Deck 13: Monopolistic Competition and Oligopoly

Question 1

Monopolistic competition is a market structure in which

A)firms face barriers to entry.
B)a large number of firms compete.
C)firms produce and sell an identical product.
D)firms face perfectly elastic demand for their product.
E)the firms have no ability to influence the price of their product.

Answer 1

B

Question 2

In an industry with a large number of firms,

A)each firm will produce a large quantity, relative to market demand.
B)one firm will dominate the market.
C)collusion is impossible.
D)competition is eliminated.
E)barriers to exit must exist.

Answer 2

C

Question 3

In monopolistic competition, each firm supplies a small part of the market. This occurs because

A)there are barriers to entry.
B)there are no barriers to exit.
C)there is a large number of firms.
D)firms produce differentiated products.
E)there s a large number of buyers.

Answer 3

C

Question 4

A differentiated product has

A)many perfect substitutes.
B)no close substitutes.
C)no substitutes of any kind.
D)close but not perfect substitutes.
E)many different complements.

Question 5

If a large number of firms are competing, the market could be

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

Question 6

Which of the following is NOT a characteristic of monopolistic competition?

A)few firms compete
B)easy entry and exit
C)small market share
D)differentiated product
E)no barriers to entry or exit

Question 7

Because of the number of firms in monopolistic competition

A)each firm has a large market share.
B)it is possible for the firms to collude.
C)no one firm can dominate the market.
D)one firm has the ability to dictate market conditions.
E)each firm must carefully monitor what its competitors do.

Question 8

Which market structure is characterized by the following characteristics?
I. A large number of firms compete.
Ii. Each firm produces a differentiated product.
Iii. Firms are free to enter and exit.

A)perfect competition
B)duopoly
C)oligopoly
D)monopolistic competition
E)monopoly

Question 9

Product differentiation involves making a product that is

A)slightly different from the products of competing firms.
B)no different than the products of competing firms.
C)very different from the products of competing firms.
D)completely different from the products of competing firms.
E)cheaper than the products of competing firms.

Question 10

It would be impossible for members of the fast-food industry to collude to fix prices because

A)there are too many fast-food firms in the market.
B)collusion is illegal.
C)there are not enough fast-food firms in the market.
D)the price of fast-food is too low.
E)demanders would not buy from firms that collude.

Question 11

An industry with a large number of firms, differentiated products, and free entry and exit is called

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

Question 12

The women's dress industry is monopolistically competitive because each firm has

A)a large market share.
B)a very small market share.
C)no market share.
D)no competition for their market share.
E)struck a deal with the many other firms about what price will be charged.

Question 13

The freedom of entry and exit in monopolistic competition means that firms

A)enter the market when economic losses are being suffered.
B)exit the market when economic profits are being earned.
C)enter the market when normal profits are being earned.
D)can enter a market to compete for economic profits and leave when economic losses are being incurred.
E)find it easy to permanently earn an economic profit.

Question 14

A firm in monopolistic competition ________ influence its price and ________ influence the market average price.

A)can; can
B)can; cannot
C)cannot; can
D)cannot; cannot
E)can; only in the short run can

Question 15

What does monopolistic competition have in common with perfect competition?

A)a large number of firms and freedom of entry and exit
B)a standardized product
C)product differentiation
D)the ability to earn an economic profit in the long run
E)barriers to exit but no barriers to entry

Question 16

In monopolistic competition, the products of different sellers are

A)identical.
B)similar but slightly different.
C)unique without any close or perfect substitutes.
D)perfect substitutes.
E)either identical or differentiated.

Question 17

In both monopolistic competition and perfect competition,

A)firms sell identical products.
B)there is easy entry and exit.
C)firms are price takers.
D)firms face horizontal demand curves.
E)the marginal revenue curve and the demand curve are the same.

Question 18

One characteristic of monopolistic competition is that it has

A)many firms producing a slightly differentiated product.
B)many firms producing identical goods.
C)one firm producing a unique good.
D)a few firms producing a slightly differentiated product.
E)large barriers to entry.

Question 19

Monopolistic competition is defined as a type of market structure in which

A)many firms produce the good.
B)firms produce a homogeneous good.
C)there are barriers to entry.
D)firms can make an economic profit in the long run.
E)firms can easily enter the market but cannot easily exit from it.

Question 20

What does monopolistic competition have in common with monopoly?

A)a large number of firms
B)a downward-sloping demand curve
C)the ability to collude with respect to price
D)mutual interdependence
E)barriers to entry

Question 21

Concentration ratios

A)refer to the concentration of customers in a certain area.
B)measure whether the market is dominated by a small number of firms.
C)measure the concentration of a large number of firms in a certain area.
D)have high values for perfect competition.
E)measure how concentrated a firm's sales are among certain types of goods.

Question 22

The four-firm concentration ratio is the percentage of ________ accounted for by the four largest firms in an industry.

A)profit
B)supply
C)total revenue
D)total cost
E)marginal cost

Question 23

Which of the following is true about monopolistic competition but false about perfect competition?

A)There is a large number of independently acting sellers.
B)There are no barriers to entry.
C)Firms can earn an economic profit in the short run.
D)Firms compete on their product's price as well as its quality and marketing.
E)Firms cannot earn an economic profit in the long run.

Question 24

If the four-firm concentration ratio equals 0.1 percent for the Mexican tomato industry, then this industry is best characterized as

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

Question 25

In monopolistic competition, the presence of a large number of firms making a differentiated product means that

A)each firm can set the price of its particular product.
B)each firm must charge the same price.
C)the price is established by collusive behavior.
D)each firm must produce the same quantity.
E)firms cannot compete with each other on the basis of price.

Question 26

If the four-firm concentration ratio of an industry is

A)near 100, the industry is considered very competitive.
B)less than 40, the industry is considered an oligopoly.
C)over 40, the industry is considered monopolistic competition.
D)less than 40, the industry is considered monopolistic competition.
E)close to 0, the industry is considered a monopoly.

Question 27

Product differentiation allows a firm to compete with another firm on the basis of

A)efficiency.
B)elasticity.
C)quality, price, and marketing.
D)the level of output and the price.
E)demand.

Question 28

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

A)land-based long distance telephone service
B)wheat farming
C)the local electricity producer
D)manufacturing of shirts
E)cable television

Question 29

Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive industry?

A)2 percent
B)31 percent
C)78 percent
D)100 percent
E)50 percent

Question 30

Firms in monopolistic competition have demand curves that are

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

Question 31

The United Company competes with many other firms each producing slightly different products. Firms freely enter and exit this industry. The type of industry United Company operates in is ________.

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

Question 32

An example of a firm in monopolistic competition is

A)your local water company.
B)the sole cable television company.
C)the many Chinese restaurants in San Francisco.
D)Kansas Power and Light, the sole provider of electricity in Kansas City.
E)Shaniq, a wheat farmer.

Question 33

As a firm in monopolistic competition sets the price for its product, the firm faces a tradeoff between

A)supply and demand.
B)efficiency and equity.
C)internal and external economies of scale.
D)price and the quantity it can sell.
E)its marginal revenue and its price.

Question 34

Which of the following is the best example of a differentiated product?

A)beets in the local supermarket
B)diamonds
C)airlines
D)running shoes
E)electricity

Question 35

If you have found the percentage of the value of total revenue accounted for by the four largest firms in an industry, you have found the

A)elasticity of demand value.
B)elasticity of supply value.
C)Herfindahl-Hirschman Index.
D)four-firm concentration ratio.
E)monopolistic concentration index.

Question 36

Which of the following is correct?

A)Monopoly has a four-firm concentration ratio of 100.
B)Perfect competition has a four-firm concentration ratio near zero.
C)Monopolistic competition has a four-firm concentration ratio of more than 40.
D)Both answers A and B are correct.
E)Both answers A and C are correct.

Question 37

Because of product differentiation, firms

A)do not have to compete because their products are unique.
B)cannot compete on price.
C)can compete on the basis of quality.
D)are unable to compete by using advertising.
E)must compete on only price.

Question 38

Product differentiation means

A)firms sell products that are very dissimilar.
B)products sold by different firms are slightly different.
C)charging a higher price to consumers with high willingness to pay.
D)charging a lower price to consumers with low willingness to pay.
E)that a single firm sells many different types of products.

Question 39

Which of the following four-firm concentration ratios is consistent with monopolistic competition?

A)100 percent
B)75 percent
C)25 percent
D)0 percent
E)91 percent

Question 40

In monopolistic competition, a firm can set the price for its product because of

A)easy entry and exit.
B)economic profits.
C)product differentiation.
D)many competitors.
E)the firm's upward sloping demand curve.

Question 41

When a firm maximizes its profit, which of the following is correct for firms in monopolistic competition and perfect competition?

A)P = MC for both types of firms.
B)P = MR = MC for firms in perfect competition and P > MR = MC for firms in monopolistic competition.
C)MR = MC for firms in perfect competition and MR > MC for firms in monopolistic competition.
D)P > MR = MC for firms in both perfect competition and monopolistic competition.
E)P = ATC always for firms in both perfect competition and monopolistic competition.

Question 42

The Herfindahl-Hirschman Index is the ________ of the percentage market share of each firm summed over the largest 50 firms in a market.

A)sum
B)square
C)square root
D)cube
E)negative

Question 43

Firms in monopolistic competition determine the profit-maximizing level of output by producing

A)the same output level as rivals do.
B)where average total cost is minimized.
C)at the point of minimum average fixed cost.
D)where marginal revenue equals marginal cost.
E)where price equals average total cost.

Question 44

Which of the following four-firm concentration ratios would be the best indicator of an oligopoly?

A)0.25 percent
B)31 percent
C)78 percent
D)100 percent
E)11 percent

Question 45

A market in which the Herfindahl-Hirschman Index exceeds 1,800 is considered to be

A)competitive.
B)not competitive.
C)moderately competitive.
D)purely competitive.
E)either a monopoly or monopolistic competition.

Question 46

The three largest firms in an industry have market shares of 40 percent, 30 percent, and 2 percent. The remaining 47 firms in the industry each have a market share of 1 percent. The Herfindahl-Hirschman Index (HHI)for this industry is ________.

A)2,551
B)5,184
C)24,061
D)10,000
E)3,013

Question 47

$$\begin{array} { c c } \text { Firm } & \begin{array} { c } \text { Market share } \\\text { (percent) }\end{array} \\\hline \text { Gary's Gourmet } & 30 \\\text { Allen's Extras } & 25 \\\text { Travis' Treats } & 15 \\\text { Orin's Eats } & 10 \\\text { Reed's Riches } & 10 \\\text { Seth's Sweetest } & 5 \\\text { Uriah's Foodfest } & 5 \\\hline\end{array}$$

-Suppose there are 7 firms in the candy industry with the market shares shown above. What is the HHI for the industry?

A)1850
B)2000
C)6400
D)100
E)20

Question 48

When the Herfindahl-Hirschman Index for an industry is

A)very small, the industry can be perfectly competitive.
B)very large, the industry can be perfectly competitive.
C)10,000, the industry is perfectly competitive.
D)very small, the industry can be a monopoly.
E)above 5,000 the industry is considered not very competitive and when it is below 5,000 the industry is considered very competitive.

Question 49

The Herfindahl-Hirschman Index measures market concentration in an industry by summing the square of the percentage market shares for

A)the 4 largest firms.
B)the 50 smallest firms.
C)the 4 smallest firms.
D)the 50 largest firms.
E)all firms in the market.

Question 50

What is the Herfindahl-Hirschman Index if the four firms in an industry account have market shares of 62 percent, 15 percent, 15 percent, and 8 percent?

A)100
B)4,358
C)111,600
D)2,822
E)6,200

Question 51

If the four-firm concentration ratio for the market for diapers is 73 percent, then this industry is best characterized as

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

Question 52

If there are four firms in an industry with market shares of 50 percent, 40 percent, 5 percent, and 5 percent, the Herfindahl-Hirschman Index is

A)100.
B)4150.
C)25.
D)3450.
E)undefined because there are not 50 firms in the industry.

Question 53

A market is considered competitive if the Herfindahl-Hirschman Index (HHI)is ________ and its four-firm concentration ratio is ________.

A)high; high
B)high; low
C)low; high
D)low; low
E)between 30 percent and 70 percent; greater than 5,000

Question 54

$$\begin{array} { c c } \text { Firm } & \begin{array} { c } \text { Sales } \\\text { (millions of dollars) }\end{array} \\\hline \text { QT Burgers } & 75 \\\text { Kwickie Chix } & 50 \\\text { Speedy Spuds } & 50 \\\text { Hasty Pudding } & 25 \\\text { Other 200 firms } & 800 \\\hline\end{array}$$

-The table above shows the revenue figures for the top four firms along with a total for the remaining firms in the fast-food industry. What is the four-firm concentration ratio for the industry?

A)200
B)20 percent
C)25 percent
D)80 percent
E)100 percent

Question 55

If the Herfindahl-Hirschman Index in the market for single-use cameras equals 10,000 , then the single-use camera industry is best characterized as

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

Question 56

For a monopolistically competitive firm, the demand curve

A)is a horizontal line.
B)has a positive slope.
C)is vertical.
D)has a negative slope.
E)is the same as the marginal revenue curve.

Question 57

The square of the percentage market share of each firm summed over the 50 largest firms in a market is the

A)elasticity of demand value.
B)elasticity of supply value.
C)Herfindahl-Hirschman Index.
D)four-firm concentration ratio.
E)fifty-firm concentration ratio.

Question 58

What is the four-firm concentration ratio if the four largest firms in an industry account for 5 percent, 6 percent, 7 percent, and 8 percent of total revenue?

A)26 percent
B)174 percent
C)1,680
D)There is enough information given to answer the question, but none of the answers above are correct.
E)There is not enough information given to answer the question.

Question 59

The marginal revenue curve facing a monopolistically competitive firm

A)lies on its demand curve.
B)lies above its demand curve.
C)lies below its demand curve.
D)is equal to its price curve.
E)is parallel to its demand curve.

Question 60

If the HHI for the widget industry is 1,200, then the market structure is

A)a monopoly.
B)monopolistic competition.
C)an oligopoly.
D)perfect competition.
E)impossible to determine

Question 61

If a monopolistically competitive seller's marginal cost is $3.56, the firm will increase its output if

A)its marginal revenue is less than $3.56.
B)its marginal revenue is equal to $3.56.
C)its marginal revenue is more than $3.56.
D)average total cost is less than $3.56.
E)Both answers A and D are correct.

Question 62

Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. What price will Kevin charge per session?

A)$100
B)$60
C)$40
D)$20
E)$80

Question 63

In monopolistic competition, profit is maximized by producing so that marginal revenue

A)equals price.
B)is negative.
C)equals marginal cost and which are less than price.
D)equals average total cost but not marginal cost.
E)equals marginal cost and equals price.

Question 64

In the long run in monopolistic competition, firms

A)can earn an economic profit.
B)incur an economic loss.
C)can earn zero economic profit but not an economic profit.
D)shut down if they are earning zero economic profit.
E)earn either an economic profit or zero economic profit.

Question 65

A firm in monopolistic competition makes its decisions on quantity and price by

A)taking price as given from the market and producing where MR = MC.
B)taking both price and quantity as given from the market.
C)producing where MR = MC and setting the price for this quantity from the demand curve.
D)taking quantity as given from the market and setting the price for this quantity from the demand curve.
E)producing where MR = MC and setting the price so that P = MR = MC.

Question 66

Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. If Kevin trains 5 clients per day, he will ________ his profit and will ________.

A)maximize; earn normal profit
B)not maximize; earn a normal profit anyway
C)maximize; earn an economic profit
D)not maximize; earn an economic profit anyway
E)not maximize; incur an economic loss

Question 67

If a monopolistically competitive seller's marginal cost is $3.56, the firm will not change its output if

A)its marginal revenue is less than $3.56.
B)its marginal revenue is equal to $3.56.
C)its marginal revenue is more than $3.56.
D)its average total cost is equal to $3.56.
E)Both answers B and D are correct.

Question 68

The above figure shows a motel engaged in monopolistic competition with other motels. The equilibrium price at this motel is ________ per room.

A)$20
B)$30
C)$40
D)$50
E)$10

Question 69

The major difference between monopolistic competition and monopoly is

A)monopoly is a price setter and a firm in monopolistic competition is a price taker.
B)only a monopoly can earn an economic profit in the long run.
C)only a firm in monopolistic competition can earn an economic profit in the short run.
D)how the quantity of output is determined.
E)only firms in monopolistic competition are protected by barriers to entry.

Question 70

If firms in monopolistic competition are earning economic profits, eventually

A)they shut down.
B)they exit the industry.
C)the market turns into a monopoly.
D)new firms enter the industry.
E)the firms in the market increase their production so that their economic profit disappears.

Question 71

The above figure shows a motel engaged in monopolistic competition with other motels. the figure above shows the ________ equilibrium in which the motel is ________ .

A)short-run; earning an economic profit
B)short-run; earning a normal profit
C)long-run; earning an economic profit
D)long-run; earning a normal profit
E)short-run; incurring an economic loss

Question 72

In long-run equilibrium, a firm in monopolistic competition makes

A)an economic profit, but the economic profit is less than it would be if the firm was a monopoly.
B)an economic profit that is higher than what it would be if the firm was a monopoly.
C)zero economic profit.
D)an economic profit that is the same amount as it would be if the firm was a monopoly.
E)an economic profit, an economic loss, or zero economic profit.

Question 73

If a monopolistically competitive seller's marginal cost is $3.56, the firm will decrease its output if

A)its marginal revenue is less than $3.56.
B)its marginal revenue is equal to $3.56.
C)its marginal revenue is more than $3.56.
D)its average total cost is equal to $4.00.
E)Both answers B and D are correct.

Question 74

The above figure shows a restaurant engaged in monopolistic competition with other restaurants. The equilibrium quantity at this restaurant is ________ meals per day.

A)less than 150
B)between 151 and 250
C)between 251 and 350
D)between 451 and 450
E)more than 451

Question 75

Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. Kevin will train how many clients per day?

A)4
B)6
C)10
D)between 2 and 4
E)None of the above answers is correct.

Question 76

To maximize profit, a firm in monopolistic competition will produce the quantity where marginal revenue

A)is greater than marginal cost.
B)equals zero.
C)is less than marginal cost.
D)equals marginal cost.
E)equals average total cost.

Question 77

In the long run, firms in monopolistic competition earn zero economic profit because

A)firms are free to enter and exit.
B)their products are similar but slightly different.
C)of over-reliance on product marketing.
D)of collusion among the various sellers.
E)their demand curves are horizontal.

Question 78

The above figure shows a motel engaged in monopolistic competition with other motels. The equilibrium quantity at this motel is ________ rooms per day.

A)200
B)300
C)400
D)500
E)100

Question 79

If a firm in monopolistic competition is earning an economic profit,

A)it is in the long run.
B)other firms can enter the market.
C)it can do so because it is "monopolistic" and other firms will have a hard time competing with it.
D)its average cost must exceed its marginal cost.
E)The question errs because firms in monopolistic competition cannot earn an economic profit.

Question 80

The above figure shows a restaurant engaged in monopolistic competition with other restaurants. The equilibrium price at this restaurant is ________ per meal.

A)$20
B)$30
C)$50
D)less than $20
E)more than $50