Question 1

Monopolistic competition describes an industry characterized by:

Accepted Answer

A)  a product with no close substitutes. 
B)  many firms, each with some market power. 
C)  a small number of firms. 
D)  barriers to entry and exit. 
A)  a product with no close substitutes. 
B)  many firms, each with some market power. 
C)  a small number of firms. 
D)  barriers to entry and exit. B

Question 2

Use the following to answer questions 
Figure: The Market for Gas Stations  
-(Figure: The Market for Gas Stations) The figure The Market for Gas Stations shows curves facing a typical gas station in a large town. The market is characterized by many firms, differentiated products, easy entry, and easy exit. If the gas station here is typical, then in the long run, we would expect to observe:

Accepted Answer

A)  a few gas stations leaving the market. 
B)  new gas stations entering the market. 
C)  neither entry nor exit. 
D)  many gas stations leaving the market. 
A)  a few gas stations leaving the market. 
B)  new gas stations entering the market. 
C)  neither entry nor exit. 
D)  many gas stations leaving the market. B

Question 3

To maximize profits, a firm in monopolistic competition will likely produce so that marginal cost:

Accepted Answer

A)  equals average total cost. 
B)  is greater than marginal revenue. 
C)  equals marginal revenue. 
D)  equals price. 
A)  equals average total cost. 
B)  is greater than marginal revenue. 
C)  equals marginal revenue. 
D)  equals price. C

Question 4

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of java. For these customers, coffee is differentiated by:

Accepted Answer

A)  style. 
B)  location. 
C)  quality. 
D)  type. 
A)  style. 
B)  location. 
C)  quality. 
D)  type.

Question 5

An industry characterized by many competitors, each producing identical products, with free entry and exit, is described as:

Accepted Answer

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

Question 6

In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport. These Holiday Inn establishments are examples of product differentiation by:

Accepted Answer

A)  type. 
B)  location. 
C)  quality. 
D)  style. 
A)  type. 
B)  location. 
C)  quality. 
D)  style.

Question 7

Toby operates a small deli downtown. The deli industry is monopolistically competitive. If some delis leave the industry, Toby's _____ curve will shift to the _____.

Accepted Answer

A)  marginal cost; left 
B)  marginal cost; right 
C)  demand; left 
D)  demand; right 
A)  marginal cost; left 
B)  marginal cost; right 
C)  demand; left 
D)  demand; right

Question 8

Use the following to answer questions 
Figure: Profits in Monopolistic Competition  
-(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A negative economic profit (or economic loss) is earned if the profit-maximizing price is _____ in panel _____.

Accepted Answer

A)  E; (
B)  
B)  B; (
A)  
C)  N; (
C)  
D)  O; (
C)  
A)  E; (
B)  
B)  B; (
A)  
C)  N; (
C)  
D)  O; (
C)

Question 9

The demand curve for a firm operating in a monopolistically competitive industry is:

Accepted Answer

A)  U-shaped. 
B)  upward-sloping. 
C)  downward-sloping. 
D)  vertical. 
A)  U-shaped. 
B)  upward-sloping. 
C)  downward-sloping. 
D)  vertical.

Question 10

In monopolistic competition:

Accepted Answer

A)  firms may advertise to increase demand for their product. 
B)  entry of new firms shifts the demand curve for existing firms to the right. 
C)  when some firms exit, the demand curve for the firms that remain in the industry shifts to the left. 
D)  firms earn large economic profits in the long run. 
A)  firms may advertise to increase demand for their product. 
B)  entry of new firms shifts the demand curve for existing firms to the right. 
C)  when some firms exit, the demand curve for the firms that remain in the industry shifts to the left. 
D)  firms earn large economic profits in the long run.

Question 11

General Snacks is a typical firm in monopolistic competition. If the market is in long-run equilibrium, then the price General Snacks charges for its snack goods:

Accepted Answer

A)  equals average total cost. 
B)  exceeds average total cost. 
C)  is less than average total cost. 
D)  is more than the average for all other firms in the market. 
A)  equals average total cost. 
B)  exceeds average total cost. 
C)  is less than average total cost. 
D)  is more than the average for all other firms in the market.

Question 12

If a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run:

Accepted Answer

A)  price is less than average total costs. 
B)  price is less than marginal cost. 
C)  marginal revenue is less than marginal cost. 
D)  marginal revenue equals marginal cost. 
A)  price is less than average total costs. 
B)  price is less than marginal cost. 
C)  marginal revenue is less than marginal cost. 
D)  marginal revenue equals marginal cost.

Question 13

A feature of monopolistic competition that makes it different from monopoly is the:

Accepted Answer

A)  fact that firms in monopolistically competitive industries follow the marginal decision rule, while monopolies do not. 
B)  downward-sloping demand curve. 
C)  downward-sloping marginal revenue curve. 
D)  number of firms in the industry. 
A)  fact that firms in monopolistically competitive industries follow the marginal decision rule, while monopolies do not. 
B)  downward-sloping demand curve. 
C)  downward-sloping marginal revenue curve. 
D)  number of firms in the industry.

Question 14

The demand curve for a firm operating in a monopolistically competitive market is best described as:

Accepted Answer

A)  U-shaped. 
B)  upward-sloping. 
C)  downward-sloping. 
D)  horizontal. 
A)  U-shaped. 
B)  upward-sloping. 
C)  downward-sloping. 
D)  horizontal.

Question 15

The market for dentists in most communities can be considered _____ because the market has a large number of similar but not identical dental services.

Accepted Answer

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

Question 16

Use the following to answer questions 
Figure: The Market for Gas Stations  
-(Figure: The Market for Gas Stations) The figure Market for Gas Stations shows curves facing a typical gas station in a large town. The market is characterized by many firms, differentiated products, easy entry, and easy exit. If the gas station shown here were to raise its price above the profit-maximizing price, the outcome would be _____ in total revenue.

Accepted Answer

A)  a reduction 
B)  an increase 
C)  no change 
D)  Not enough information is given to answer the question. 
A)  a reduction 
B)  an increase 
C)  no change 
D)  Not enough information is given to answer the question.

Question 17

Use the following to answer questions 
Figure: The Market for Gas Stations  
-(Figure: The Market for Gas Stations) Look at the figure The Market for Gas Stations. Assume that the market for gas stations is characterized by many firms, differentiated products, easy entry, and easy exit. For the typical gas station the profit-maximizing price would be:

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  Not enough information is given to answer the question. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  Not enough information is given to answer the question.

Question 18

If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run:

Accepted Answer

A)  firms will leave the industry. 
B)  the demand curves faced by existing firms will move to the right. 
C)  economic profits will increase. 
D)  economic profits will be reduced to zero. 
A)  firms will leave the industry. 
B)  the demand curves faced by existing firms will move to the right. 
C)  economic profits will increase. 
D)  economic profits will be reduced to zero.

Question 19

Monopolistic competition is characterized by:

Accepted Answer

A)  free entry and exit in the long run. 
B)  each firm producing a standardized product. 
C)  few producers. 
D)  barriers to entry. 
A)  free entry and exit in the long run. 
B)  each firm producing a standardized product. 
C)  few producers. 
D)  barriers to entry.

Question 20

If a firm operating in monopolistic competition is producing a quantity that generates MC = MR, then the marginal decision rule tells us that profit:

Accepted Answer

A)  is maximized. 
B)  can be increased by decreasing production. 
C)  can be increased by decreasing the price. 
D)  is maximized only if MC = P. 
A)  is maximized. 
B)  can be increased by decreasing production. 
C)  can be increased by decreasing the price. 
D)  is maximized only if MC = P.

Exam 14: Monopolistic Competition and Product Differentiation

Monopolistic competition describes an industry characterized by:

To maximize profits, a firm in monopolistic competition will likely produce so that marginal cost:

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of java. For these customers, coffee is differentiated by:

An industry characterized by many competitors, each producing identical products, with free entry and exit, is described as:

In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport. These Holiday Inn establishments are examples of product differentiation by:

Toby operates a small deli downtown. The deli industry is monopolistically competitive. If some delis leave the industry, Toby's _____ curve will shift to the _____.

Use the following to answer questions Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A negative economic profit (or economic loss) is earned if the profit-maximizing price is _____ in panel _____.

The demand curve for a firm operating in a monopolistically competitive industry is:

In monopolistic competition:

General Snacks is a typical firm in monopolistic competition. If the market is in long-run equilibrium, then the price General Snacks charges for its snack goods:

If a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run:

A feature of monopolistic competition that makes it different from monopoly is the:

The demand curve for a firm operating in a monopolistically competitive market is best described as:

The market for dentists in most communities can be considered _____ because the market has a large number of similar but not identical dental services.

If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run:

Monopolistic competition is characterized by:

If a firm operating in monopolistic competition is producing a quantity that generates MC = MR, then the marginal decision rule tells us that profit:

First Principles

Economic Models- Trade-Offs and Trade

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas- Meddling With Markets

Elasticity

Taxes

The Rational Consumer

International Trade

Decision Making by Individuals and Firms

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Macroeconomics- the Big Picture

Gdp and the Consumer Price Index

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Macroeconomics- Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

Toward a Fuller Understanding

Consumer Preferences and Consumer Choice

Indifference Curve Analysis of Labor Supply

Filters

Toby operates a small deli downtown. The deli industry is monopolistically competitive. If some delis leave the industry, Toby's _ curve will shift to the _.

Use the following to answer questions Figure: Profits in Monopolistic Competition -(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A negative economic profit (or economic loss) is earned if the profit-maximizing price is _ in panel _.