Deck 13: Monopolistic Competition

Question 1

In monopolistic competition,each firm supplies a ________ part of the total industry output and its actions ________ the actions of the other firms.

A)small;do not directly affect
B)small;directly affect
C)large;do not directly affect
D)large;directly affect
E)large;may or may not directly affect

Answer 1

small;do not directly affect

Question 2

Which of the following best explains why firms in monopolistic competition face a downward-sloping demand curve while perfectly competitive firms do not?

A)Monopolistically competitive industries have only a few firms.
B)Monopolistically competitive firms face barriers to entry.
C)Only industries with free entry and exit have firms that face horizontal demand curves.
D)Firms in monopolistic competition are price takers.
E)Firms in monopolistic competition sell differentiated goods.

Answer 2

Firms in monopolistic competition sell differentiated goods.

Question 3

A firm in a monopolistically competitive market

A)faces an upward-sloping demand curve.
B)faces a downward-sloping demand curve.
C)does not practice product differentiation.
D)faces a horizontal demand curve.
E)has few competitors.

Answer 3

faces a downward-sloping demand curve.

Question 4

Within a monopolistically competitive industry,

A)firms can freely enter and exit,and economic profit is zero in the long run.
B)firms can freely enter and exit,and economic profit is greater than zero in the long run.
C)there are some barriers to entry and exit,and economic profit is zero in the long run.
D)there are some barriers to entry and exit,and economic profit is greater than zero in the long run.
E)firms can freely enter and exit,and economic profit is zero in the short run.

Question 5

One factor that distinguishes a monopoly from monopolistic competition is that

A)firms in monopolistic competition practice collusion.
B)no barriers to entry exist in a monopoly.
C)barriers to exit exist in monopolistic competition.
D)close substitutes are available in monopolistic competition.
E)firms are price-takers in monopolistic competition.

Question 6

In monopolistic competition

A)there are two firms in the market.
B)collusion is not possible.
C)the size of one firm is large relative to the size of the industry.
D)each firm is a price-taker.
E)there is only one firm in the market.

Question 7

Toronto has a large number of retail stores that sell clothes.Each store has its own characteristics which differ from the other stores.The clothing business in Toronto is an example of

A)a duopoly.
B)an oligopoly.
C)a perfectly competitive market.
D)a monopoly.
E)a monopolistically competitive market.

Question 8

The existence of a large number of firms in monopolistic competition

A)means that each firm has a small market share.
B)makes it possible for each firm's price to deviate by a large amount from the average price of the other firms.
C)means that a firm must pay attention to the behaviour of all of its competitors.
D)makes collusion highly likely.
E)means that each firm is a price taker.

Question 9

Which of the following goods is best described as being sold in a monopolistically competitive market?

A)batteries
B)wheat
C)fast food
D)postage stamps
E)the local newspaper

Question 10

When comparing perfect competition and monopolistic competition,we find that

A)firms in monopolistic competition produce identical products just as do firms in perfect competition.
B)firms in monopolistic competition face barriers to entry,unlike firms in perfect competition.
C)advertising plays a large role in monopolistic competition,unlike in perfect competition.
D)firms in monopolistic competition are price takers just as is the case for firms in perfect competition.
E)firms in monopolistic competition each have a large market share.

Question 11

A monopolistically competitive firm is able to influence the price of what it sells because of

A)barriers to entry.
B)economies of scale.
C)product differentiation.
D)the fact there are many buyers.
E)inelastic demand.

Question 12

In monopolistic competition

A)firms can collude.
B)each firm has a small market share.
C)each firm pays attention to every other firm.
D)firms make an economic profit in the long run.
E)no firms advertise.

Question 13

In monopolistic competition

A)firms practice product differentiation.
B)the goods produced by each firm are identical.
C)firms do not have any control over the price of their products.
D)there are barriers to entry.
E)a small number of firms compete.

Question 14

The key feature of monopolistic competition that distinguishes it from perfect competition is

A)many sellers.
B)barriers to entry.
C)perfectly elastic demand.
D)product differentiation.
E)perfectly inelastic demand.

Question 15

Product differentiation exists within an industry when

A)there are no substitutes for the product.
B)the firm can sell all it wants at the given price.
C)the market is a monopoly.
D)the market is perfectly competitive.
E)there are close but not perfect substitutes for the product.

Question 16

Monopolistic competition differs from monopoly because in monopolistic competition firms

A)maximize economic profit.
B)set marginal revenue equal to marginal cost to maximize profit.
C)are free to enter and exit.
D)are price takers.
E)make an economic profit in the long run.

Question 17

Dole Co.operates in a monopolistically competitive market.Which of the following does not characterize Dole Co.'s market?

A)Dole Co.supplies a small portion of the market's output.
B)Dole Co.'s product is slightly different from its competitors.
C)Dole Co.faced no barrier to entry when it decided to enter its market.
D)Dole Co.is unable to collude with other firms in the market.
E)Dole Co.must pay close attention to the decisions of each of its competitors.

Question 18

In monopolistic competition,firms compete on the basis of

A)price only.
B)price,quality,and marketing.
C)marketing only.
D)quality and marketing,but not price.
E)quality only.

Question 19

ACME,Inc.operates in a market structure in which there are many other firms that find it easy to enter or exit.ACME is operating in ________ market.

A)a perfectly competitive market but not a monopolistically competitive
B)a perfectly competitive or a monopolistically competitive
C)a monopolistically competitive market but not a perfectly competitive
D)neither a perfectly competitive nor a monopolistically competitive
E)a monopolistic

Question 20

If some firms in the industry make an economic profit,then

A)the industry cannot be perfectly competitive.
B)the industry must be monopolistically competitive.
C)rival firms will enter if there are no barriers to entry.
D)the firms must practice product differentiation.
E)the industry must be an oligopoly.

Question 21

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

A)profit
B)sales
C)cost
D)capital
E)investment

Question 22

Use the table below to answer the following questions.
Table 13.1.1
Refer to Table 13.1.1.The four-firm concentration ratio for the pizza sellers is

A)40 percent.
B)100 percent.
C)80 percent.
D)33 percent.
E)12.5 percent.

Question 23

In a perfectly competitive market,the Herfindahl-Hirschman Index (HHI)

A)is small.
B)is usually greater than 5,000.
C)is greater than 1,000 but less than 2,000.
D)lies between 1,200 and 1,500.
E)is greater than 10,000.

Question 24

A four-firm concentration ratio that exceeds 60 percent indicates

A)a perfectly competitive market.
B)a monopolistically competitive market.
C)a monopoly.
D)a market that is highly concentrated and dominated by a few firms.
E)a competitive market.

Question 25

An industry with a high four-firm concentration ratio may have little monopoly power if

A)its production is geographically concentrated.
B)its barriers to entry are low.
C)its barriers to entry are high.
D)there are no international producers of the product.
E)there are no close substitutes for its product.

Question 26

The Herfindahl-Hirschman Index is calculated as

A)the cube of the percentage market share of each firm summed over the largest 100 firms.
B)the square of the percentage market share of each firm summed over the largest 50 firms or summed over all the firms if there are fewer than 50.
C)the square of the percentage market share of each firm summed over the largest 20 firms.
D)double the market share of the five largest firms.
E)the percentage of the total revenue accounted for by the four largest firms in the industry.

Question 27

The four-firm concentration ratio tells us the percentage of ________ for the four largest firms in an industry.

A)employment
B)accounting profit
C)economic profit
D)the value of sales
E)physical output

Question 28

In a perfectly competitive market,the four-firm concentration ratio is

A)almost zero.
B)50 percent.
C)100 percent.
D)75 percent.
E)25 percent.

Question 29

When the Herfindahl-Hirschman Index (HHI)is greater than 2,500,

A)the market is very competitive.
B)a monopoly exists.
C)there are many producers in the market.
D)the market is moderately competitive.
E)the market is uncompetitive.

Question 30

Use the table below to answer the following questions.
Table 13.1.1
Refer to Table 13.1.1.The four-firm concentration ratio for taco stands is

A)15 percent.
B)100 percent.
C)80 percent.
D)33 percent.
E)30 percent.

Question 31

A four-firm concentration ratio of less than 60 percent indicates

A)a monopoly.
B)a market that is dominated by a few firms.
C)a competitive market.
D)a market with two firms.
E)an absence of competition.

Question 32

Firefox,Internet Explorer,and Google Chrome browsers are an example of

A)goods produced in perfectly competitive markets.
B)goods produced by monopolies.
C)product differentiation.
D)goods that are identical.
E)product similarity.

Question 33

The Herfindahl-Hirschman Index (HHI)for a local water supplier is

A)less than 100.
B)between 101 and 999.
C)more than 1,000 but less than 2,000.
D)10,000.
E)between 2,000 and 5,000.

Question 34

Which one of the following statements describes a market that is monopolistically competitive?

A)There are significant barriers to entry.
B)The products produced by the firms are identical.
C)Many firms compete by making similar but slightly different products.
D)There is a small number of large firms.
E)The product produced by one firm has no close substitutes.

Question 35

What is the maximum value of the Herfindahl-Hirschman Index?

A)1
B)1,000,000
C)100,000
D)10,000
E)1,000

Question 36

The purpose of calculating the concentration ratio is

A)to obtain the firm's total profit.
B)to obtain the firm's production cost.
C)to measure the losses the firm incurred.
D)to measure the extent to which the market is dominated by a small number of firms.
E)to distinguish between the firm's total profit and production cost.

Question 37

The Herfindahl-Hirschman Index (HHI)is the square of the percentage market share of each firm summed over the ________ firms in a market.

A)largest 60
B)largest 50
C)smallest 50
D)largest 75
E)smallest 60

Question 38

In a monopoly,the four-firm concentration ratio is

A)75 percent.
B)100 percent.
C)almost zero.
D)25 percent.
E)50 percent.

Question 39

If a market is shared equally by four firms,the Herfindahl-Hirschman Index is

A)1/4.
B)4.
C)25.
D)100.
E)2,500.

Question 40

A market in which the Herfindahl-Hirschman Index (HHI)lies between 1,500 and 2,500 is regarded as being

A)a monopoly.
B)concentrated and uncompetitive.
C)a perfectly competitive market.
D)competitive.
E)a potential matter of concern for regulators.

Question 41

Use the figure below to answer the following questions. Figure 13.2.3
Refer to Figure 13.2.3.Which demand curve does this monopolistically competitive firm face in the long run?

A)demand curve D₁
B)demand curve D₂
C)either demand curve D₁ or D₂
D)neither demand curve D₁ nor demand curve D₂
E)Any demand curve is possible,including D₁ or D₂.

Question 42

Use the figure below to answer the following questions. Figure 13.2.1
Refer to Figure 13.2.1.If this firm is in monopolistic competition,it charges a price of

A)$20 a unit.
B)$50 a unit.
C)$40 a unit.
D)$30 a unit.
E)$60 a unit.

Question 43

Use the figure below to answer the following questions. Figure 13.2.3
Refer to Figure 13.2.3.Assume this firm faces demand curve D₂.If the firm produces the efficient quantity,it

A)makes an economic profit.
B)makes zero economic profit.
C)incurs an economic loss.
D)is in a long-run equilibrium.
E)will face competition from new firms entering the industry.

Question 44

Use the figure below to answer the following questions. Figure 13.2.3
Refer to Figure 13.2.3.Assume this firm faces demand curve D₂.If this firm in monopolistic competition is maximizing economic profit,

A)there will be entry of rival firms into the industry.
B)rival firms will exit the industry.
C)it is producing the efficient quantity.
D)the number of firms in the industry will remain constant.
E)economic profit will fall over time.

Question 45

Use the figure below to answer the following questions. Figure 13.2.1
Refer to Figure 13.2.1.This firm in monopolistic competition will

A)make an economic profit in the short run.
B)make zero economic profit in the short run.
C)incur an economic loss.
D)make an economic profit in the long run.
E)incur an economic loss in the long run.

Question 46

Use the figure below to answer the following questions. Figure 13.2.1
Refer to Figure 13.2.1.If this firm is in monopolistic competition,it produces output

A)of 40 units.
B)of 60 units.
C)of 80 units.
D)that is less than 40 units.
E)equal to the output of competing firms.

Question 47

The four-firm concentration ratio in an industry is 75 percent. Total sales in the industry are $800 million and total economic profit in the industry is $500 million.Normal profit for each firm is zero.
From this information we know that

A)economic profit of any four firms is at least $667 million.
B)total sales from the four largest firms is $600 million.
C)economic profit of the four largest firms is $375 million.
D)total sales from any four firms is at least $1,067 million.
E)economic profit of the four largest firms is $500 million.

Question 48

Use the figure below to answer the following questions. Figure 13.2.3
Refer to Figure 13.2.3.Assume this firm faces demand curve D₁.To maximize economic profit,this firm in monopolistic competition will charge a price of ________ and produce an output of ________ units.

A)$100;200
B)$90;220
C)$80;200
D)$70;100
E)$55;140

Question 49

Use the figure below to answer the following questions. Figure 13.2.3
Refer to Figure 13.2.3.Assume this firm faces demand curve D₁.If this firm in monopolistic competition is maximizing profit,

A)there will be entry of rival firms into the industry.
B)rival firms will exit the industry.
C)the market is efficient.
D)this firm will exit the industry in the long run.
E)its profit will rise over time.

Question 50

Use the figure below to answer the following questions. Figure 13.2.3
Refer to Figure 13.2.3.Assume this firm faces demand curve D₁.At the profit-maximizing output level,the firm

A)incurs an economic loss.
B)makes zero economic profit.
C)makes an economic profit.
D)makes less economic profit than that earned by firms in perfect competition.
E)makes an unknown economic profit that is impossible to determine without information concerning the price charged by the rival firms.

Question 51

Use the figure below to answer the following questions. Figure 13.2.2
Refer to Figure 13.2.2.To maximize economic profit,this firm in monopolistic competition produces an output of

A)40 units.
B)70 units.
C)60 units.
D)less than 40 units.
E)80 units.

Question 52

Use the figure below to answer the following questions. Figure 13.2.3
Refer to Figure 13.2.3.Assume this firm faces demand curve D₂.At the profit-maximizing output level,the firm

A)incurs an economic loss.
B)makes zero economic profit.
C)makes an economic profit.
D)is not in a long-run equilibrium.
E)is producing at its efficient scale.

Question 53

The correct ranking of the four basic market structures from low HHI (Herfindahl-Hirschman Index)to high HHI is

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

Question 54

Use the figure below to answer the following questions. Figure 13.2.1
Refer to Figure 13.2.1.If this firm in monopolistic competition is in short-run equilibrium,then

A)rival firms will enter the industry.
B)all firms will exit the industry.
C)economic profit of all firms in the industry is zero.
D)it produces 60 units of output to maximize economic profit.
E)the firm's profits can be expected to rise over time.

Question 55

Use the figure below to answer the following questions. Figure 13.2.3
Refer to Figure 13.2.3.Assume this firm faces demand curve D₁.If the firm produced the efficient quantity,it would produce

A)100 units.
B)220 units.
C)200 units.
D)250 units.
E)140 units.

Question 56

Use the figure below to answer the following questions. Figure 13.2.3
Refer to Figure 13.2.3.Assume this firm faces demand curve D₂.When the firm produces the efficient quantity,it produces

A)100 units.
B)140 units.
C)200 units.
D)220 units.
E)250 units.

Question 57

If a market is shared equally by 100 firms,the Herfindahl-Hirschman Index is

A)1/100.
B)1/50.
C)1.
D)50.
E)100.

Question 58

Use the figure below to answer the following questions. Figure 13.2.2
Refer to Figure 13.2.2.To maximize economic profit,this firm in monopolistic competition charges a price of

A)$15 a unit.
B)$25 a unit.
C)$20 a unit.
D)$32 a unit.
E)$35 a unit.

Question 59

Use the figure below to answer the following questions. Figure 13.2.3
Refer to Figure 13.2.3.Assume this firm faces demand curve D₂.To maximize economic profit,this firm in monopolistic competition will charge a price of ________ and produce an output of ________ units.

A)$40;100
B)$90;220
C)$80;200
D)$55;140
E)$70;100

Question 60

Use the figure below to answer the following questions. Figure 13.2.2
Refer to Figure 13.2.2.This firm in monopolistic competition

A)is incurring an economic loss.
B)is in long-run equilibrium.
C)is making an economic profit.
D)must raise its price to maximize economic profit.
E)will make more economic profit in the long run.

Question 61

Use the figure below to answer the following questions. Figure 13.2.4
Refer to Figure 13.2.4.The figure represents a monopolistically competitive firm in short-run equilibrium.What price does the firm charge per unit?

A)P₂
B)P₁
C)P₄
D)P₃
E)P₅

Question 62

Mrs.Smith's bakery shop is a firm in monopolistic competition.She is currently selling a box of bread for $16.The firm's marginal cost is $7 and marginal revenue is $7.To maximize economic profit Mrs.Smith

A)shuts down.
B)decreases output so that marginal revenue exceeds marginal cost.
C)continues to produce the same level of output.
D)increases output so that marginal cost exceeds marginal revenue.
E)decreases output so that marginal cost equals the output price.

Question 63

Excess capacity in monopolistically competitive firms occurs because

A)each firm faces a demand that is perfectly elastic.
B)each firm builds a huge plant.
C)the existence of slightly differentiated products,serving almost the same purpose,causes a waste of precious natural resources.
D)firms produce an output that is less than the output at minimum average total cost.
E)marginal cost is too high.

Question 64

Mrs.Smith's bakery shop is a firm in monopolistic competition.The firm's marginal revenue curve is

A)upward sloping.
B)downward sloping and above the demand curve.
C)a horizontal line.
D)the same as the demand curve.
E)downward sloping and lies below the demand curve.

Question 65

In monopolistic competition,long-run economic profit is zero because of

A)product differentiation.
B)no barriers to entry.
C)excess capacity.
D)economic inefficiency.
E)the downward-sloping demand curve facing each firm.

Question 66

Consider a monopolistically competitive industry in long-run equilibrium.Suppose there is a large increase in wages that raises the costs for all firms.What happens within each firm in the short run?

A)They will be forced to close down due to the excess costs.
B)They will continue producing as before,cushioned by their previous excess profits.
C)They will expand output and try to make up for lost profits.
D)They will lower prices and try to steal customers away from their rivals.
E)They will decrease production and produce the quantity at which marginal revenue equals the new (higher)marginal cost.

Question 67

Use the figure below to answer the following questions. Figure 13.2.4
Refer to Figure 13.2.4.The figure represents a monopolistically competitive firm in short-run equilibrium.In the long run,

A)new firms enter,and each existing firm's demand curve shifts leftward.
B)new firms enter,and each existing firm's demand curve shifts rightward.
C)existing firms exit,and each remaining firm's demand curve shifts leftward.
D)existing firms exit,and each remaining firm's demand curve shifts rightward.
E)the equilibrium is the same as in the short run.

Question 68

A firm's markup is

A)the firm's total profit.
B)the firm's total cost.
C)the amount by which price exceeds marginal cost.
D)the amount by which price exceeds average variable cost.
E)the amount by which price is less than marginal cost.

Question 69

In monopolistically competitive industries,

A)firms compete on quality,price and marketing.
B)the range of choice of products is the same as in perfectly competitive industries.
C)firms are insensitive to changes in consumer demand.
D)all firms produce a quantity at which marginal cost is greater than marginal benefit.
E)all firms make an economic profit.

Question 70

In the long run,a monopolistically competitive firm produces the output at which price equals

A)marginal cost.
B)marginal revenue.
C)average variable cost.
D)average total cost.
E)average fixed cost.

Question 71

The real estate industry is monopolistically competitive,so in this industry

A)the market demand curve is a horizontal line.
B)the market demand curve is upward sloping.
C)there are few realtors in the market.
D)excess capacity exists.
E)excess capacity does not exist.

Question 72

In the long run,the firm in monopolistic competition

A)faces a perfectly elastic demand.
B)produces more than the quantity at minimum ATC.
C)produces less than the quantity at minimum ATC.
D)produces the quantity at minimum ATC.
E)makes an economic profit.

Question 73

In the long run,all firms in an industry that is monopolistically competitive

A)produce at their efficient scale.
B)set price equal to marginal cost.
C)incur an economic profit.
D)make an economic profit.
E)make zero economic profit.

Question 74

In the long run,a monopolistically competitive firm will make the same economic profit as

A)a monopolistically competitive firm in the short run.
B)a single-price monopoly.
C)a price-discriminating monopoly.
D)a perfectly competitive firm in long-run equilibrium.
E)a perfectly competitive firm in short-run equilibrium.

Question 75

What will happen in the long run if firms in monopolistic competition incur economic loss?

A)Firms will continue producing and endure the losses.
B)Firms will leave the industry until the remaining firms make positive economic profit.
C)Firms will ask the government for financial aid.
D)Firms will leave the industry until the remaining firms make zero economic profit.
E)The level of investment in this industry will increase to boost the economy.

Question 76

Markup

A)does not exist in monopoly.
B)does not exist in monopolistic competition.
C)exists in perfect competition.
D)is the difference between price and average total cost.
E)exists in both monopoly and monopolistic competition.

Question 77

In the short-run,the similarity between a monopolist and a monopolistically competitive firm is that

A)they both make the same decisions about the level of output and output price.
B)they both face an upward-sloping supply curve for their products.
C)they both try to maximize their total revenues.
D)they both try to minimize their average fixed costs.
E)they set the price such that marginal revenue equals average total cost.

Question 78

Use the figure below to answer the following questions. Figure 13.2.4
Refer to Figure 13.2.4.The figure represents a monopolistically competitive firm in short-run equilibrium.What is the firm's level of output?

A)Q₁
B)Q₂
C)Q₃
D)Q₄
E)zero

Question 79

Which one of the following is true for perfect competition,monopolistic competition,and single-price monopoly?

A)Each firm produces an identical good.
B)Each firm makes zero long-run economic profit.
C)The profit maximizing quantity occurs at the quantity at which MC = MR.
D)There is easy entry and exit.
E)Demand is perfectly elastic.

Question 80

A firm has excess capacity if it

A)produces above its efficient scale.
B)produces below its efficient scale.
C)produces the same level as its efficient scale.
D)sells some of its factors of production.
E)improves the quality of its factors of production.