Deck 15: Monopolistic Competition and Oligopoly

Question 1

A(n)_______ is characterized by the number of firms in the market, while the defining characteristic of a(n)_______ is the variety of products.

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

Answer 1

oligopoly; monopolistic competition

Question 2

Monopolistic competition describes a market in which _______ firms sell _______ goods and services.

A)few; similar but slightly different
B)many; standardized
C)many; similar but slightly different
D)few; standardized

Answer 2

many; similar but slightly different

Question 3

Strategic behavior is a key feature in which market structure?

A)Monopoly
B)Oligopoly
C)Monopolistic competition
D)Perfect competition

Answer 3

Oligopoly

Question 4

A market that consists of many small firms:

A)cannot be a monopoly.
B)must be perfectly competitive.
C)cannot be a monopolistically competitive market.
D)can only be an oligopoly.

Question 5

A market that consists of a few large firms and has barriers to entry:

A)must be perfectly competitive.
B)is likely an oligopoly.
C)must be monopolistically competitive.
D)is likely a monopoly.

Question 6

Which type of market structure is imperfectly competitive? Oligopoly Monopolistic competition Monopoly

A)I only
B)II and III only
C)I and II only
D)II only

Question 7

Which of the following market structures is considered imperfectly competitive?

A)Perfect competition
B)Monopolistic competition
C)Monopoly
D)All of these are considered imperfectly competitive.

Question 8

A market that consists of only a few large firms is most likely a(n):

A)monopoly.
B)perfectly competitive market.
C)monopolistically competitive market.
D)oligopoly.

Question 9

The more firms that exist in a market, the:

A)more competition is likely to be present.
B)less competition is likely to be present.
C)more like a monopoly it will behave.
D)more collusion is likely to occur.

Question 10

Oligopoly describes a market with:

A)many sellers.
B)one seller.
C)only a few sellers.
D)few or many sellers, but only one buyer.

Question 11

The fewer the number of firms present in a market, the:

A)more competition is likely to be present.
B)less likely barriers to entry are present.
C)more likely market power will exist.
D)less like a monopoly it will behave.

Question 12

It is important for business owners to understand the market structure in which they operate because:

A)it defines how much freedom they have to set prices.
B)it will tell how much attention to pay to competitors' behavior.
C)it can help in deciding whether to advertise.
D)All of these are true.

Question 13

The goods or services that firms in an oligopoly sell: are never standardized. are similar enough to cause competition. are different enough to allow profits to be earned.

A)I and III only
B)II only
C)II and III only
D)I, II, and III

Question 14

Which of the following is one of the defining characteristics of an oligopoly?

A)The strategic interactions between a firm and its rivals have a major impact on each firm's profits.
B)No single firm has an impact on the market as a whole.
C)There are only a few buyers in the market.
D)There are no barriers to entry to the market.

Question 15

In practice, monopolistically competitive markets are:

A)very rare.
B)very common.
C)virtually nonexistent.
D)the only type of market that truly exists.

Question 16

In practice, oligopolistic markets are:

A)fairly common.
B)very rare.
C)forbidden by the government.
D)usually protected by the government.

Question 17

Which of the following is one of the defining characteristics of an oligopoly?

A)One firm's behavior can affect the profits earned by other firms.
B)All firms act independently to create a perfectly competitive outcome.
C)All firms act independently to create a monopoly outcome.
D)None of these are true.

Question 18

Large barriers to entry exist in which of the following market structures? Perfection competition Oligopoly Monopoly

A)I and II only
B)III only
C)II and III only
D)I, II, and III

Question 19

Which type of market structure contains many firms selling goods and services that are close substitutes for one another?

A)Perfect competition
B)Monopolistic competition
C)Oligopoly
D)Monopoly

Question 20

A market that has no barriers to entry and many small firms selling products that are slightly different from one another is best described as:

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

Question 21

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. What price will the firm charge?

A)$3
B)$8
C)$12
D)$13

Question 22

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. In the graph, area C represents:

A)producer surplus.
B)consumer surplus.
C)deadweight loss.
D)profits.

Question 23

Monopolistically competitive firms behave like _______ in the short run, but earn profits similar to those earned by _______ in the long run.

A)monopolies; perfectly competitive firms
B)perfectly competitive firms; monopolies
C)monopolies; oligopolies
D)oligopolies; perfectly competitive firms

Question 24

In the long run, monopolistically competitive firms: charge prices equal to marginal cost. have excess capacity. produce at the minimum of average total cost.

A)I and III only
B)II only
C)II and III only
D)I, II, and III

Question 25

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. This firm will earn:

A)positive profits equal to area A.
B)positive profits equal to area C.
C)negative profits (a loss)equal to area A.
D)negative profits (a loss)equal to area B.

Question 26

These are the cost and revenue curves associated with a monopolistically competitive firm. According to the graph shown, the price will be:

A)$30
B)$50
C)$70
D)$100

Question 27

Standardized products can appear:

A)only in perfectly competitive markets.
B)in perfectly competitive and monopolistically competitive markets.
C)in monopolistically competitive and oligopolistic markets.
D)in perfectly competitive and oligopolistic markets.

Question 28

Firms that effectively differentiate their products from their competitors' products do so by having:

A)real, not just perceived, differences in product design.
B)perceived, but not real, differences in product design.
C)real or perceived differences in product design.
D)None of these is true.

Question 29

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. This firm will charge a price of _______ in the _______ and earn _______ profits.

A)P3; short run; positive
B)P2; long run; zero
C)P3; long run; zero
D)P2; short run; positive

Question 30

When a firm sells goods that are similar to, but more attractive than, those produced by competitors, that firm is conducting:

A)product distinction.
B)product differentiation.
C)price-point pinning.
D)deceptive advertising.

Question 31

In the short run, product differentiation enables firms in monopolistically competitive markets to:

A)produce goods for which there are exact substitutes.
B)produce standardized goods.
C)price goods at marginal cost.
D)earn positive economic profits.

Question 32

An oligopoly is characterized by the _______, while the defining characteristic of a monopolistic competition is the ______________.

A)number of firms; variety of products
B)variety of products; barriers to entry
C)barriers to entry; number of firms
D)variety of products; number of firms

Question 33

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. This firm will produce where _______ equals _______ and will set price according to _______.

A)marginal revenue; marginal cost; average total cost
B)marginal revenue; marginal cost; demand
C)demand; marginal cost; marginal revenue
D)demand; marginal cost; average total cost

Question 34

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. How much profit does this firm earn?

A)$360
B)$450
C)$200
D)$250

Question 35

In the short run, product differentiation enables firms in monopolistically competitive markets to:

A)act like monopolists.
B)sell standardized goods.
C)collude with competing firms to set prices.
D)act like perfectly competitive firms.

Question 36

Long run economic profits are possible in which of the following market structures? Oligopoly Monopolistic competition Monopoly

A)I and II only
B)I and III only
C)III only
D)I, II, and III

Question 37

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. In the graph, area A represents:

A)profits earned in the short and long run.
B)profits earned in the short run.
C)profits earned in the long run.
D)consumer surplus.

Question 38

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. This firm:

A)will cause deadweight loss equal to area C.
B)will earn profits equal to area B.
C)should act like a monopolist in the short run.
D)should leave the industry in the long run.

Question 39

Product differentiation refers to the practice of:

A)selling products that are similar, but more attractive in some way, to competitors' products.
B)creating a standardized product at a lower cost than the method used by competitors.
C)informing the public of differences in products as a result of error.
D)sorting and grouping goods based on similar characteristics.

Question 40

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. In the graph, area B represents:

A)profits earned in the short run.
B)consumer surplus.
C)producer surplus.
D)deadweight loss.

Question 41

If a monopolistically competitive firm is earning profits in the short run, the entry of competing firms into the market will:

A)shift the firm's demand to the right.
B)shift the firm's demand to the left.
C)cause price to drop, but will not affect the firm's demand curve.
D)cause price to rise, but will not affect the firm's demand curve.

Question 42

The demand curve faced by the monopolistically competitive firm is:

A)flat.
B)vertical.
C)U-shaped.
D)None of these is true.

Question 43

Just like a monopolist, a monopolistically competitive firm:

A)cannot sell additional units of output without lowering price.
B)is a price taker.
C)sets price according to marginal revenue and marginal cost, ignoring the demand curve.
D)faces a perfectly elastic demand curve.

Question 44

Like the monopolist, the monopolistically competitive firm:

A)faces a downward sloping demand curve.
B)is a price taker.
C)sets price where marginal cost equals marginal revenue, ignoring the demand curve.
D)All of these are true.

Question 45

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. This firm will produce _______ units and charge a price of _______.

A)60; $45
B)80; $30
C)80; $60
D)90; $40

Question 46

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. In the graph, which area represents deadweight loss?

A)B
B)C
C)D
D)E

Question 47

In the short run, monopolistically competitive firms can maximize profits by:

A)acting like perfectly competitive firms.
B)acting like monopolists.
C)playing strategic games like oligopolists.
D)None of these is true.

Question 48

Which of the following would cause a monopolistically competitive firm's demand curve to shift to the left?

A)Competitors with similar products enter the market.
B)Firms are exiting the industry.
C)Economic profits are increasing.
D)None of these would cause the demand curve to shift to the left.

Question 49

If a monopolistically competitive firm is earning profits in the short run:

A)barriers to entry will allow the firm to enjoy profits in the long run as well.
B)it is acting like a perfectly competitive firm.
C)other firms have an incentive to enter the market.
D)it should leave the industry before competition enters.

Question 50

When firms currently in a monopolistically competitive market are earning profits:

A)more firms will leave the market before the profits are lost due to competition.
B)the government will step in to regulate prices to ensure the firms stay competitive.
C)the firms will lower prices to keep competitors out of the market.
D)more firms will enter the market with products that are close substitutes.

Question 51

Once a monopolistically competitive firm innovates, it is likely that:

A)it will enjoy long-run profits.
B)other firms will rush to create similar, highly substitutable goods.
C)it will need government protection while recovering its research and development costs.
D)None of these is likely to occur when a monopolistically competitive firm innovates.

Question 52

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. In the graph, which areas represent profit?

A)A + B
B)F + G
C)A + B + C + D + F + G + H + I
D)A + B + F + G + H

Question 53

For the monopolistically competitive firm, the demand curve it faces will become steeper:

A)the more differentiated the good is.
B)the less differentiated the good is.
C)the more complementary the good is.
D)the less complementary the good is.

Question 54

What is the primary difference between a monopolistically competitive firm and a monopoly?

A)The ability for competition to enter the market in the long run.
B)The ability for competition to enter the market in the short run.
C)Only the monopolistically competitive firm is a price taker.
D)Only the monopolist can set price equal to demand.

Question 55

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. This firm will produce _______ units.

A)90
B)100
C)120
D)160

Question 56

For the monopolistically competitive firm, the steepness of the demand curve depends on:

A)the steepness of the marginal cost curve.
B)the number of consumers in the market.
C)the availability of close substitutes.
D)None of these are correct.

Question 57

Firms are incentivized to enter a monopolistically competitive market if:

A)positive profits are being earned and the price is below marginal cost.
B)zero profits are being made and the entering firms can duplicate the product exactly.
C)positive profits are being earned and the entering firms can create a similar product.
D)zero profits are being made and the entering firms can create a similar product.

Question 58

For the monopolistically competitive firm, the demand curve it faces will become flatter as:

A)more substitute goods become available.
B)less substitute goods become available.
C)more complement goods become available.
D)less complement goods become available.

Question 59

If a monopolistically competitive firm is suffering losses in the short run, the exit of competing from the market will:

A)shift the firm's demand to the right.
B)shift the firm's demand to the left.
C)cause price to drop, but will not affect the firm's demand curve.
D)cause price to rise, but will not affect the firm's demand curve.

Question 60

In the short run, a monopolistically competitive firm will earn _______ economic profits by acting like a _______.

A)positive; monopolist
B)positive; perfectly competitive firm
C)zero; monopolist
D)zero; perfectly competitive firm

Question 61

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm in the short run. In the long run we can expect that:

A)firms will enter the market.
B)firms will exit the market.
C)price will increase.
D)profits will increase.

Question 62

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm is producing Q1 and charging P3, this graph likely shows the firm's cost and revenue curves in the:

A)long run, and economic profits are zero.
B)short run, and accounting profits are negative.
C)long run, and accounting profits are zero.
D)short run, and economic profits are positive.

Question 63

If a monopolistically competitive firm's demand curve is shifting to the left, it will stop shifting when:

A)the firm earns a small, positive economic profit.
B)the firm starts earning negative economic profit.
C)the firm is earning zero economic profit.
D)price falls to marginal cost.

Question 64

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm produces Q1 and charges P3, then area C represents:

A)producer surplus.
B)consumer surplus.
C)deadweight loss.
D)profits.

Question 65

Which of the following would cause the demand curve of a monopolistically competitive firm to shift to the right? Negative economic profits are being earned. Firms are leaving the market. The selling price is less than the firm's average total cost.

A)I and II only
B)II only
C)I and III only
D)I, II, and III

Question 66

If a monopolistically competitive firm's demand curve is shifting to the left, it will stop when:

A)firms stop exiting the industry.
B)firms stop entering the industry.
C)the firm raises its price.
D)the firm lowers its price.

Question 67

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm is producing Q1 and charging P3, it is likely:

A)earning positive economic profits.
B)earning negative economic profits.
C)earning zero economic profits.
D)It is impossible to know the profits the firm is earning from the graph provided.

Question 68

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm were to maximize profits, it would:

A)produce Q1 and charge P3.
B)cause deadweight loss.
C)earn zero economic profits.
D)All of these are true.

Question 69

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm produces Q1 and charges P3 in the long run, what area represents the deadweight loss?

A)Area A
B)Area B
C)Area C
D)There is no deadweight loss.

Question 70

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm is producing Q1 and charging P3, this graph likely shows the firm's cost and revenue curves in the:

A)short run, and firms will enter this market.
B)long run, and firms will enter this market.
C)short run, and firms will leave this market.
D)long run, and no firms will enter or exit this market.

Question 71

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm produces Q1 and charges P3, then area A represents:

A)consumer surplus.
B)producer surplus.
C)deadweight loss.
D)profits.

Question 72

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm is producing Q1 and charging P3, it is likely:

A)earning positive economic profits.
B)earning negative economic profits.
C)in long run equilibrium.
D)All of these are true.

Question 73

If a monopolistically competitive firm's demand curve is shifting to the left, it will stop shifting when:

A)price is equal to the firm's marginal cost.
B)price is equal to the firm's average total cost.
C)price is equal to that of a perfectly competitive firm.
D)there is no deadweight loss in the market.

Question 74

If the demand curve for a firm in a monopolistically competitive market is shifting to the right, it is likely that:

A)positive economic profits are being earned.
B)firms are entering the market.
C)the selling price is less than the firm's average total cost.
D)All of these will cause the demand curve to shift to the right.

Question 75

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm produces Q2 and charges P2, then:

A)economic profit will be negative.
B)deadweight loss will be positive.
C)producer surplus will be zero.
D)profits will be maximized.

Question 76

If firms in a monopolistically competitive market are earning negative economic profits, it is likely that:

A)new firms will enter the market.
B)they will exit the market.
C)they will shut down immediately.
D)they will expand to try to capture lower costs per unit.

Question 77

If the demand curve for a firm in a monopolistically competitive market is shifting to the right, it will only stop shifting when:

A)the firm is earning zero economic profits.
B)the firm's price is equal to its average total cost.
C)other firms have no incentive to exit the market.
D)All of these are true.

Question 78

If firms in a monopolistically competitive market are earning negative economic profits, the demand curve of a single firm will likely shift to the _______ as other firms _______ the industry.

A)right; exit
B)left; exit
C)right; enter
D)left; enter

Question 79

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm is producing Q1 and charging P3, it is likely:

A)in long run equilibrium.
B)at an efficient outcome.
C)not maximizing profits.
D)operating at a loss.

Question 80

If the demand curve for a firm in a monopolistically competitive market is shifting to the right, it will stop shifting when:

A)the firm raises its price.
B)the firm lowers its price.
C)firms stop entering the market.
D)firms stop exiting the market.