Deck 9: Monopolistic Competition and Oligopoly

Question 1

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

A) Wheat.
B) Automobiles.
C) Diamonds.
D) Retail sales.

Answer 1

D

Question 2

Which of the following is a characteristic of the monopolistic competition market structure?

A) Many firms and a homogeneous product.
B) Few firms and differentiated products.
C) Few firms and similar products.
D) Few firms and a homogeneous product.
E) Many firms and differentiated products.

Answer 2

E

Question 3

The monopolistic competition market structure is characterized by:

A) few firms and similar products.
B) many firms and differentiated products.
C) many firms and a homogeneous product.
D) few firms and a homogeneous product.

Answer 3

B

Question 4

A profit-maximizing monopolistically competitive firm will expand output to 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.

Question 5

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

A) A Kansas wheat farmer.
B) TGI Fridays, a family restaurant.
C) U.S. Postal Service.
D) Boeing, an aircraft manufacturer

Question 6

In the long run, both monopolistic competition and perfect competition result in;

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

Question 7

Firms in a monopolistically competitive industry produce:

A) homogeneous goods and services.
B) differentiated products.
C) competitive goods only.
D) consumption goods only.

Question 8

The marginal revenue curve of a monopolistically competitive firm will always lie:

A) below the firm's demand curve.
B) parallel to the firm's demand curve.
C) parallel to the firm's quantity axis.
D) above the firm's demand curve.

Question 9

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 marginal cost.
B) operate at minimum long-run average cost.
C) overutilize its insufficient capacity.
D) produce the output level at which price equals long-run average cost.

Question 10

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

A) Wheat farmers.
B) Diet centers.
C) American Telephone and Telegraph.
D) General Motors.

Question 11

Product differentiation makes the demand for a monopolistically competitive firm's product:

A) perfectly elastic.
B) more elastic than for a monopoly.
C) more inelastic than for a monopoly.
D) perfectly inelastic.

Question 12

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

A) The firm faces an upward-sloping demand curve.
B) The firm faces an inelastic demand curve.
C) The firm faces a horizontal demand curve.
D) The firm produces a differentiated product.

Question 13

A monopolistically competitive market is characterized by:

A) many small sellers selling a differentiated product.
B) a single seller of a product that has few suitable substitutes.
C) very strong barriers to entry.
D) mutual interdependence in pricing decisions.

Question 14

Which of the following most closely approximates the conditions of a monopolistically competitive market?

A) The market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product.
B) The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers.
C) Local 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.

Question 15

A monopolistically competitive firm will:

A) maximize profits by producing where MR = MC.
B) not likely earn an economic profit in the long run.
C) shut down if price is less than average variable cost.
D) all of the above.

Question 16

​ Which of the following is true about the demand curve for a monopolistically competitive firm?

A) ​It is less elastic (steeper) than for monopoly, but more elastic (flatter) than for a perfectly competitive firm.
B) ​It is less elastic (steeper) than the demand curve for either a monopoly firm or a perfectly competitive firm.
C) ​It is more elastic (flatter) than the demand curves for either a monopoly firm or a perfectly competitive firm.
D) ​It is less elastic (steeper) than for a perfectly competitive firm, but more elastic (flatter) than for a monopoly firm.

Question 17

Which of the following is not a characteristic of the monopolistic competition market structure?

A) Many sellers, each small in size relative to the overall market.
B) Few sellers.
C) Differentiated product.
D) Easy, low-cost entry and exit.

Question 18

In the long run, monopolistically competitive firms have:

A) excess capacity.
B) positive profits.
C) minimal average costs.
D) homogeneous production.

Question 19

Video rental stores in cities are an illustration of:

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

Question 20

Which of the following is true about long-run equilibrium in a monopolistically competitive market?

A) Firms earn zero economic profit because price equals long-run average cost, but the equilibrium is not allocatively efficient because price exceeds the marginal cost of the last unit produced.
B) They may earn negative, zero, or positive economic profit because monopolistically competitive firms are price takers.
C) Each firm faces a perfectly elastic demand curve and earns zero economic profit because price equals long-run average cost, and are allocatively efficient because price equals marginal cost for the last unit sold.
D) None of the above are correct.

Question 21

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, advertising, and price.
C) Firms do not compete using advertising.
D) There is little competition between firms.

Question 22

In monopolistic competition if there is profit, there is:

A) a signal 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 23

Which of the following is true for a firm operating under perfect competition, 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 cost.

Question 24

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

A) Profits will be positive in the long run.
B) Price always equals average variable cost.
C) In the long run, positive economic profit will be eliminated.
D) Marginal revenue equals minimum average total cost in the short run.

Question 25

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) demand curves more inelastic.
D) cost curves upward.
E) cost curves downward.

Question 26

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; 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 at the short run, 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; long-run economic profits will be zero.

Question 27

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

A) this firm is making a normal profit.
B) other picture frame companies will want to exit the market.
C) there are no other picture frame companies in the area.
D) economic profits are $1,500.
E) total profits are being maximized.

Question 28

Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

A) the producer is charging a price of $3.
B) economic profit is $2,100.
C) the producer charges a price greater than $3.
D) new firms will want to enter.
E) this producer should produce more than 700 necklaces.

Question 29

Compared to monopoly, the market results with monopolistic competition are usually expected to be:

A) worse because consumers get fewer choices.
B) worse because consumers pay a higher price.
C) the same.
D) better because consumers get less output.
E) better because consumers pay a lower price.

Question 30

Monopolistic competition is inefficient because:

A) firms earn positive economic profits.
B) the firms' marginal costs and marginal revenues are not equal.
C) firms have excess capacity in the long run.
D) entry is difficult.

Question 31

Monopolistic competitive firms in the long run earn:

A) positive economic profits.
B) zero pure economic profits.
C) negative economic profits.
D) none of the above.

Question 32

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

A) Accounting profit is zero.
B) Marginal cost equals price.
C) Long-run average cost is at a minimum.
D) Economic profit is zero.

Question 33

Which of the following is always associated with monopolistic competition?

A) Identical products
B) Economic profits in the short run
C) MR lies above the demand curve
D) Demand curves become more inelastic as new entry occurs
E) Product differentiation

Question 34

A monopolistic competitive firm is inefficient because the firm:

A) earns positive economic profit in the long run.
B) is producing at an output corresponding to the condition that marginal cost equals price.
C) is not maximizing its profit.
D) produces an output where average total cost is not minimum.

Question 35

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

A) higher pure economic profits.
B) zero pure economic profits.
C) below-normal profits.
D) substantial economic losses.

Question 36

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

A) new tombstone firms will want to enter.
B) this producer is losing $2,000 a week.
C) this producer is making an economic profit of $400.
D) this producer is setting MR = MC.
E) this producer should increase production.

Question 37

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 total cost.
C) marginal cost equals price.
D) marginal revenue equals marginal cost.

Question 38

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

A) produce at the level in which price equals long-run average cost.
B) operate at minimum long-run average cost.
C) overutilize its insufficient capacity.
D) none of the above.

Question 39

In the long run, a monopolistic competitive firm will operate at a price which:

A) is higher than minimum long-run average cost.
B) equals minimum long-run average cost.
C) equals marginal cost.
D) none of the above.

Question 40

A monopolistic competitive firm is inefficient because the firm:

A) is not maximizing its profit.
B) is producing at an output where average total cost is not minimum.
C) earns positive economic profit in the long run.
D) none of the above.

Question 41

​ Which of the following is an outcome of advertising for a monopolistically competitive firm?

A) ​Long-run average costs shift downward.
B) ​The firm's demand curve becomes flatter and shifts inward.
C) ​The firm's demand curve keeps the same slope and shifts inward.
D) ​Long-run average costs shift upward.

Question 42

For both a monopolist and a monopolistically competitive firm:

A) price equals average total cost.
B) price is above marginal revenue.
C) marginal revenue equals zero.
D) marginal cost equals zero.

Question 43

In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are:

A) not eliminated, because competition is not perfect.
B) not eliminated, because the demand curve slopes downward.
C) eliminated due to firms entering the industry.
D) eliminated due to firms leaving the industry.
E) not eliminated, because firms cannot enter the industry.

Question 44

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

A) market price will increase.
B) the output of existing firms will increase.
C) profits of existing firms will increase.
D) market demand should decrease.
E) profits of existing firms will decrease.

Question 45

The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13, and MC = MR = $17.47. Which of the following is true ?

A) Per-unit profit is $11.
B) Additional firms will be attracted into the industry.
C) The firm could raise price and increase profits.
D) The firm could lower price and increase profits.
E) Average cost must be rising.

Question 46

Which of the following is true about advertising?

A) If monopolistically competitive firms compete through advertising, that creates brand loyalty, then advertising can be an effective entry cost.
B) Advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms.
C) Advertising has no impact on entry costs or market structure.
D) Both a. and b. above are correct.

Question 47

Supporters of advertising claim that it:

A) increases the variety of products.
B) attacks established brand loyalties.
C) allows new firms to compete.
D) all of the above.

Question 48

Defenders of advertising argue that it:

A) informs buyers and broadens the market for goods.
B) enhances economic efficiency by lowering prices.
C) enables small firms to compete more effectively with large ones.
D) all of the above.

Question 49

Entry of new firms will occur in a monopolistic competitive industry until:

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

Question 50

In the long run in monopolistic competition,

A) economic profits are zero.
B) P = MC.
C) P = minimum ATC.
D) firms have an incentive to leave.
E) the demand curve is tangent to the MC curve.

Question 51

If a monopolistically competitive firm can earn a profit, it will increase production until:

A) MR > AVC.
B) MR = ATC.
C) MC > MR.
D) MR = AR.
E) MR = MC.

Question 52

When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit,

A) no firms will want to enter or exit.
B) some firms will want to leave.
C) some firms will want to enter.
D) market demand shifts to the left.
E) the price of the output will rise in the long run.

Question 53

Which of the following is the result of competing through advertising for a monopolistically competitive firm?

A) Long-run average costs shift downward.
B) The firm's demand curve become flatter and shifts inward.
C) The firm's demand curve keeps the same slope and shifts inward.
D) Long-run average costs shift upward.

Question 54

In the long run in a monopolistic competitive industry,

A) economic profits will be positive.
B) price will be driven to zero.
C) the firm will not operate where MR = MC.
D) economic profit will be zero.
E) price will exceed average cost.

Question 55

Critics of advertising argue that it:

A) lowers price by increasing competition.
B) results in more variety of products.
C) establishes brand loyalty, which promotes competition.
D) serves as a barrier to entry for new firms.

Question 56

Perfect competition and monopolistic competition are similar because under both market structures,

A) there are zero economic profits in the long run.
B) production takes place at the least-cost combination.
C) there are few firms.
D) entry is difficult.
E) differentiated products are produced.

Question 57

Supporters of advertising claim that it:

A) makes demand for a firm's product more elastic.
B) is a barrier to entry.
C) promotes better quality products.
D) all of the above.

Question 58

The entry of new firms into a monopolistic competitive industry will shift the:

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

Question 59

The demand curve in monopolistic competition slopes downward because of:

A) strong barriers to entry.
B) product differentiation.
C) the small number of firms.
D) government regulation.
E) the similarities of the businesses.

Question 60

Which of the following is true about advertising by a firm?

A) It is not always successful in increasing demand for a firm's product.
B) It attempts to increase demand and to make demand more inelastic.
C) It may reduce per unit costs of production when economies of scale are experienced.
D) All of the above.

Question 61

Exhibit 9-3  A monopolistic competitive firm in the long run As represented in Exhibit 9-3, the maximum long-run economic profit earned by this monopolistic competitive firm is:

A) zero.
B) $10 per week.
C) $4,000 per week.
D) $40,000 per week.

Question 62

Exhibit 9-2  A monopolistic competitive firm To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 9-2 will charge a price per unit of:

A) zero.
B) $5.
C) $10.
D) $15.
E) $20.

Question 63

Exhibit 9-1  A monopolistic competitive firm In the long run, the demand curve for the monopolistic competitive firm shown in Exhibit 9-1:

A) shifts leftward.
B) remains the same.
C) shifts rightward.
D) none of the above.

Question 64

Exhibit 9-3  A monopolistic competitive firm in the long run If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 9-3, we would expect that in the long run:

A) a number of new firms will enter the industry.
B) some firms will leave the industry.
C) firms in the industry earn zero economic profits.
D) all firms will leave the industry.

Question 65

Product differentiation:

A) refers to the attempt of firms to make their products look like those of the other firms in the industry.
B) refers to the attempt of firms to make real or apparent differences in essentially substitutable products look different in the minds of the 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 only employed in a monopoly market structure.

Question 66

A market situation where a small number of sellers dominate the entire industry is called:

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

Question 67

Exhibit 9-2  A monopolistic competitive firm As presented in Exhibit 9-2, the long-run profit-maximizing output for the monopolistic competitive firm is:

A) zero units per week.
B) 100 units per week.
C) 200 units per week.
D) 300 units per week.
E) 400 units per week.

Question 68

Exhibit 9-1  A monopolistic competitive firm As represented in Exhibit 9-1, the maximum long-run economic profit earned by this monopolistic competitive firm is:

A) zero.
B) $200 per day.
C) $1,000 per day.
D) $20,000 per day.

Question 69

One key characteristic that is distinctive of an oligopoly market is that:

A) the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve.
B) the decisions of one seller often influences the price of products, the output, and the profits of rival firms.
C) there is only one firm that produces a product for which there are no good substitutes.
D) there are many sellers in the market and each is small relative to the total market.

Question 70

Exhibit 9-1  A monopolistic competitive firm As presented in Exhibit 9-1, the short-run profit-maximizing output for the monopolistic competitive firm is:

A) 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 71

The industry that most closely approximates the conditions of the oligopoly model is:

A) Restaurant.
B) Retail clothing.
C) Home construction.
D) Airlines.

Question 72

Exhibit 9-3  A monopolistic competitive firm in the long run To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 9-3 will charge a price per unit of:

A) zero.
B) $10
C) $20.
D) $30.
E) $40.

Question 73

Exhibit 9-1  A monopolistic competitive firm In the long run, which of the following is true for the firm shown in Exhibit 9-1?

A) The firm's demand curve shifts leftward.
B) The firm's average total cost curve shifts upward.
C) Neither a nor b are possible.
D) Both a and b are possible.

Question 74

Exhibit 9-1  A monopolistic competitive firm As presented in Exhibit 9-l, the short-run profit per unit of output for the monopolistic competitive firm is:

A) zero.
B) $5.
C) $10.
D) $15.
E) $20.

Question 75

Exhibit 9-2  A monopolistic competitive firm As represented in Exhibit 9-2, the maximum long-run economic profit earned by this monopolistic competitive firm is:

A) zero.
B) $200 per week.
C) $1,000 per week.
D) $20,000 per week.

Question 76

Which of the following is always a characteristic of the oligopoly market structure?

A) Many sellers, each small in size relative to the overall market.
B) Few sellers.
C) All sellers produce identical products.
D) Easy, low-cost entry and exit.

Question 77

Which of the following is always a characteristic of the oligopoly market structure?  ​

A) ​Many sellers, each small in size relative to the overall market.
B) ​Few sellers.
C) ​All sellers produce identical products.
D) ​Easy, low-cost entry and exit.

Question 78

Exhibit 9-3  A monopolistic competitive firm in the long run As presented in Exhibit 9-3, the long-run profit-maximizing output for the monopolistic competitive firm is:

A) zero units per week.
B) 200 units per week.
C) 400 units per week.
D) 600 units per week.
E) 800 units per week.

Question 79

Exhibit 9-2  A monopolistic competitive firm If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 9-2, we would expect that in the long run:

A) all firms will leave the industry.
B) some firms will leave the industry.
C) firms in the industry earn zero economic profits.
D) a number of new firms will enter the industry.

Question 80

Exhibit 9-1  A monopolistic competitive firm If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 9-1, firms in the long run will:

A) leave the industry.
B) earn positive economic profits.
C) experience less competition because firms will exit the industry.
D) experience competition from new firms that enter the industry.