Deck 10: Monopolistic Competition, Oligopoly, and Game Theory

Question 1

Which of these is a downside of monopolistic competition and oligopolies?

A) market power
B) higher trade barriers
C) higher transportation costs
D) higher input prices

Answer 1

A

Question 2

Which characteristic does monopolistic competition NOT have in common with perfect competition?

A) Products of individual firms are differentiated.
B) Entry and exit are easy.
C) Individual firms earn normal profit in the long run.
D) Each firm has an insignificantly small market share.

Answer 2

A

Question 3

All of these are characteristic of monopolistic competition EXCEPT

A) easy entry and exit.
B) barriers to entry.
C) product differentiation.
D) price maker.

Answer 3

B

Question 4

Which firm produces in an industry with the characteristics of monopolistic competition?

A) Pepsi
B) Chevrolet
C) GM
D) Burger King

Question 5

A monopolistically competitive firm will produce output as long as the marginal revenue is

A) less than price.
B) less than marginal costs.
C) above price.
D) above marginal costs.

Question 6

Monopolistic competition is like perfect competition in that they both

A) have numerous competitors.
B) put labels on their products.
C) erect barriers to entry.
D) make zero economic profit in the short run.

Question 7

It is easy to enter into and exit from which of these industrial structures?

A) monopoly
B) natural monopoly
C) oligopoly
D) monopolistic competition

Question 8

The key characteristic of monopolistic competition is

A) mutual interdependence among firms.
B) ease of entry into the market.
C) product differentiation.
D) long-run economic profits.

Question 9

Which characteristic is NOT typical of monopolistic competition?

A) easy entry into the market
B) one seller
C) product differentiation
D) easy exit from the market

Question 10

In the reusable water bottle industry, these are all attempts at product differentiation EXCEPT

A) product redesign.
B) running a buy one, get one 50% off sale.
C) using sustainably sourced inputs.
D) collaborating with a popular artist to create a limited-edition print.

Question 11

Large cities typically have many grocery stores, and most sell similar products of various brands and quality. The grocery store market in a big city can be BEST classified as

A) a competitive market.
B) an oligopoly.
C) a monopoly.
D) monopolistic competition.

Question 12

Product differentiation can be achieved through all of these EXCEPT

A) clever labeling.
B) improved location.
C) advertising.
D) price reduction.

Question 13

A lot of advertising dollars are shifting away from conventional media and moving to

A) the radio.
B) newspapers.
C) the Internet.
D) magazines.

Question 14

When the producer of Doritos tortilla chips spends money for television commercials, it intends to shift the

A) demand curve to the right and make demand more elastic.
B) supply curve to the right and make supply more elastic.
C) demand curve to the right and make demand less elastic.
D) supply curve to the right and make supply less elastic.

Question 15

Which of these is NOT an example of product differentiation?

A) price discrimination
B) packaging
C) business location
D) customer service

Question 16

In the coffee shop industry, product differentiation is reflected by all these practices EXCEPT

A) enhancement of ambiance and customer experience.
B) fair-trade sourcing of coffee beans.
C) implementing order-ahead service using a mobile app.
D) creating frequent buyer programs.

Question 17

Product differentiation

A) adds product information without increasing product cost.
B) contributes to production efficiency.
C) reduces price elasticity of demand.
D) reduces product price.

Question 18

Which of these products is likely to be the MOST differentiated?

A) cotton sold to a fabric maker
B) fabric sold to a garment maker
C) garments sold to a garment distributor
D) garments sold to a retail customer

Question 19

Which of these will NOT help a monopolistically competitive firm generate brand loyalty?

A) copycat packaging
B) advertising
C) superior service
D) better location

Question 20

What are the two types of advertising?

A) tit-for-tat and big hammer
B) big hammer and informational
C) informational and persuasive
D) persuasive and copycat

Question 21

If consumer expectations of a branded product are met

A) no monopoly power is present.
B) consumers are willing to pay more for the product.
C) a perfectly elastic demand curve results.
D) a perfectly elastic supply curve results.

Question 22

The demand curve faced by a firm in monopolistic competition is

A) perfectly elastic.
B) less elastic than the demand curve for a perfectly competitive firm.
C) less elastic than the demand curve for a monopolist.
D) perfectly inelastic.

Question 23

If a monopolistically competitive firm is earning a normal profit, it

A) can expect to see more competitors in the future.
B) can expect to see about the same amount of competition in the future.
C) can expect to see fewer competitors in the future.
D) will probably exit the market in the long run.

Question 24

If Dixie's Dry Cleaners competes in a monopolistically competitive market and if the firm is earning a normal profit, then

A) P = MC.
B) P = MR.
C) P < MR.
D) P = ATC.

Question 25

(Figure: Monopolistic Competition) Based on the graph, under monopolistic competition, the price for this good or service will be

A) e
B) f
C) g
D) d

Question 26

(Figure: Monopolistic Competition) Based on the graph, under monopolistic competition in the short run, economic profit is represented by rectangle

A) feab.
B) egca.
C) ehda.
D) fgcb.

Question 27

(Figure: Monopolistic Competition) Based on the graph, under monopolistic competition in the short run, total cost is represented by rectangle

A) feab.
B) egca.
C) ehda.
D) fgcb.

Question 28

(Figure: Monopolistic Competition) Based on the graph, under monopolistic competition in the short run, total revenue is represented by rectangle

A) feab.
B) fhdb.
C) ehda.
D) fgcb.

Question 29

(Figure: Long-Run Monopolistic Competition) Based on the graph, this monopolistically competitive firm will earn _____ profit in the long run.

A) higher-than-normal economic
B) less-than-normal
C) abnormal profits
D) zero economic

Question 30

Which equation calculates a monopolistically competitive firm's profit?

A) (P - ATC) × Q
B) (P × Q) - ATC
C) (P - Q) × ATC
D) Q - (P/ATC)

Question 31

Suppose a monopolistically competitive firm produces 20 units of output. At this level of output, ATC = 35, P = 50, MR = 30, and MC = 30. The firm's economic profit is

A) $1,000.
B) $700.
C) $600.
D) $300.

Question 32

Suppose a monopolistically competitive firm produces 20 units of output. At this level, ATC = 70, P = 50, MR = 30, and MC = 30. The firm is experiencing a loss of

A) $400.
B) $1,000.
C) $600.
D) $1,400.

Question 33

For a monopolistically competitive firm, profit is maximized when it produces at a level of output where

A) ATC > P.
B) MC = P.
C) MC = MR.
D) MC > ATC.

Question 34

If Rosco's Tacos competes with eight other fast-food restaurants in the same neighborhood, and two of those rival firms exit the market, then

A) the market demand curve will shift to the left.
B) the market supply curve will shift to the right.
C) Rosco's demand curve will shift to the right.
D) Rosco's supply curve will shift to the right.

Question 35

If Rosco's Tacos competes with eight other fast-food restaurants in the same neighborhood, and two of those rival firms exit the market, then

A) the market supply curve will shift to the left.
B) the market supply curve will shift to the right.
C) the market demand curve will shift to the right.
D) the market demand curve will shift to the left.

Question 36

A monopolistically competitive firm will continue to expand output until

A) P = MC.
B) P = MR.
C) MC > MR.
D) MC = MR.

Question 37

Successful monopolistically competitive firms

A) generally earn higher profit than monopolists.
B) earn economic profits in the short run only.
C) earn economic profits in the long run only.
D) are able to drive their competitors out of business.

Question 38

The reason monopolistically competitive firms have difficulty maintaining a profit in the long run is that

A) buyers refuse to pay higher prices over time.
B) costs tend to increase as production rises.
C) ease of entry into the market encourages new firms to enter and force down the price.
D) income taxes paid by the firms rise as their profits rise.

Question 39

Assume that economic profits are earned by monopolistically competitive firms. What will happen in the long run?

A) New firms enter, the market demand rises, and the price for each firm falls until normal profits occur.
B) New firms enter, the market supply rises, and the price for each firm falls until P = MC for each firm.
C) New firms enter and demand for each firm's product rises until economic profits are eliminated.
D) New firms enter and demand for each firm's product falls until economic profits are zero.

Question 40

If firms in a monopolistically competitive industry are experiencing economic losses in the short run, some firms will _____ the industry, _____ demand for each individual firm until each firm earns a normal profit.

A) exit; reducing
B) enter; reducing
C) enter; increasing
D) exit; increasing

Question 41

Which statement is TRUE for a monopolistically competitive firm operating in the long run?

A) Price is equal to marginal cost.
B) The firm earns an economic profit.
C) Price is greater than marginal cost.
D) The firm's demand curve is highly inelastic.

Question 42

Customers of monopolistically competitive firms will pay more for products than they would if the same products were sold in a perfectly competitive market structure. The higher price

A) represents the inefficiency of this market structure.
B) represents the value that consumers place on product differentiation and innovation.
C) results because firms face perfectly elastic demand.
D) represents the cost burden from significant barriers to entry.

Question 43

Monopolistically competitive markets and perfectly competitive markets do NOT share which characteristic?

A) zero economic profits in the long run
B) many firms in the market
C) differentiated products
D) ease of entry into the market

Question 44

A monopolistically competitive firm is like a perfectly competitive firm in the long run because

A) both firms will earn positive economic profit.
B) the demand curve for both firms will be horizontal.
C) both firms will earn a normal profit.
D) both firms can increase price in order to increase profits.

Question 45

Firms in _____ and _____ market structures earn zero economic profit in the long run.

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

Question 46

In the long run, a monopolistically competitive firm charges a higher price than a perfectly competitive firm. The reason for this difference is that monopolistically competitive firms

A) act like monopolies and restrict output.
B) have higher costs associated with advertising and product development.
C) need to earn economic profits in the long run to justify their expenditures on product development.
D) are able to price discriminate.

Question 47

Monopolistically competitive firms are similar to perfectly competitive firms in that both

A) produce differentiated products.
B) produce homogeneous products.
C) have price-setting power.
D) earn normal profits in the long run.

Question 48

Compared with firms in competition, firms in monopolistic competition in the long run

A) produce more output and sell at a lower price.
B) achieve allocative efficiency.
C) produce less output and sell at a higher price.
D) produce less output and sell at a lower price.

Question 49

In the past, successful brands have been named after all of these EXCEPT the

A) company's main product.
B) company founder.
C) products supplied by the company.
D) icon in the company's logo.

Question 50

In the long run

A) firms in both monopolistic competition and perfect competition achieve allocative efficiency but not productive efficiency.
B) only firms in a perfect competition achieve both allocative and productive efficiencies.
C) only firms in monopolistic competition achieve both allocative and productive efficiencies.
D) neither firms in perfect competition nor monopolistic competition achieve allocative efficiency.

Question 51

Both monopolistically competitive and perfectly competitive firms

A) earn normal profits in the long run.
B) achieve productive efficiency.
C) achieve allocative efficiency.
D) face downward-sloping demand curves.

Question 52

Two different markets each have many buyers and many sellers, none of which have market power. Which of these would be MOST helpful in determining whether each market is monopolistically competitive or perfectly competitive?

A) information on the barriers to entry in each market
B) information on the level of information available to buyers and sellers
C) information on the degree of product differentiation in each market
D) information on the size of each industry

Question 53

Assume that a monopolistically competitive firm faces the following situation: P = $14; output = 9,000 units; MC = $11; ATC = $10; AVC = $7; and MR = $11. Which statement is correct regarding profit maximization?

A) The firm is maximizing profit.
B) The firm would earn higher profit by increasing output.
C) The firm would minimize its losses by shutting down in the short run.
D) The firm would earn higher profit by decreasing output.

Question 54

Assume that a monopolistically competitive firm faces the following situation: P = $16; output = 9,000 units; MC = $11; ATC = $10; AVC = $7; and MR = $14. Which statement is correct regarding profit maximization?

A) The firm is maximizing profit.
B) The firm would earn higher profit by increasing output.
C) The firm is minimizing its losses.
D) The firm would earn higher profit by decreasing output.

Question 55

Assume that a monopolistically competitive firm faces the following situation: P = $14; output = 9,000 units; MC = $11; ATC = $16; AVC = $7; and MR = $11. Which statement is correct regarding profit maximization?

A) The firm is maximizing profit.
B) The firm would minimize its losses by shutting down in the short run.
C) The firm is minimizing its losses.
D) The firm would minimize its losses by decreasing output.

Question 56

Assume that a monopolistically competitive firm faces the following situation: P = $14; output = 9,000 units; MC = $11; ATC = $18; AVC = $15; and MR = $11. Which statement is correct regarding profit maximization?

A) The firm is maximizing profit.
B) The firm would minimize its losses by shutting down in the short run.
C) The firm is minimizing its losses.
D) The firm would minimize its losses by decreasing output.

Question 57

Assume that a monopolistically competitive firm faces the following situation: P = $22; output = 13,000 units; MC = $16; ATC = $22; AVC = $15; and MR = $16. Which statement BEST describes the firm's situation?

A) The firm is minimizing its losses.
B) The firm is earning a normal profit, indicating that the market is likely in a long-run equilibrium.
C) The firm would maximize its profit by increasing its output.
D) The firm would maximize its profit by decreasing its output.

Question 58

Assume a monopolistically competitive firm faces the following situation: P = $20; output = 13,000 units; MC = $16; ATC = $22; AVC = $15; and MR = $16. Which statement BEST describes the firm's situation?

A) The firm is minimizing its losses.
B) The firm is earning a normal profit, indicating that the market is likely in a long-run equilibrium.
C) The firm would minimize its losses by increasing its output.
D) The firm would maximize its profit by decreasing its output.

Question 59

Assume that a monopolistically competitive firm faces the following situation: P = $20; output = 13,000 units, MC = $16, ATC = $28, AVC = $22, and MR = $16. Which statement BEST describes the firm's situation?

A) The firm is minimizing its losses.
B) The firm would minimize its losses by shutting down in the short run.
C) The firm would minimize its losses by increasing its output.
D) The firm would maximize its profit by decreasing its output.

Question 60

Assume that a monopolistically competitive firm faces the following situation: P = $26; output = 13,000 units; MC = $16; ATC = $22; AVC = $15; and MR = $17. Which statement BEST describes the firm's situation?

A) The firm is minimizing its losses.
B) The firm is earning a normal profit, indicating that the market is likely in a long-run equilibrium.
C) The firm would maximize its profits by increasing its output.
D) The firm would maximize its profits by decreasing its output.

Question 61

Which industry is MOST likely to be monopolistically competitive?

A) agriculture
B) computer chip manufacturing
C) Internet service
D) hair salon service

Question 62

Which industry is MOST likely to be an oligopoly?

A) agriculture
B) steel
C) beer
D) fast food

Question 63

In an oligopoly, all the firms

A) compete over price alone.
B) compete over advertising.
C) take their competitors into account when they make pricing decisions.
D) face easy entry into and exit from the market.

Question 64

The market for air travel from Dallas to Chicago is

A) a monopoly.
B) an oligopoly.
C) monopolistically competitive.
D) competitive.

Question 65

Which of these is a characteristic of an oligopoly market structure?

A) many firms
B) produce at the level of output where price equals marginal revenue
C) mutual interdependence
D) a unique product

Question 66

Mutually interdependent decision making among firms is a key characteristic of

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

Question 67

Murphy's Gas Station constantly monitors the price of unleaded gas at Johnson's Gas Station. If Johnson's lowers the price of gas, so will Murphy's. This is an example of

A) network effects.
B) rent-seeking behavior.
C) mutual interdependence.
D) monopoly.

Question 68

A(n) _____ market is a market in which just a few firms control a large market share.

A) oligopolistic
B) monopolistically competitive
C) monopsonistic
D) monopolistic

Question 69

Which statement is an example of mutual interdependence?

A) Coca-Cola introduces a new tea and monitors how Pepsi will react.
B) Ford lowers the price of its cars and assumes other automakers will not change their prices.
C) Budweiser ignores the introduction of the new Vortex beer bottle by Miller.
D) Airbus increases its advertising budget and assumes this will have no impact on what its rival, Boeing, does.

Question 70

If a market has twenty competing firms and 20% of those firms produce 80% of the sales, then the market structure would be described as

A) a natural monopoly.
B) an oligopoly.
C) monopolistically competitive.
D) a monopoly.

Question 71

Which of these is a characteristic shared by both oligopolies and monopolies?

A) mutual interdependence
B) significant barriers to entry into the market
C) a few dominant firms in the industry
D) normal profits in the long run

Question 72

Each oligopolistic firm recognizes that it must take into account the behavior of its competitors when it makes pricing decisions. This recognition is called

A) monopolistic behavior.
B) profit-maximization behavior.
C) mutual interdependence.
D) mutual dependence.

Question 73

Which assumption is NOT shared by oligopoly models?

A) Firms produce homogeneous products.
B) A few dominant firms exist in the industry.
C) Firms are mutually interdependent.
D) There are significant barriers to entry into the market.

Question 74

An oligopoly differs from a monopoly in that an oligopolist

A) produces where price is greater than marginal revenue.
B) maximizes profits where marginal revenue equals marginal cost.
C) has significant control over its price.
D) must consider the behavior of its rivals when it makes decisions.

Question 75

Before deciding on a pricing strategy, Worldwide Widgets consults with its market intelligence team to understand what discounts the Gargantuan Gizmo Company is offering. The model that BEST fits this industry is

A) pure competition.
B) monopolistic competition.
C) an oligopoly.
D) a monopoly.

Question 76

When oligopolies act jointly as a monopoly, they are acting as a

A) contestable market.
B) monopolistically competitive market.
C) cartel.
D) monopsony.

Question 77

The success rate of cartels is low because

A) participation is secretive.
B) the agreed price is too low.
C) cheating is likely to occur due to profit incentive.
D) all cartels are designed to fail.

Question 78

The stability of a cartel is improved if

A) it has many members.
B) its members can differentiate their products.
C) the participating members have similar cost structures.
D) there are weak barriers to entry.

Question 79

Which action can help increase the stability of a cartel?

A) decrease barriers to entry into the industry
B) increase product differentiation
C) increase government protection
D) increase the cartel's market share

Question 80

When firms collude, they are looking to operate as a monopoly by

A) raising prices and output in the market.
B) lowering prices and output in the market.
C) raising prices and reducing output in the market.
D) determining output where price equals marginal cost.