Question 1

Refer to the data. If Firm C merged with Firm D, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____.

Accepted Answer

A) rise; rise 
B) fall; rise 
C) remain the same; rise 
D) remain the same; fall 
A) rise; rise 
B) fall; rise 
C) remain the same; rise 
D) remain the same; fall A

Question 2

Industries X and Y both have four-firm concentration ratios of 63 percent, but the Herfindahl index for X is 1,273, while that for Y is 1,197. These data suggest

Accepted Answer

A) greater market power in Y than in X. 
B) greater market power in X than in Y. 
C) both industries are monopolistically competitive. 
D) that price competition is stronger in X than in Y. 
A) greater market power in Y than in X. 
B) greater market power in X than in Y. 
C) both industries are monopolistically competitive. 
D) that price competition is stronger in X than in Y. B

Question 3

Product differentiation in a monopolistically competitive market always entails more costs than benefits.

Accepted Answer

A) True 
 B)False  False

Question 4

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below.   At the profit-maximizing level of output, marginal revenue is

Accepted Answer

A) $0. 
B) $8. 
C) $4. 
D) $5. 
A) $0. 
B) $8. 
C) $4. 
D) $5.

Question 5

Industries X and Y both have four-firm concentration ratios of 48 percent, but the Herfindahl index for X is 860, while that for Y is 898. These data suggest

Accepted Answer

A) greater market power in X than in Y. 
B) greater market power in Y than in X. 
C) both industries are monopolistically competitive. 
D) that price competition is stronger in Y than in X. 
A) greater market power in X than in Y. 
B) greater market power in Y than in X. 
C) both industries are monopolistically competitive. 
D) that price competition is stronger in Y than in X.

Question 6

Why is the monopolistic competitor's demand curve more elastic than a pure monopolist's but less elastic than a pure competitor's? What factors determine the price elasticity of demand for a monopolistic competitor?

Accepted Answer

The monopolistic competitor's demand is

Question 7

The monopolistically competitive seller's demand curve will become more elastic the

Accepted Answer

A) larger the number of competitors. 
B) greater the degree of product differentiation. 
C) more significant the barriers to entry. 
D) smaller the number of competitors. 
A) larger the number of competitors. 
B) greater the degree of product differentiation. 
C) more significant the barriers to entry. 
D) smaller the number of competitors.

Question 8

Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 9

Excess capacity refers to the

Accepted Answer

A) amount by which actual production falls short of the minimum ATC output. 
B) fact that entry barriers artificially reduce the number of firms in an industry. 
C) differential between price and marginal costs that characterizes monopolistically competitive firms. 
D) fact that most monopolistically competitive firms encounter diseconomies of scale. 
A) amount by which actual production falls short of the minimum ATC output. 
B) fact that entry barriers artificially reduce the number of firms in an industry. 
C) differential between price and marginal costs that characterizes monopolistically competitive firms. 
D) fact that most monopolistically competitive firms encounter diseconomies of scale.

Question 10

Which of the following is not characteristic of long-run equilibrium under monopolistic competition?

Accepted Answer

A) Price equals minimum average total cost. 
B) Marginal cost equals marginal revenue. 
C) Price is equal to average total cost. 
D) Price exceeds marginal cost. 
A) Price equals minimum average total cost. 
B) Marginal cost equals marginal revenue. 
C) Price is equal to average total cost. 
D) Price exceeds marginal cost.

Question 11

Refer to the data. The Herfindahl index for this industry is

Accepted Answer

A) 95. 
B) 2,950. 
C) 1,000. 
D) 2,925. 
A) 95. 
B) 2,950. 
C) 1,000. 
D) 2,925.

Question 12

The economic inefficiencies of monopolistic competition may be offset by the fact that

Accepted Answer

A) advertising expenditures shift the average cost curve upward. 
B) available capacity is fully utilized. 
C) resources are optimally allocated to the production of the product. 
D) consumers have increased product variety. 
A) advertising expenditures shift the average cost curve upward. 
B) available capacity is fully utilized. 
C) resources are optimally allocated to the production of the product. 
D) consumers have increased product variety.

Question 13

Restaurants operate in monopolistically competitive markets. What characteristics allow them to differentiate their products?

Accepted Answer

Restaurants are monopolistic competitors

Question 14

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below.   Suppose that entry into this industry changes this firm's demand schedule from columns (1)and (3)to columns (2)and (3). We can conclude that this industry is

Accepted Answer

A) a pure monopoly. 
B) purely competitive. 
C) a constant cost industry. 
D) monopolistically competitive. 
A) a pure monopoly. 
B) purely competitive. 
C) a constant cost industry. 
D) monopolistically competitive.

Question 15

Monopolistically competitive firms exist due to high barriers to entry.

Accepted Answer

A) True 
 B)False

Question 16

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from

Accepted Answer

A) the likelihood of collusion. 
B) high entry barriers. 
C) product differentiation. 
D) mutual interdependence in decision making. 
A) the likelihood of collusion. 
B) high entry barriers. 
C) product differentiation. 
D) mutual interdependence in decision making.

Question 17

The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers is most suggestive that the industry is monopolistically competitive?

Accepted Answer

A) 32 and 540 
B) 48 and 870 
C) 76 and 1,689 
D) 95 and 3,542 
A) 32 and 540 
B) 48 and 870 
C) 76 and 1,689 
D) 95 and 3,542

Question 18

In long-run equilibrium, a monopolistically competitive producer achieves

Accepted Answer

A) neither productive efficiency nor allocative efficiency. 
B) both productive efficiency and allocative efficiency. 
C) productive efficiency but not allocative efficiency. 
D) allocative efficiency but not productive efficiency. 
A) neither productive efficiency nor allocative efficiency. 
B) both productive efficiency and allocative efficiency. 
C) productive efficiency but not allocative efficiency. 
D) allocative efficiency but not productive efficiency.

Question 19

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be

Accepted Answer

A) $10. 
B) $13. 
C) $16. 
D) $19. 
A) $10. 
B) $13. 
C) $16. 
D) $19.

Question 20

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should

Accepted Answer

A) decrease the level of output. 
B) increase the level of output. 
C) make no change in the level of output. 
D) increase product price. 
A) decrease the level of output. 
B) increase the level of output. 
C) make no change in the level of output. 
D) increase product price.

Exam 13: Monopolistic Competition

Refer to the data. If Firm C merged with Firm D, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____.

Industries X and Y both have four-firm concentration ratios of 63 percent, but the Herfindahl index for X is 1,273, while that for Y is 1,197. These data suggest

Product differentiation in a monopolistically competitive market always entails more costs than benefits.

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. At the profit-maximizing level of output, marginal revenue is

Industries X and Y both have four-firm concentration ratios of 48 percent, but the Herfindahl index for X is 860, while that for Y is 898. These data suggest

Why is the monopolistic competitor's demand curve more elastic than a pure monopolist's but less elastic than a pure competitor's? What factors determine the price elasticity of demand for a monopolistic competitor?

The monopolistically competitive seller's demand curve will become more elastic the

Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph

Excess capacity refers to the

Which of the following is not characteristic of long-run equilibrium under monopolistic competition?

Refer to the data. The Herfindahl index for this industry is

The economic inefficiencies of monopolistic competition may be offset by the fact that

Restaurants operate in monopolistically competitive markets. What characteristics allow them to differentiate their products?

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. Suppose that entry into this industry changes this firm's demand schedule from columns (1)and (3)to columns (2)and (3). We can conclude that this industry is

Monopolistically competitive firms exist due to high barriers to entry.

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from

The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers is most suggestive that the industry is monopolistically competitive?

In long-run equilibrium, a monopolistically competitive producer achieves

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should

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Refer to the data. If Firm C merged with Firm D, the industry's four-firm concentration ratio would and its Herfindahl index would .