers.
C)firms facing a downward-sloping demand curve.
D)insignificant barriers to entry.

Question 26

If the firm in the graph below represents the typical firm in a monopolistically competitive industry, what would be most likely to occur?

A)New firms would be likely to enter this industry.
B)Existing firms would be likely to exit this industry.
C)Firms would neither enter nor exit this industry.
D)New firms would like to enter but since there are substantial barriers to entry they cannot do so.
E)There is not sufficient information in this graph to draw a conclusion on entry or exit of firms.

Question 27

The restaurant market in San Francisco is probably best categorized as:

A)perfectly competitive.
B)monopolistic.
C)monopolistically competitive.
D)oligopolistic.

Question 28

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

A)a downward-sloping demand curve
B)differentiated products
C)standardized products
D)excess capacity
E)free entry and exit

Question 29

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

A)a downward-sloping demand curve
B)differentiated products
C)excess capacity
D)All of the above are characteristics of monopolistic competition.

Question 30

In monopolistically competitive market structure, because each good sold in the market is ____, each firm is considered a ____.

A)slightly different; price maker
B)slightly different; price taker
C)the same; price maker
D)the same; price taker

Question 31

A monopolistic competitor is like a monopolist in that:

A)it sells in the inelastic portion of its demand curve.
B)it earns zero economic profit in the long run.
C)the marginal revenue curve lies above the AR curve.
D)it faces a downward-sloping demand curve.
E)significant barriers to entry keep competitors out of the market.

Question 32

Billy is running a fast-food burger stand in his small community.If he is like other monopolistic competitors in short-run equilibrium which of the following would be true?

A)His demand curve would be downward sloping.
B)His marginal revenue curve would lie below his demand curve.
C)He would be maximizing profits where his MC = MR.
D)All of the above would be characteristics of Billy's burger stand.

Question 33

To maximize its profit, a monopolistically competitive firm produces the output level at which ____.

A)its price elasticity of demand equals one
B)MR = MC
C)ATC is minimized
D)MR = AVC

Question 34

Product differentiation in monopolistically competitive markets ensures that ____ in equilibrium.

A)marginal cost will exceed average revenue
B)price will exceed marginal cost
C)average variable cost will be declining
D)marginal revenue will equal average total cost

Question 35

Based on the graph below, what is the maximum amount of profit this firm could earn?

A)$150
B)$210
C)$245
D)$315

Question 36

Because of product differentiation, a monopolistically competitive firm:

A)possesses some degree of market power.
B)is very similar to a perfectly competitive firm.
C)faces a perfectly elastic demand curve.
D)is unaffected by the elasticity of demand.

Question 37

Based on the graph below, what would total revenue equal at the profit maximizing level of output?

A)$245
B)$350
C)$875
D)$1,050

Question 38

If the firm in the graph below represents the typical firm in a monopolistically competitive industry, what would be most likely to occur?

A)New firms would be likely to enter this industry.
B)Existing firms would be likely to exit this industry.
C)Firms would neither enter nor exit this industry.
D)New firms would like to enter but since there are substantial barriers to entry they cannot do so.
E)There is not sufficient information in this graph to draw a conclusion on entry or exit of firms.

Question 39

Which of the following observations is true?

A)Monopolistically competitive sellers are price takers.
B)Monopolistically competitive sellers treat price in the same manner as in perfect competition.
C)Monopolistically competitive sellers regard price as a given by market conditions.
D)Monopolistically competitive sellers are price makers.

Question 40

Which of the following is characteristic of a monopolistic competitor?

A)a standardized product
B)the ability to influence price
C)allocative efficiency
D)a horizontal firm demand curve

Question 41

When new firms choose to enter monopolistically competitive markets:

A)there must be little diversity of products in the market.
B)they are guaranteed economic profits upon entry.
C)some firms in the market must be making economic profits.
D)the demand curve faced by an established firm will shift to the right as a result.

Question 42

When a firm's demand curve is tangent to its average total cost curve:

A)the firm must be operating in a monopolistically competitive market.
B)economic profits are zero.
C)the firm must be earning economic profits.
D)the firm must be incurring economic losses.

Question 43

Which of the following will not generally be true of a monopolistic competitor operating in the long run?

A)price greater than minimum average total cost
B)price equal to average total cost
C)marginal revenue equal to marginal cost
D)positive economic profits

Question 44

As firms exit a monopolistically competitive market, profits of existing firms ____ and product diversity in the market ____.

A)decline; decreases
B)rise; decreases
C)rise; increases
D)decline; increases

Question 45

Monopolistic competitors and perfect competitors are alike in:

A)facing horizontal demand curves.
B)earning zero economic profit in the short run.
C)earning zero economic profit in the long run.
D)relying on advertising to attract buyers to their products.

Question 46

When free entry is one of the attributes of a market structure, economic profits are:

A)generally driven to zero in long-run equilibrium.
B)generally negative for all firms.
C)generally zero in the short run.
D)always positive.

Question 47

Which of the following is true?

A)Monopolists, monopolistically competitive firms and perfectly competitive firms all earn positive economic profits in the long run.
B)Monopolists, monopolistically competitive firms and perfectly competitive firms all earn zero economic profits in the long run.
C)Only monopolists and monopolistically competitive firms, but not perfectly competitive firms, can earn positive economic profits in the long run.
D)Monopolists, monopolistically competitive firms and perfectly competitive firms can potentially all earn positive economic profits in the short run.
E)Only monopolists and monopolistically competitive firms, but not perfectly competitive firms, can earn positive economic profits in the short run.

Question 48

In long-run equilibrium in a monopolistically competitive market, firms typically:

A)earn a normal profit.
B)charge a price equal to marginal cost.
C)earn an above-normal profit.
D)charge a price equal to marginal revenue.
E)suffer losses.

Question 49

As new firms enter a monopolistically competitive market, profits of existing firms ____ and product diversity in the market ____.

A)decline; decreases
B)rise; decreases
C)rise; increases
D)decline; increases

Question 50

Which of the following is generally true of a monopolistic competitor operating in the long run?

A)price equal to minimum average total cost
B)marginal cost exceeds marginal revenue
C)marginal revenue exceeds marginal cost
D)demand is perfectly elastic
E)price exceeds marginal cost

Question 51

If the eyeglass industry is monopolistically competitive, then:

A)the price of eyeglasses will equal marginal revenue.
B)the price of eyeglasses will exceed marginal cost in equilibrium.
C)firms can earn economic profits in the long run.
D)firms are price takers.

Question 52

Due to the entry and exit of firms in a monopolistically competitive market:

A)economic profits and economic losses are dissipated in the long run.
B)economic profits persist in the long run, but not economic losses.
C)economic losses will exist in the long run, but not economic profits.
D)both economic profits and economic losses exist in the long run.

Question 53

For a monopolistically competitive firm in long-run equilibrium:

A)marginal revenue equals marginal cost and price equals average cost.
B)the economic profits it is earning will soon be competed away by entry.
C)accounting profits are zero and price equals marginal cost.
D)marginal revenue equals marginal cost and average total cost is minimized.

Question 54

The force that leads to zero economic profits for monopolistically competitive firms in the long run is:

A)excess capacity.
B)price wars among firms.
C)new entry.
D)excessive advertising.

Question 55

If the ice cream industry is monopolistically competitive, then:

A)the price of ice cream equals marginal cost in equilibrium.
B)the price of ice cream equals average cost in long-run equilibrium.
C)the price of ice cream is less than marginal cost in equilibrium.
D)there are significant barriers to entering the ice cream business.
E)firms are price takers.

Question 56

The market for eyeglasses is monopolistically competitive.It follows that firms in the eyeglass industry:

A)can earn economic profit in long-run equilibrium.
B)can earn economic profit in short-run equilibrium.
C)charge a price equal to marginal cost.
D)charge a price equal to the minimum average total cost.

Question 57

In equilibrium under monopolistic competition:

A)firms always earn profits in the short run.
B)firms always suffer losses in the short run.
C)output is at the socially efficient level.
D)marginal revenue and price are one and the same.
E)marginal revenue is less than price.

Question 58

In the monopolistic competition model, the attribute of free entry suggests that:

A)all firms earn zero economic profits in the long run.
B)some firms will be able to earn economic profits in the long run.
C)some firms will be forced to incur economic losses in the long run.
D)the market structure will eventually be characterized by perfect competition in the long run.

Question 59

If firms in a monopolistically competitive industry are making economic profits:

A)firms will likely be subject to regulation.
B)barriers to entry will be strengthened.
C)new firms will enter the market.
D)some firms must exit the market.

Question 60

When a monopolistically competitive firm is in long-run equilibrium:

A)the demand curve will be perfectly elastic.
B)marginal cost must be falling.
C)price exceeds marginal cost.
D)marginal revenue exceeds marginal cost.

Question 61

A small number of firms competing with each other is characteristic of:

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

Question 62

In the long run a perfectly competitive firm operates ____ and a monopolistically competitive firm operates ____.

A)at the efficient scale; with excess capacity
B)at the efficient scale; at the efficient scale
C)with excess capacity; with excess capacity
D)with excess capacity; at the efficient scale

Question 63

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of their rooms are full).This excess capacity is indicative of a(n) ____ industry.

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

Question 64

Which of the following is characteristic of an oligopolistic industry?

A)homogeneous or differentiated products
B)few firms
C)interdependence
D)large barriers to entry
E)all of the above

Question 65

Which of the following is false?

A)Long-run equilibrium in monopolistic competition results in zero economic profits.
B)Monopolistic competitor's demand curves are likely to be more elastic than those of monopolists.
C)Monopolistic competition results in a greater variety of products than perfect competition.
D)Monopolistic competition's zero economic profit long-run equilibrium is efficient, like the zero profit equilibrium in perfect competition.
E)None of the above are false.

Question 66

Excess capacity occurs in long-run equilibrium under monopolistic competition so that:

A)price is less than marginal cost.
B)price exceeds minimum average cost.
C)marginal revenue exceeds price.
D)all of the above occur.

Question 67

An industry characterized by only a few firms in the market is called:

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

Question 68

Since a monopolistically competitive firm faces a ____ demand curve, it will always operate ____ in long-run equilibrium.

A)perfectly elastic; with excess capacity
B)downward-sloping; with excess capacity
C)downward-sloping; at an economically efficient scale
D)perfectly inelastic; at an economically efficient scale

Question 69

Which of the following will not generally be true of a monopolistic competitor operating in the long run?

A)It will be earning normal profits.
B)Its marginal revenue = marginal cost.
C)Its average total cost will be minimized.
D)Its price will be greater than its marginal cost.

Question 70

An oligopoly is a market:

A)dominated by a few buyers.
B)dominated by one buyer.
C)dominated by a few sellers.
D)with many sellers.

Question 71

In monopolistically competitive markets in long-run equilibrium:

A)more than the efficient level of output will be produced because price exceeds marginal cost.
B)less than the efficient level of output will be produced because price exceeds marginal cost.
C)more than the efficient level of output will be produced because marginal revenue exceeds marginal cost.
D)less than the efficient level of output will be produced because marginal revenue exceeds marginal cost.

Question 72

Which of the following is generally true of a monopolistic competitor operating in the long run?

A)price greater than minimum average total cost
B)price equal to marginal revenue
C)price equal to marginal cost
D)positive economic profits

Question 73

A monopolistically competitive firm operates on the ____ of their average total cost curve, where marginal cost is ____ average total cost.

A)declining portion; above
B)rising portion; above
C)rising portion; below
D)declining portion; below

Question 74

Which of the following is uncharacteristic of monopolistic competition in the long run?

A)firms selling heterogeneous products
B)zero economic profits
C)price in excess of marginal revenue
D)equilibrium on the increasing portion of the average total cost curve
E)excess capacity

Question 75

The inefficiency of monopolistic competition is a result of:

A)product differentiation.
B)free entry.
C)many sellers of similar products.
D)advertising.

Question 76

Which of the following is uncharacteristic of monopolistic competition in the long run?

A)a large number of sellers in the industry
B)zero economic profits
C)price in excess of marginal cost
D)equilibrium on the declining portion of the average total cost curve
E)firms have no excess capacity

Question 77

If regulators were to ensure that monopolistically competitive firms follow a marginal cost-pricing rule:

A)new firms would be likely to enter the market.
B)the most efficient firms would not likely be affected.
C)all firms would experience losses.
D)firms would operate at the most efficient scale.

Question 78

Which of the letters below represent the quantities of profit maximization, productive efficiency, and allocative efficiency?

A)B = profit maximization; C = productive efficiency; D = allocative efficiency
B)B = profit maximization; D = productive efficiency; C = allocative efficiency
C)D = profit maximization; C = productive efficiency; B = allocative efficiency
D)A = profit maximization; C = productive efficiency; B = allocative efficiency
E)A = profit maximization; B = productive efficiency; C = allocative efficiency

Question 79

Which of the following will not generally be true of a monopolistic competitor operating in the long run?

A)marginal cost exceeds average total cost
B)marginal revenue = marginal cost
C)production in the range of economies of scale
D)price greater than marginal revenue

Question 80

A profit-maximizing, monopolistically competitive firm always operates:

A)at the minimum of average total cost.
B)at the point where demand is unit elastic.
C)with excess capacity.
D)at an economically efficient scale.