Question 1

In monopolistic competition, each firm supplies a small part of the market. This occurs because

Accepted Answer

D

Question 2

A firm in monopolistic competition ________ influence its price and ________ influence the market average price.

Accepted Answer

A firm in monopolistic competition can influence its own price due to product differentiation but cannot influence the market average price because there are many firms, and each has a relatively small market share.

Question 3

If the four-firm concentration ratio equals 0.1 per cent for the Mexican tomato industry, then this industry is best characterised as

Accepted Answer

A four-firm concentration ratio of 0.1 percent indicates a highly competitive market with many small firms, characteristic of perfect competition.

Question 4

If you have found the percentage of the value of total revenue accounted for by the four largest firms in an industry, you have found the

Accepted Answer

The percentage of the value of total revenue accounted for by the four largest firms in an industry is known as the four-firm concentration ratio. It measures the level of market concentration in an industry and gives information about the extent of market power held by the largest firms.

Question 5

Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive industry?

Accepted Answer

A four-firm concentration ratio of 2 per cent would indicate a highly competitive industry with numerous small firms, as no individual firm has a significant market share.

Question 6

What does monopolistic competition have in common with perfect competition?

Accepted Answer

Monopolistic competition and perfect competition both feature a large number of firms and freedom of entry and exit, allowing firms to enter or leave the market with relative ease. This is a key similarity between the two market structures.

Question 7

In monopolistic competition, the presence of a large number of firms making a differentiated product means that

Accepted Answer

In monopolistic competition, firms can differentiate their products from their competitors, and each firm has some market power to set the price of its particular product. The presence of a large number of firms means that there is still competition, but it is not perfect competition where price is the same for all firms.

Question 8

Which of the following is true about monopolistic competition but false about perfect competition?

Accepted Answer

In monopolistic competition, firms compete not only on price but also through product differentiation, which includes quality and marketing. This is unlike perfect competition, where products are homogeneous and firms compete solely on price.

Question 9

In an industry with a large number of firms,

Accepted Answer

In an industry with a large number of firms, collusion is unlikely because there are too many firms to coordinate with each other. This leads to more competition and less control over the market by any one firm.

Question 10

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

Accepted Answer

Monopolistic competition is characterized by easy entry and exit, differentiated products, small market share, and no barriers to entry or exit. The presence of many firms is also a characteristic of monopolistic competition, so choice C, which states that few firms compete, is not a characteristic of this market structure.

Question 11

What does monopolistic competition have in common with monopoly?

Accepted Answer

Both monopolistic competition and monopoly have a downward-sloping demand curve, which means that as the price of a product or service goes up, the quantity demanded goes down.

Question 12

Which of the following is the best example of a monopolistically competitive industry?

Accepted Answer

The manufacturing of shirts is the best example of a monopolistically competitive industry because it involves many firms that sell products that are similar but differentiated from one another, allowing for some degree of market power in terms of product differentiation, but still within a competitive market structure.

Question 13

A differentiated product has

Accepted Answer

Differentiated products have close but not perfect substitutes, meaning they are similar but not identical to other products, allowing for some degree of consumer preference.

Question 14

Product differentiation involves making a product that is

Accepted Answer

Product differentiation involves creating a product that has unique attributes or features that distinguish it from the products offered by competitors. These unique features may be slight or minor, but they should be significant enough to influence the buying decision of consumers. Thus, option B (slightly different from the products of competing firms) is the best choice. Option A is incorrect because making a product that is completely different from competing products may not be feasible or practical, and consumers may not be receptive to such a drastic change. Option C is incorrect because product differentiation is not necessarily about making a cheaper product - it's about creating a unique product that meets the needs of consumers in a way that competing products do not. Option D is incorrect because while the product should be different, it does not need to be very different. Option E is also incorrect because if the product is no different from competing products, then there is no differentiation and it may not stand out in the market.

Question 15

Concentration ratios

Accepted Answer

Concentration ratios measure whether the market is dominated by a small number of firms. They are used to assess the degree of competition within specific industries by measuring the percentage of output produced by the largest firms in the industry. Higher concentration ratios indicate less competition and more market power for the dominant firms.

Question 16

Which of the following is the best example of a differentiated product?

Accepted Answer

Running shoes are a differentiated product because they vary in design, style, and technology used. Different brands offer unique features, such as cushioning or support, which appeal to different consumers with specific needs or preferences. Carrots, electricity, airlines, and diamonds are not differentiated products as they are largely homogenous or standardized in the market.

Question 17

Firms in monopolistic competition have demand curves that are

Accepted Answer

Firms in monopolistic competition have downward sloping demand curves, which means as the price increases, the quantity demanded decreases. This is because there are close substitutes available in the market, and consumers can switch to these substitutes if the price of a product becomes too high.

Question 18

The United Company competes with many other firms each producing slightly different products. Firms freely enter and exit this industry. The type of industry United Company operates in is

Accepted Answer

The competitors producing slightly different products and the freedom of entry and exit indicate that the United Company operates in a monopolistic competition industry.

Question 19

It would be impossible for members of the fast-food industry to collude to fix prices because

Accepted Answer

There are too many fast-food firms in the market, which makes it difficult for them to collude and fix prices. The sheer number of competitors and the ease of entry into the market create a competitive environment, where firms have little incentive to engage in anti-competitive practices such as collusion. Additionally, consumers have a wide range of choices, which makes it likely that they would switch to another fast-food restaurant if the prices were too high.

Question 20

Which market structure is characterised by the following characteristics? i. A large number of firms compete.
Ii) Each firm produces a differentiated product.
Iii) Firms are free to enter and exit.

Accepted Answer

Monopolistic competition is characterized by a large number of firms producing differentiated products and free entry and exit.

Quiz 16: Monopolistic Competition