Deck 12: Monopolistic Competition and Advertising

Question 1

Firms in a monopolistically competitive industry produce:

A)homogeneous goods and services.
B)differentiated products.
C)monopolistic goods only.
D)only industrial products-and no consumer products.
E)only consumer products-and no industrial products.

Answer 1

B

Question 2

If we are to discuss why the term "monopolistic competition" is used,the best description would be that the industry is "monopolistic" because it:

A)has high barriers to entry but is "competitive" because it has many firms.
B)has low barriers to entry but is "competitive" because it has few firms.
C)has product differentiation but is "competitive" because it has many firms.
D)has a monopoly but is "competitive" because there are low barriers to entry,meaning it has potential rivals.
E)holds patents but is "competitive" because other firms might invent similar patentable products.

Answer 2

C

Question 3

The movie You've Got Mail features a successful small bookstore competing with a new book superstore around the block.The big superstore offers deep discounts,while the small independent bookstore has better service and more knowledgeable staff.The movie best illustrates which of the following?

A)Small producers can't compete based on costs.
B)Large producers offer differentiated products and compete most effectively through product differentiation.
C)Small producers offer differentiated products and compete most effectively through product differentiation.
D)The Meg Ryan character's bookstore best illustrates a perfectly competitive firm.
E)The Tom Hanks character's bookstore best illustrates a monopoly firm.

Answer 3

C

Question 4

Which of the following most closely approximates the conditions of monopolistic competition?

A)The market for Grade A sorghum (milo),which is characterized by many firms producing a homogeneous product
B)The restaurant industry,which is characterized by many firms producing differentiated products in an industry with free entry and exit
C)A cable television service,where a licensed supplier competes with firms offering satellite service
D)The market for jumbo aircraft,where one major domestic firm competes with one major foreign firm
E)The tobacco market,which is characterized by a few firms producing a differentiated product with difficult entry

Question 5

A monopolistically competitive market is characterized by:

A)many small sellers selling a differentiated product.
B)a single seller of a unique product that has few or no substitutes.
C)very high barriers to entry.
D)many small sellers selling an identical product.
E)a few firms producing either differentiated or identical products.

Question 6

Which of the following is the best example of a firm operating in a monopolistically competitive market?

A)a Nebraska corn farmer
B)Applebee's,a casual dining restaurant
C)the U.S.Postal Service
D)Ford,an automotive manufacturer
E)electric companies prior to deregulation

Question 7

Which of the following statements best describes firms under monopolistic competition?

A)There is little price or quality competition.
B)The firms compete using quality,location,and style.
C)Firms do not compete using advertising.
D)There is little competition between firms.
E)There are a few firms that collude to set the highest price.

Question 8

Product differentiation:

A)refers to firms' attempts to make their products look the same as other products in the industry.
B)refers to firms' attempts to make real or apparent differences in essentially substitutable products look different in the minds of consumers.
C)refers to the advantage big firms have in research and development.
D)is a common characteristic of a perfectly competitive market structure.
E)is employed only in a monopoly market structure.

Question 9

Which of the following is the best example of a monopolistic competitor?

A)corn farmers
B)diet centers
C)the U.S.Postal Service
D)Ford Motor Company
E)localized cement companies

Question 10

One critical characteristic of monopolistic competition is:

A)one firm dominates the industry.
B)a few firms collude with each other by agreeing on price.
C)a few firms compete without agreeing on price.
D)there are many small firms in the industry.
E)there is one large firm in the industry but it has no control over the price.

Question 11

Monopolistic competition means:

A)firms are in a monopoly but they compete.
B)firms are in perfect competition but they collude similar to monopolies.
C)firms differentiate their output,which makes them price-makers,but barriers to entry are low or non-existent.
D)oligopoly firms collude until they become monopolies.
E)firms have downward-sloping demand.

Question 12

We could state correctly that the minimum characteristic necessary to distinguish among price-making firms is:

A)product differentiation.
B)price discrimination.
C)the level of the concentration ratio.
D)the number of firms in the industry.
E)whether they produce industrial or consumer products.

Question 13

The movie You've Got Mail features a successful small bookstore competing with a new book superstore around the block.The big superstore offers deep discounts,while the small independent bookstore has better service and more knowledgeable staff.The movie best illustrates which of the following?

A)For monopolistically competitive firms,profits will be positive in the long run.
B)Homogeneous products are produced by both firms because consumers perceive books from either store as the same.
C)Product differentiation occurs because consumers perceive the bookstores as different.
D)Monopoly production occurs because the movie is copyrighted.
E)Perfect competition occurs because many movie theaters are showing identical movies.

Question 14

Which of the following is always associated with monopolistic competition?

A)identical products
B)economic profits in the short run
C)demand curve that lies below the marginal revenue curve
D)demand curves that become more inelastic as new entry occurs
E)product differentiation

Question 15

Shopping at the clothing store Abercrombie & Fitch instead of Ann Taylor best illustrates which of the following?

A)differentiation by style or type
B)differentiation by location
C)differentiation by quality
D)homogeneous products
E)high barriers to entry

Question 16

If all monopolistically competitive firms had identical cost curves:

A)the industry would remain monopolistically competitive because of product differentiation.
B)long-run profit for each firm would be positive.
C)short-run profit for each firm would be negative.
D)excessive brand proliferation would result.
E)the industry would become perfectly competitive.

Question 17

If a monopoly firm suddenly lost its barriers to entry and faced new competition,yet consumers thought that the former monopoly's products were somewhat different than its new competitors,then:

A)the industry has probably become perfectly competitive.
B)long-run profit for this firm will likely exist.
C)the industry has probably become a monopolistically competitive industry.
D)the industry is probably cooperating to maximize joint profits.
E)the industry has probably become a monopoly.

Question 18

Which of the following is the best description of monopolistic competition?

A)easy entry,low markup
B)barriers to entry,high markup
C)horizontal demand curve for the firm
D)firm has no control over price
E)barriers to entry,low markup

Question 19

Which of the following industry structures is best associated with low barriers to entry?

A)monopoly
B)a cartel
C)oligopoly
D)monopolistic competition
E)a collusive industry

Question 20

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

A)corn
B)automobiles
C)electric utilities
D)retail clothing stores
E)wheat

Question 21

Which of the following best describes DiGiorno's incentive for quality control versus that of the generic brands of pizza?

A)Their incentives are identical.
B)Generic brands have more incentive for high quality and high-quality control.
C)DiGiorno has more incentive for high quality and high-quality control.
D)Generic brands purposefully have lower quality because they charge a lower price and need to maintain consumer perception that they should expect lower quality at the lower price.
E)DiGiorno tries to match the same quality as the generic brands.

Question 22

You shop at the local drugstore because it is convenient.This situation is best described as:

A)differentiation by style or type.
B)differentiation by a cartel.
C)monopolistic competition with differentiation by location.
D)a market with horizontal demand.
E)perfect competition because there are so many drugstores in the area.

Question 23

Monopolistic competition is like monopoly in that:

A)price changes are dictated by changes in supply.
B)both industries represent price-taking firms.
C)both industries represent price-making firms.
D)both industries have high barriers to entry.
E)neither industry has high barriers to entry.

Question 24

A convenience store is generally able to charge and obtain a higher price for its candy bars than is Wal-Mart because the convenience store:

A)differentiates based on style.
B)differentiates based on location.
C)differentiates based on quality.
D)advertises that its candy bars are identical to those sold at Wal-Mart.
E)differentiates based on high barriers to entry,such as patents.

Question 25

Refer to the accompanying graph.The short-run profit-maximizing output for the monopolistic competitive firm is:

A)0 (zero)units per day.
B)200 units per day.
C)400 units per day.
D)600 units per day.
E)800 units per day.

Question 26

The descriptor "monopolistic" in the term "monopolistic competition" best describes:

A)high barriers to entry.
B)product differentiation resulting in a downward-sloping demand curve for the firm's product.
C)production of a unique product.
D)a single producer.
E)a few small firms.

Question 27

The best description of industries below is that:

A)a monopolistically competitive industry is more competitive than any other industry form.
B)monopolies are more competitive than monopolistically competitive firms.
C)monopolistically competitive firms are located between monopoly and perfect competition.
D)all firms can make a long-run economic profit,but only perfect competitors can make a shortrun profit.
E)all firms engage in short-run loss minimization by selecting the point where marginal revenue = price.

Question 28

Monopolistic competition:

A)is the same as monopoly.
B)is more similar to perfect competition than to monopoly.
C)is just like monopoly but with more market power.
D)is a combination of oligopoly and monopoly.
E)cannot legally exist in the United States because of antitrust laws.

Question 29

If the marginal revenue curve lies above the demand curve for a firm:

A)this is not a firm that exists in any traditional industries.
B)both curves are upward-sloping.
C)both curves are parallel.
D)this must be a monopolistically competitive firm.
E)both curves are downward-sloping.

Question 30

The short-run equilibrium for a monopolistically competitive firm is at price = $29,average total cost = $22,and marginal cost = marginal revenue = $18.Which of the following is true?

A)Per-unit profit is $11.
B)More firms will be attracted into the industry.
C)The firm could increase the price and increase profits.
D)The firm could decrease the price and increase profits.
E)The firm is operating in the upward-sloping portion of average total cost (ATC).

Question 31

A monopolistically competitive firm usually charges less than a monopoly firm because:

A)it is part of a group of firms that has formally agreed to control the price and the output of a product.
B)its primary goal is to reap monopoly profits by replacing competition with cooperation.
C)producing homogenous output is more expensive than producing differentiated output.
D)it faces some degree of competition due to low barriers to entry.
E)it has a monopoly,but potential entrants exist in the form of contestable markets.

Question 32

Refer to the accompanying graph.The maximum short-run economic profit earned by this monopolistic competitive firm is:

A)$20
B)$66
C)$272.
D)none; this firm must shut down or lose all of its fixed cost.
E)inconclusive; the maximum short-run profit can't be determined from the information given.

Question 33

If barriers to entry are high and products are somewhat differentiated:

A)the industry is probably perfectly competitive.
B)the industry is probably monopolistically competitive.
C)the industry is probably a differentiated monopsony.
D)economic profit might be sustainable.
E)the situation cannot exist.

Question 34

Which of the following statements best describes the price,output,and profit conditions of monopolistic competition?

A)Price will equal marginal cost at the profit-maximizing level of output,and profits will be positive in the long run.
B)Price will always equal average variable cost in the short run,and either profits or losses may result in the long run.
C)Marginal revenue will equal marginal cost in the short run at a profit-maximizing level of output; in the long run,economic profit will be zero.
D)Marginal revenue will equal average total cost in the short run,and long-run economic profits are generally positive but could be zero.
E)Output is equal to the amount for which marginal revenue equals price.

Question 35

Sarah's Ice Cream distinguishes itself from other firms through great service by attractive servers.Sarah's Ice Cream faces competition from firms that produce similar but not identical products.Based on the this information Sarah's Ice Cream:

A)is probably in a perfectly competitive industry.
B)probably has a horizontal demand curve.
C)is probably in a monopolistically competitive industry.
D)is probably in an oligopoly industry.
E)has a monopoly.

Question 36

The shape and/or slope of the marginal revenue curve under monopolistic competition is:

A)U-shaped.
B)horizontal.
C)vertical.
D)upward-sloping.
E)downward-sloping and twice as steep as the demand curve.

Question 37

Refer to the accompanying graph.The short-run profit-maximizing output for the monopolistic competitive firm is:

A)0 (zero)units per week.
B)50 units per week.
C)60 units per week.
D)85 units per week.
E)90 units per week.

Question 38

Which of the following market structures describes an industry in which all firms produce differentiated output and there are few barriers to entry?

A)perfect competition
B)monopoly
C)oligopoly
D)a cartel
E)monopolistic competition

Question 39

At one time,Heinz made its own brand of soups.The company also produced those same soups to be sold as store brands.The Heinz soups and storebrand soups were differentiated only by their label.If Harris Pilton bought Heinz soup because she said,"Everyone knows the store-brand soup is nasty," this indicates:

A)consumer cooperation.
B)product homogeneity.
C)product differentiation.
D)a cartel exists.
E)monopolization by Heinz.

Question 40

If a firm has substantial market power,it must be operating in an industry that would be classified as:

A)a monopoly.
B)perfectly competitive.
C)monopolistically competitive.
D)perfectly competitive or monopolistically competitive.
E)perfectly competitive or monopolistic.

Question 41

Refer to the following graph to answer the questions that follow.

In the long run,the demand curve for the monopolistically competitive firm would:

A)shift leftward.
B)remain the same,causing the entry of new firms to be impossible.
C)shift rightward.
D)move closer to the marginal revenue curve,but the marginal revenue curve would be held constant.
E)shift rightward,causing the entry of new firms into the industry.

Question 42

In the long run,in monopolistic competition:

A)the demand curve is tangent to the marginal cost curve.
B)price = marginal cost.
C)price = minimum average total cost.
D)firms have an incentive to leave.
E)economic profits are zero.

Question 43

The fast-food,bottled water,and cereal markets are all examples of:

A)perfectly competitive markets.
B)monopolies.
C)monopolistically competitive markets.
D)oligopolies.
E)homogeneously competitive markets.

Question 44

Refer to the following graph to answer the questions that follow.

The maximum long-run economic profit earned by this monopolistic competitive firm is:

A)0 (zero).
B)$600 per day.
C)$1,200 per day.
D)$1,800 per day.
E)$20 per hour.

Question 45

Which of the following is true in long-run equilibrium for both a competitive market and monopolistic competition?

A)Accounting profit is zero.
B)Price equals marginal revenue.
C)Long-run average cost is minimized.
D)Economic profit is zero.
E)Productive efficiency is achieved.

Question 46

Monopolistically competitive firms that are earning zero economic profit would most likely:

A)reduce their costs.
B)charge higher prices.
C)make demand more inelastic.
D)leave the industry.
E)remain in the industry.

Question 47

If monopolistically competitive firms are incurring losses,existing firms would:

A)reduce their costs.
B)charge higher prices.
C)make demand more inelastic.
D)leave the industry.
E)begin to collude illegally.

Question 48

In the long run,surviving firms in monopolistic competition earn:

A)higher than normal economic profit.
B)zero economic profit.
C)less than normal profits.
D)significant economic losses.
E)praise from the government for achieving allocative efficiency.

Question 49

Monopolistically competitive firms:

A)eventually become perfectly competitive.
B)follow the price leader.
C)earn long-run economic profits.
D)necessarily earn short-run economic profits.
E)"compete away" economic profit to zero.

Question 50

Fast-food restaurants are a good illustration of:

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

Question 51

The theory of monopolistic competition predicts that,in long-run equilibrium,a monopolistically competitive firm will:

A)produce the output level at which price equals long-run average cost.
B)produce the output at which short-run average total cost equals marginal cost.
C)produce the output level at which price equals long-run marginal cost.
D)operate at minimum long-run average cost.
E)operate where price equals long-run average fixed cost.

Question 52

Refer to the following graph to answer the questions that follow.

In the long run,the positive economic profits of Wings and Things,a monopolistic competitor,are:

A)not driven out because competition is not perfect.
B)not driven out because the demand curve slopes downward.
C)eliminated due to the entry of firms into the industry.
D)eliminated due to the departure of firms from the industry.
E)not driven out because firms cannot enter the industry.

Question 53

Refer to the following graph to answer the questions that follow.

In the long run,which of the following is true for the profit-maximizing firm?

A)The firm's demand curve shifts leftward.
B)The firm's average total cost curve shifts upward.
C)Profit is $1,200 per day.
D)Profit is $1,500 per day.
E)The firm's average total cost curve shifts downward,while the marginal cost curve shifts upward.

Question 54

Which of the following is a characteristic of a monopolistically competitive firm?

A)The firm faces a downward-sloping demand curve and a marginal revenue curve that is twice as steep.
B)The firm faces a vertical demand curve and identical marginal revenue curve.
C)The firm produces a product that is undifferentiated by style,location,or quality.
D)The firm faces an upward-sloping demand curve.
E)The firm faces a downward-sloping demand and a horizontal marginal revenue curve.

Question 55

Refer to the following graph to answer the questions that follow.

Refer to the accompanying graph.If there are exactly 20 firms in the monopolistically competitive industry that are identical to the firm shown,we would expect that,in the long run:

A)total industry economic profit would be exactly equal to 20 times the profit of each individual firm.
B)total industry economic profit would be greater than 20 times the profit of each individual firm.
C)industry costs would rise.
D)new firms would desire to enter the industry but would not be able to due to high entry barriers.
E)total industry economic profit would be zero.

Question 56

Profit-maximizing,monopolistically competitive firms:

A)are guaranteed an economic profit in the short run.
B)never lose money.
C)produce only those goods for which they can acquire a barrier to entry,such as a patent (hence the term "monopolistically").
D)necessarily earn long-run economic profits.
E)cannot be guaranteed an economic profit in any period and might incur losses.

Question 57

In the long run,both monopolistic competition and competitive markets result in:

A)a wide variety of brand-name choices for consumers.
B)an inefficient allocation of resources.
C)zero economic profit for firms.
D)excess capacity.
E)insufficient capacity.

Question 58

Refer to the following graph to answer the questions that follow.

Refer to the accompanying graph.The maximum long-run economic profit earned by this monopolistically competitive firm is:

A)0 (zero).
B)represented by the rectangle abcd.
C)represented by the rectangle enclosed by the points 50,0,c,and
D)represented by the area below the demand curve and above marginal cost.

Question 59

If monopolistically competitive firms are making zero economic profit,then these firms would:

A)leave the industry.
B)charge higher prices.
C)make demand more inelastic.
D)remain in the industry.
E)begin to collude illegally.

Question 60

If a monopolistically competitive firm is incurring losses,then at the profit-maximizing output amount:

A)price is above the average total cost curve.
B)price is below the average total cost curve.
C)price is equal to marginal revenue.
D)price is less than marginal revenue.
E)average total costs equals marginal cost.

Question 61

If monopolistically competitive firms are making positive economic profits,then new firms would:

A)reduce their costs.
B)charge higher prices.
C)make demand more inelastic.
D)leave the industry.
E)begin to enter the industry.

Question 62

Refer to the accompanying graph.To maximize profit,the monopolistically competitive firm shown will charge a price per unit of:

A)0 (zero).
B)$20.17.
C)$18.17.
D)$16.87
E)$15.87

Question 63

The marginal revenue of a monopolistically competitive firm will always be:

A)less than the price.
B)more than the price.
C)the same as the price.
D)identical to the marginal cost curve.
E)identical to the average total cost curve.

Question 64

If the price that determined where marginal revenue equaled marginal cost were below the bottom of the average variable cost curve,then the profit-maximizing,monopolistically competitive firm would:

A)produce an output amount where marginal cost = marginal revenue and make a small profit.
B)produce an output amount that corresponded to the place where marginal cost = marginal revenue and break even.
C)produce an output amount that corresponded to the place where marginal cost = marginal revenue but make a small loss.
D)shut down because it would cost more to produce and sell output than it would to shut down and lose all fixed costs.
E)produce an output amount that corresponded to the place where average total cost = average variable cost and incur a small loss.

Question 65

Refer to the accompanying graph.Profit-maximizing output for the monopolistically competitive firm is:

A)0 (zero)units.
B)20 units.
C)25 units.
D)30 units.
E)35 units.

Question 66

Costume jewelry is produced in a monopolistically competitive market.A profit-maximizing producer finds that marginal revenue = marginal cost = $4.50 when output is 700 rings.An economist studying this information can conclude that:

A)the producer is charging a price of $4.50.
B)economic profit is $3,150.
C)the producer charges a price greater than $4.50.
D)new firms will want to enter.
E)this producer should produce more than 700 rings.

Question 67

The entry of new firms into a monopolistically competitive industry causes the:

A)market demand curve to shift right.
B)market demand curve to shift left.
C)existing firm's demand curve to shift right.
D)existing firm's demand curve to shift left.
E)market supply curve to shift left.

Question 68

As new firms enter a monopolistically competitive industry,it can be expected that:

A)market price will rise.
B)the output of existing firms will rise.
C)profits of existing firms will fall.
D)market demand will rise.
E)the profits of existing firms will rise.

Question 69

The correct level of output for a profit-maximizing,monopolistically competitive firm always matches the point where:

A)total revenue equals total cost.
B)marginal revenue equals marginal cost.
C)price equals average total cost.
D)price equals marginal cost.
E)average revenue equals marginal revenue.

Question 70

Caskets are produced in a monopolistic competitive market.One producer,Final Boxes,sells 20 caskets a week at a price of $550 each.Its average total cost is $600.From this information,we know that:

A)new casket firms will want to enter.
B)this producer is losing $1,000 a week.
C)this producer is making an economic profit of $500.
D)this producer is setting marginal revenue = marginal cost.
E)this producer should increase production.

Question 71

Which of the following is true for a profit-maximizing firm operating in a competitive market,monopolistic competition,and monopoly?

A)Firms earn positive economic profits in the long run.
B)Firms earn zero economic profits in the long run.
C)Profits are maximized when marginal cost equals marginal revenue.
D)Price equals marginal revenue.
E)Entry into the industry is impossible.

Question 72

The greeting card industry is:

A)most likely a competitive market and has low markups.
B)most likely a monopoly and has high markups.
C)most likely monopolistically competitive and has low markups.
D)most likely an oligopoly with low markups.
E)characterized by firms that advertise and are mutually interdependent.

Question 73

Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

A)price equals average total cost.
B)marginal cost equals average variable cost.
C)average revenue equals marginal revenue.
D)marginal revenue equals marginal cost.
E)total revenue equals total cost.

Question 74

Both competitive and monopolistically competitive firms:

A)can maximize profit by raising price.
B)cannot control or set their own price.
C)can maximize profit by producing to the point where marginal cost = marginal revenue.
D)can enforce price arrangements vigorously in court.
E)sell products that are identical.

Question 75

Which of the following best describes the relationship between price and marginal revenue for monopolistic competitors?

A)They are always equal.
B)They are equal only when there are relatively few firms in the industry.
C)Price is below marginal revenue,as a general rule,regardless of the number of firms in the monopolistically competitive industry.
D)Price is above marginal revenue,as a general rule,regardless of the number of firms in the monopolistically competitive industry.
E)At low levels of output,price is above marginal revenue.At high levels of output,price is below marginal revenue as long as the number of firms is not too many because,if it is too large,the monopolistically competitive industry will become perfectly competitive.

Question 76

We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms':

A)demand curves downward.
B)demand curves upward.
C)marginal revenue curves upward.
D)cost curves upward.
E)cost curves downward.

Question 77

If positive economic profit exists in monopolistic competition,there is:

A)incentive for new firms to enter.
B)a motive for existing firms to increase prices.
C)proof that advertising works.
D)a motive for existing firms to decrease prices.
E)product differentiation.

Question 78

Profit-maximizing,monopolistically competitive firms:

A)consider the actions of their competitors when determining price.
B)do not consider the actions of their competitors when determining price.
C)consider only marginal cost and marginal revenue,which determine the level of output-and the level of output determines price.
D)consider only average total cost and average variable cost,which determine the level of output-and the level of output determines price.
E)take their price from the industry price,as do perfectly competitive firms.

Question 79

An increase in marginal cost causes a profit-maximizing,monopolistically competitive firm to:

A)keep price and output the same.
B)raise price and decrease output.
C)lower price and increase output.
D)raise price and raise output.
E)lower price and lower output.

Question 80

Entry of new firms will continue in a monopolistically competitive industry until:

A)marginal cost = 0 (zero).
B)marginal revenue = 0 (zero).
C)marginal revenue = marginal cost.
D)economic profit equals zero.
E)economic profit is negative.