Question 1

An example of monopolistic competition is the _____ industry.

Accepted Answer

A)  restaurant 
B)  soft-drink 
C)  automobile 
D)  airline 
A)  restaurant 
B)  soft-drink 
C)  automobile 
D)  airline

Question 2

Competition among sellers in monopolistic competition means that all of the firms in the industry will produce the same product.

Accepted Answer

A) True 
 B)False

Question 3

A(n) _____ is a single firm with _____, whereas a(n) _____ implies an industry with _____ firm(s) and _____.

Accepted Answer

A)  oligopoly; no barriers to entry; monopoly; many; easy entry and exit 
B)  monopoly; barriers to entry; monopolistic competition; many; easy entry and exit 
C)  monopoly; barriers to entry; oligopoly; few; no barriers to entry 
D)  monopolistic competitor; barriers to entry; monopoly; one; barriers to entry 
A)  oligopoly; no barriers to entry; monopoly; many; easy entry and exit 
B)  monopoly; barriers to entry; monopolistic competition; many; easy entry and exit 
C)  monopoly; barriers to entry; oligopoly; few; no barriers to entry 
D)  monopolistic competitor; barriers to entry; monopoly; one; barriers to entry

Question 4

Use the following to answer questions:
Figure: Firms in Monopolistic Competition  
-(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. Zero economic profit will be earned if the profit-maximizing price is _____ in panel _____.

Accepted Answer

A)  F; (
A)  
B)  G; (
A)  
C)  H; (
B)  
D)  I; (
C)  
A)  F; (
A)  
B)  G; (
A)  
C)  H; (
B)  
D)  I; (
C)

Question 5

Your friend Angelina is the owner of a boutique clothing store in a monopolistically competitive clothing market. The market is in long-run equilibrium. Over coffee, Angelina tells you that she is considering raising the price of her clothing to increase her profits. What is your advice?

Accepted Answer

If the market is in long-run equilibrium

Question 6

Relying on brand names will always lead consumers to the best consumption choices if they buy the brand name rather than a cheaper substitute.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

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

Question 8

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:

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

Since a monopolistic competitor charges a price higher than marginal cost, there is a deadweight loss associated with monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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 to the industry in the long run. 
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 to the industry in the long run.

Question 12

Competition limits the price a monopolistically competitive firm can set.

Accepted Answer

A) True 
 B)False

Question 13

Use the following to answer questions:  
-(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. The profit-maximizing price is:

Accepted Answer

A)  $16. 
B)  $3. 
C)  $5. 
D)  $10. 
A)  $16. 
B)  $3. 
C)  $5. 
D)  $10.

Question 14

Monopolistic competition is often found in service industries.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

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. 
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 16

Firms in monopolistic competition and in perfect competition have excess capacity.

Accepted Answer

A) True 
 B)False

Question 17

Use the following to answer questions:
Figure: Monopolistic Competition II  
-(Figure: Monopolistic Competition II) Which panel(s) in the figure Monopolistic Competition II show(s) a monopolistic competitor in long-run equilibrium?

Accepted Answer

A)  panel (a) 
B)  panel (b) 
C)  panel (c) 
D)  panels (a), (b), and (c) 
A)  panel (a) 
B)  panel (b) 
C)  panel (c) 
D)  panels (a), (b), and (c)

Question 18

Firms in monopolistic competition can gain some market power by engaging in product differentiation.

Accepted Answer

A) True 
 B)False

Question 19

In monopolistic competition, each firm:

Accepted Answer

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. 
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 20

Use the following to answer questions:  
-(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. At the profit-maximizing output, profit is:

Accepted Answer

A)  $9.00. 
B)  $10.00. 
C)  $60.00. 
D)  $7.00. 
A)  $9.00. 
B)  $10.00. 
C)  $60.00. 
D)  $7.00.

An example of monopolistic competition is the _____ industry.

Competition among sellers in monopolistic competition means that all of the firms in the industry will produce the same product.

A(n) ___ is a single firm with _, whereas a(n) _ implies an industry with _ firm(s) and ___.

Use the following to answer questions: Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. Zero economic profit will be earned if the profit-maximizing price is _ in panel _.

Your friend Angelina is the owner of a boutique clothing store in a monopolistically competitive clothing market. The market is in long-run equilibrium. Over coffee, Angelina tells you that she is considering raising the price of her clothing to increase her profits. What is your advice?

Relying on brand names will always lead consumers to the best consumption choices if they buy the brand name rather than a cheaper substitute.

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

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:

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

Since a monopolistic competitor charges a price higher than marginal cost, there is a deadweight loss associated with monopolistic competition.

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

Competition limits the price a monopolistically competitive firm can set.

Use the following to answer questions: -(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. The profit-maximizing price is:

Monopolistic competition is often found in service industries.

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

Firms in monopolistic competition and in perfect competition have excess capacity.

Use the following to answer questions: Figure: Monopolistic Competition II -(Figure: Monopolistic Competition II) Which panel(s) in the figure Monopolistic Competition II show(s) a monopolistic competitor in long-run equilibrium?

Firms in monopolistic competition can gain some market power by engaging in product differentiation.

In monopolistic competition, each firm:

Use the following to answer questions: -(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. At the profit-maximizing output, profit is:

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 15: Monopolistic Competition and Product Differentiation

An example of monopolistic competition is the _____ industry.

Competition among sellers in monopolistic competition means that all of the firms in the industry will produce the same product.

A(n) _____ is a single firm with _____, whereas a(n) _____ implies an industry with _____ firm(s) and _____.

Use the following to answer questions: Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. Zero economic profit will be earned if the profit-maximizing price is _____ in panel _____.

Your friend Angelina is the owner of a boutique clothing store in a monopolistically competitive clothing market. The market is in long-run equilibrium. Over coffee, Angelina tells you that she is considering raising the price of her clothing to increase her profits. What is your advice?

Relying on brand names will always lead consumers to the best consumption choices if they buy the brand name rather than a cheaper substitute.

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

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:

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

Since a monopolistic competitor charges a price higher than marginal cost, there is a deadweight loss associated with monopolistic competition.

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

Competition limits the price a monopolistically competitive firm can set.

Use the following to answer questions: -(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. The profit-maximizing price is:

Monopolistic competition is often found in service industries.

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

Firms in monopolistic competition and in perfect competition have excess capacity.

Use the following to answer questions: Figure: Monopolistic Competition II -(Figure: Monopolistic Competition II) Which panel(s) in the figure Monopolistic Competition II show(s) a monopolistic competitor in long-run equilibrium?

Firms in monopolistic competition can gain some market power by engaging in product differentiation.

In monopolistic competition, each firm:

Use the following to answer questions: -(Table: Spring Water) The table Spring Water shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. At the profit-maximizing output, profit is:

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

A(n) ___ is a single firm with _, whereas a(n) _ implies an industry with _ firm(s) and ___.

Use the following to answer questions: Figure: Firms in Monopolistic Competition -(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition. Zero economic profit will be earned if the profit-maximizing price is _ in panel _.