Deck 23: Monopolistic Competition

Question 1

Which one of these firms would be a monopolistic competitor?

A)AT&T
B)A local phone company
C)A Tex-Mex restaurant in San Antonio,Texas
D)The only used car dealer within 300 miles of Livingston,Montana

Answer 1

C

Question 2

Which statement is true about the monopolistic competitor in the long run?

A)It will be making a profit.
B)It will be taking a loss.
C)It may be making a profit or taking a loss.
D)It will be breaking even.

Answer 2

D

Question 3

The wastefulness of excess capacity is not considered totally bad by all economists because

A)advertisers make more income that is circulated to the rest of the economy.
B)excess capacity may allow for a greater diversity of products than available under other forms of competition.
C)the products would not be produced otherwise.
D)the monopolistically competitive firm allocated resources in a more efficient way than other market structure firms.

Answer 3

B

Question 4

Which statement is true?

A)The typical monopolistic competitor is a very large firm.
B)The crucial feature of monopolistic competition is that there are very few firms in the industry.
C)Under monopolistic competition,product differentiation can take place only if there are physical differences among the products.
D)None of these statements are true.

Question 5

Which statement is true?

A)The monopolistic competitor always makes a profit in the short run.
B)The monopolistic competitor operates at peak efficiency.
C)Product differentiation takes place in the minds of the buyers.
D)None of these statements are true.

Question 6

Which statement is false?

A)Price discrimination can be a disguised subsidy to the poor.
B)Price discrimination enables the seller to increase her profits.
C)Price discrimination is usually against poor people who can't afford to shop around.
D)None of these statements are false.

Question 7

A monopolistically competitive industry has

A)many firms producing a differentiated product.
B)many firms producing an identical product.
C)a few firms producing a differentiated product.
D)a few firms producing an identical product.

Question 8

Which of the following combinations of characteristics best describes a monopolistically competitive firm?

A)Supplies a small share of the market and sells a product that is undifferentiated from other firms in the market.
B)Supplies a large share of the market and sells a product that is undifferentiated from other firms in the market.
C)Supplies a small share of the market and sells a product that is slightly different than its competitors.
D)Supplies a large share of the market and sells a product that is slightly different than its competitors.

Question 9

The key aspect to product differentiation is

A)physical differences.
B)ambience.
C)convenience.
D)the buyer's minD.

Question 10

Price discrimination means

A)charging different prices for identical goods that have identical production costs.
B)paying wages according to race or sex rather than productivity.
C)exploiting the working masses by charging the highest single price possible.
D)eliminating all costs so that only profits are realizeD.

Question 11

Monopolistic competition may lead to each of the following except

A)inefficiency.
B)over-differentiation.
C)long-run break-even.
D)monopoly profits.

Question 12

In order for product differentiation to take place

A)there must be physical differences among the products.
B)there cannot physical differences among the products.
C)there may or may not be physical differences among the products.

Question 13

The basis for monopolistic competition is

A)product differentiation.
B)price.
C)economies of scale.

Question 14

Which statement is true?

A)The monopolistic competitor has a perfectly elastic demand curve.
B)The monopolistic competitor may make a profit in the long run.
C)The monopolistic competitor operates at the minimum point of her ATC curve.
D)None of these statements are true.

Question 15

In the long run the monopolistic competitor always charges a price that is

A)equal to the minimum point of its ATC curve.
B)below the minimum point of its ATC curve.
C)above the minimum point of its ATC curve.

Question 16

A monopolistic competitor will not make an economic profit unless

A)it engages in price discrimination.
B)its marginal revenue is greater than its marginal cost.
C)it faces an inelastic demand curve.
D)its price is greater than its average total cost.

Question 17

The graph above shows a monopolistic competitor

A)in the short run taking a loss.
B)in the short run making a profit.
C)in the long run breaking even.
D)in the long run taking a loss.

Question 18

Price discrimination

A)occurs whenever a good or service is resold.
B)is prohibited by law.
C)occurs when a seller charges two or more prices for the same good or service.
D)occurs when the seller charges different prices for different quality products.

Question 19

If a monopolistic competitor is producing an output for which marginal revenue is $40 and marginal cost is $32 to maximize profits the firm should

A)decrease the level of output.
B)keep the level of output constant.
C)continue to make $8 per unit.
D)increase the level of output.

Question 20

Assume a monopolistically competitive firm is producing at an output level at which marginal revenue is $15 and marginal cost is $18.The profit-maximizing firm should

A)raise output.
B)lower output.
C)keep output constant.
D)The firm should take none of these actions.

Question 21

The definition of monopolistic competition includes

A)few firms and ease of entry and exit.
B)few firms and barriers to entry and exit.
C)many firms and barriers to entry and exit.
D)many firms and ease of entry and exit.

Question 22

If the firm is maximizing profits,this firm charges a price of

A)$12.
B)$13.
C)$16.
D)$25.

Question 23

If this firm produces at its most efficient output level it would produce at about _____ units.

A)150
B)200
C)250
D)300

Question 24

Which statement is true?

A)Most monopolistic competitors are large firms.
B)Monopolistic competitors produce goods or services for which there are no close substitutes.
C)Monopolistic competitors usually operate at the minimum point of their average total cost curves.
D)None of these statements are true.

Question 25

Which statement is true?

A)The monopolistic competitor is often a large firm.
B)Most firms in the U.S.are not monopolistic competitors.
C)Price discrimination is impossible under monopolistic competition.
D)None of these statements are true.

Question 26

As new firms enter a monopolistically competitive industry where profits are being made

A)the demand curve facing each firm decreases,thereby reducing prices and profits.
B)the market demand curve for the product decreases,thereby reducing prices and profits.
C)the demand curve facing each firm increases,thereby increasing prices and profits.
D)the market demand curve for the product increases,thereby increasing prices and profits.

Question 27

Characteristics of monopolistic competition include all of the following except

A)significant barriers to entry.
B)a relatively large number of sellers and buyers.
C)small market share for each seller.
D)differentiated products.

Question 28

This monopolistic competitor is in the

A)short run making a profit.
B)short run taking a loss.
C)long run making a profit.
D)long run taking a loss.
E)long run breaking even.

Question 29

If the firm is maximizing profits (minimizing losses),they are making a profit or loss of about $____.

A)-1,000
B)500
C)2,000
D)2,500
E)3,000

Question 30

This firm maximizes profits (or minimizes losses)by producing a quantity of about _____ units.

A)150
B)200
C)250
D)300

Question 31

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

A)Some degree of control over price
B)A tendency to rely on non-price competition
C)A horizontal demand curve
D)Some degree of product differentiation

Question 32

Long-run equilibrium for firms in monopolistically competitive industries is similar to that for firms in perfect competition in that

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

Question 33

Through product differentiation,firms attempt to increase the

A)demands for their products,while making its demand less elastic.
B)supply of elasticities of competing products.
C)price-elasticity of demand for their products.
D)marginal costs of their competitors' production.

Question 34

Which of the following is a likely explanation for the way in which sneaker manufacturers attempt to differentiate their products?

A)They want buyers to be less aware of brand names.
B)They want to become more price competitive.
C)They want other manufacturers to lower their prices.
D)They want consumers to feel that there are few substitutes on the market.

Question 35

You can conclude that

A)new firms will enter the industry.
B)existing firms will leave the industry.
C)the industry is in long run equilibrium.
D)it is unclear whether the industry is in the short run or the long run.

Question 36

When a business such as an airline charges different prices for different people for the same product,they are practicing

A)an illegal price policy.
B)price discrimination.
C)non-price competition.
D)a marketing policy which usually backfires.

Question 37

If a monopolistically competitive firm is making profits

A)it can be assured of high profits for all time to come.
B)the entrance of new firms decreases the demand facing the firm,thereby reducing profits.
C)the entrance of new firms increases the demand facing the firm,thereby reducing profits.
D)the entrance of new firms increases costs,thereby reducing profits.

Question 38

Monopolistic competition is similar to a monopoly because firms in both industries

A)sell products with no close substitutes.
B)sell differentiated products.
C)have freedom of entry and exit.
D)have some control over price.

Question 39

Which statement is true?

A)There are many firms in a monopolistically competitive industry.
B)Monopolistic competitors produce an identical product.
C)In order for product differentiation to take place,there must be clear physical differences among the products sold.
D)None of these statements are true.

Question 40

When a monopolistically competitive industry is in long-run equilibrium

A)firms earn economic profit.
B)firms earn zero economic profit.
C)price equals minimum possible average cost.
D)price equals marginal cost.

Question 41

If demand curve D2 represents a monopolistic competitor and demand curve D3 represents a monopoly,then

A)the monopolist has a more elastic demand curve than the monopolistic competitor.
B)the monopolistic competitor has a more elastic demand curve than the monopolist.
C)the monopolist and the monopolistic competitor have identical elasticity in their demand curves.
D)None of these choices are true.

Question 42

Statement I.The airlines often engage in price discrimination.
Statement II.Price discrimination occurs when a seller charges two or more prices for the same good or service.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 43

Which of the following is a reason for the fast-food outlet McDonald's to be considered a monopolistic competitor?

A)McDonald's produces an identical product.
B)McDonald's competes with almost a quarter million other fast-food outlets.
C)McDonald's demand curve is a horizontal line.
D)None of these statements support a monopolistic competitor.

Question 44

The definition of monopolistic competition differs from that of perfect competition

A)with respect to the number of firms in the industry.
B)with respect to the type of product.
C)in both the number of firms and the type of product.
D)in neither the number of firms nor the type of product.

Question 45

Which statement is true?

A)Perfect price discrimination is very common.
B)Perfect price discrimination would eliminate consumer surplus.
C)Charging different prices to senior citizens,children,and adults under 65 is an example of perfect price discrimination.
D)None of the statements are true.

Question 46

Which statement is true?

A)Monopolistic competitors have very elastic demand curves.
B)Most monopolistic competitors are very large firms.
C)Less than half of all businesses in the United States are monopolistic competitors.
D)None of these statements are true.

Question 47

Advertising is likely to

A)shift the firm's average total cost curve upward and make demand more elastic.
B)shift the firm's average total cost curve downward and make demand more elastic.
C)shift the firm's average total cost curve upward and make demand more inelastiC.
D)shift the firm's average total cost curve downward and make demand more inelastic.

Question 48

Which would be an example of perfect price discrimination?

A)When movies charge different prices at different times
B)When airlines charge different prices for seats on the same flight
C)When doctors charge rich and poor patients different prices for the same medical services
D)None of the choices are examples of price discrimination.

Question 49

If demand curve D2 represents a monopolistic competitor,then its demand would be __________ elastic than D1 but __________ elastic than D3.

A)less;more
B)more;less
C)less;less
D)more;more

Question 50

Perfect price discrimination

A)would maximize consumer surplus.
B)would eliminate consumer surplus.
C)would have only a small effect on consumer surplus.
D)would have no effect on consumer surplus.

Question 51

Which of the following is typically not classified as a monopolistically competitive industry?

A)Restaurants and fast food chains
B)Grocery stores
C)Gas stations
D)Hardware stores
E)All of these choices are typically monopolistic competitors.

Question 52

An important result in long-run equilibrium in monopolistic competition is that the equilibrium point results in

A)price = MR.
B)price = ATC.
C)price is greater than ATC.
D)ATC = MC.
E)ATC = MR.

Question 53

Which of the following would NOT cause the costs in a monopolistically competitive industry to be higher than those in a perfectly competitive industry?

A)A large number of competitors
B)Advertising expenditures
C)Marketing costs necessary to differentiate a product
D)The ability to control the price of the product so costs can be allowed to rise

Question 54

Statement I.Price discrimination is basically a mechanism for rationing scarce goods and services.
Statement II.The price discriminator must be able to prevent buyers from reselling the product (i.e. ,stop those who would buy at a low price from selling to those who would otherwise buy at a higher price).

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 55

Under perfect price discrimination

A)every buyer in the market would lose his or her entire consumer surplus.
B)every buyer would have to pay more than the original market price before price discrimination.
C)all buyers would maximize their consumer surpluses.
D)the rich buyers would benefit and the poor buyers would be hurt.

Question 56

In the long run the monopolistic competitor _______ an economic profit and the perfect competitor ________ an economic profit.

A)makes;makes
B)makes;does not make
C)does not make;does not make
D)does not make;makes

Question 57

The more differentiated the product,

A)the more elastic the demand.
B)the more inelastic the demand.
C)the more the entire demand curve shifts right.
D)the more the entire demand curve shifts left.

Question 58

Which statement is true?

A)Many monopolistic competitors are very large firms.
B)Many monopolistic competitors practice perfect price discrimination.
C)Monopolistic competitors don't really compete.
D)None of these statements are true.

Question 59

If demand curve D2 represents a monopolistic competitor and demand curve D1 represents a perfect competitor,then

A)the perfect competitor has a more elastic demand curve than the monopolistic competitor.
B)the monopolistic competitor has a more elastic demand curve than the perfect competitor.
C)the perfect competitor and the monopolistic competitor have identical elasticity in their demand curves.
D)None of these choices are true.

Question 60

Which demand curve would best represent a monopolistic competitor?

A)D1
B)D2
C)D3
D)None of these curves represent a monopolistic competitor.

Question 61

Monopolistically competitive firms prevent the efficient use of resources because in long-run equilibrium

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

Question 62

Under monopolistic competition

A)there is no distinction between the short run and the long run.
B)there are very few firms in the industry.
C)all the firms produce an identical product.
D)each firm breaks even in the long run.

Question 63

Product differentiation is _____ based on real physical differences among products.

A)always
B)sometimes
C)never

Question 64

The monopolistic competitor

A)produces at the minimum point of her average total cost curve.
B)maximizes profits but does not minimize losses.
C)is usually a small firm.
D)can be a monopoly.

Question 65

Perfect competition and monopolistic competition differ

A)with respect to the elasticity of their demand curves.
B)with respect to product differentiation.
C)with respect to influence over the price they charge.
D)All of these choices are difference between them.

Question 66

Under monopolistic competition there

A)is product standardization.
B)is perfect price discrimination.
C)are too many firms producing over-differentiated products.
D)are many firms producing differentiated goods and services.

Question 67

In the long run the monopolistic competitor ________ at peak efficiency and the perfect competitor ________ at peak efficiency.

A)operates;operates
B)operates;does not operate
C)does not operate;operates
D)does not operate;does not operate

Question 68

The typical monopolistic competitor

A)is a large firm.
B)never uses price discrimination.
C)always competes on the basis of producing a product that is physically different from those of its competitors.
D)may compete on the basis of physical differences,convenience,service,and ambience.

Question 69

In the long run the monopolistic competitor will be ____________.

A)making a profit
B)taking a loss
C)breaking even
D)None of the choices are correct.

Question 70

__________________ is the crucial characteristic of monopolistic competition.

A)Product differentiation
B)Price discrimination
C)Economies of scale
D)Identical products

Question 71

Which is the most accurate statement?

A)In monopolistically competitive industries there are generally too many firms.
B)One of the main problems with monopolistic competition is the lack of variety among goods and services.
C)Most firms in the United States are monopolistic competitors.
D)The biggest problem with monopolistic competition is over-differentiation.

Question 72

Monopolistic competitors have _______ rivals who produce _________ goods and services.

A)no;identical
B)many;identical
C)many;close substitute
D)None of the choices are correct.

Question 73

In the long run if some firms are losing money in monopolistic competition

A)the industry supply curve will increase and market price will fall.
B)the industry supply curve will increase and market price will rise.
C)the industry supply curve will decrease and market price will fall.
D)the industry supply curve will decrease and market price will rise.

Question 74

The typical monopolistic competitor

A)is a large firm.
B)may be a drugstore,restaurant,gas station,or dry cleaner.
C)never advertises.
D)has a local monopoly.

Question 75

Monopolistic competition differs from perfect competition because

A)monopolistic competitors have few firms in each industry.
B)monopolistic competitors have a significant influence over the market price.
C)monopolistic competitors do not produce at the lowest point on the average total cost curve.
D)monopolistic competitors can make a profit even in the long run.

Question 76

If firms in a monopolistically competitive industry are earning economic profits,then in the long run

A)new firms producing close substitutes will enter the industry and this entry will continue until economic profits are eliminated.
B)these firms can continue earning economic profits because entry into the industry is blocked.
C)new firms producing the exact same product will enter the industry and this entry will continue until economic profits are eliminated.
D)the government will most likely regulate firms in this industry to reduce these economic profits.

Question 77

The monopolistic competitor

A)produces a good or service that has no close substitutes.
B)is usually a small firm.
C)has very little competition.
D)is protected by substantial barriers to entry.

Question 78

In monopolistic competition,firms can have some market power

A)because of barriers to entry into the industry.
B)by producing differentiated products.
C)because of barriers to exit from the industry.
D)by virtue of size alone.

Question 79

The monopolistic competitor

A)may make a profit in the short run but not in the long run.
B)may make a profit in the long run but not in the short run.
C)may make a profit in both the short run and the long run.
D)may make a profit in neither the short run nor the long run.

Question 80

Product differentiation

A)takes place in the minds of the buyers.
B)takes place in the minds of the sellers.
C)is rare under monopolistic competition.
D)is based solely on deceiving the buyer.