Deck 14: Monopolistic Competition

Question 1

Monopolistic competition is a market structure in which

A) a small number of firms compete.
B) firms produce identical products.
C) firms compete only on product price.
D) firms are free to enter and exit the market.

Answer 1

firms are free to enter and exit the market.

Question 2

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) definitely a perfectly competitive
B) either a perfectly competitive or a monopolistically competitive
C) definitely a monopolistically competitive
D) neither a perfectly competitive nor a monopolistically competitive

Answer 2

either a perfectly competitive or a monopolistically competitive

Question 3

Monopolistic competition is defined as a type of market structure where

A) many firms produce the good.
B) firms produce a homogeneous good.
C) there are barriers to entry.
D) firms can earn positive profit in the long run.

Answer 3

many firms produce the good.

Question 4

Which of the following is a characteristic of monopolistic competition?

A) many firms
B) standardized product
C) mutual interdependence
D) barriers to entry

Question 5

Monopolistic competition is a market in which ________ firms produce ________ goods and services.

A) many; identical
B) many; differentiated
C) few; differentiated
D) few; identical

Question 6

Monopolistic competition is a market structure in which

A) a large number of firms compete.
B) each firm produces an identical product.
C) firms only compete on product price.
D) there are barriers to entry.

Question 7

Firms in monopolistic competition charge prices that are ________ those of the other firms in the market.

A) close to
B) very different from
C) the same as
D) completely unrelated to

Question 8

Which of the following is part of the market structure for monopolistic competition?

A) barriers to entry
B) a large number of firms compete
C) each firm produces a differentiated product
D) Both answers B and C are correct.

Question 9

In a monopolistically competitive market there are

A) many firms.
B) one firm.
C) a very small number of firms.
D) two firms.

Question 10

In monopolistic competition

A) each firm's price cannot deviate from the average price of other firms.
B) each firm supplies a small part of the total market output.
C) one firm's actions directly affect the actions of the other firms.
D) collusion is possible.

Question 11

In monopolistic competition

A) each firm's price can deviate from the average price of other firms.
B) each firm supplies a large part of the total market output.
C) one firm's actions directly affect the actions of the other firms.
D) firms typically determine the amount they produce through agreements with competitors.

Question 12

Monopolistic competition is a market structure in which

A) a small number of firms compete.
B) each firm produces a differentiated product.
C) firms only compete on product price.
D) there are barriers to entry.

Question 13

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

A) each firm has some ability to effect the price of its particular good or service.
B) each firm must charge the same price.
C) the price is established by agreements among the different firms.
D) each firm must produce the same quantity.

Question 14

In monopolistic competition

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.

Question 15

Monopolistic competition is a market structure in which

A) a small number of firms compete.
B) each firm produces an identical product.
C) firms only compete on product price.
D) firms are free to enter or exit.

Question 16

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

A) many sellers.
B) barriers to entry.
C) interdependency.
D) product differentiation.

Question 17

A characteristic of monopolistic competition is

A) there is one firm in the industry.
B) each firm is a price taker.
C) each firm produces a differentiated product.
D) the actions of one firm affect the choices and actions of another firm.

Question 18

Which characteristic is associated with monopolistic competition?

A) collusion
B) product differentiation
C) small number of firms
D) awareness of rival firms in the market

Question 19

In monopolistic competition, there are

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

Question 20

Monopolistic competition is a market structure in which

A) a large number of firms compete.
B) firms produce identical products.
C) firms compete only on product price.
D) natural or legal barriers prevent the entry of new firms.

Question 21

In monopolistic competition, each firm supplies a ________ part of the total market 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

Question 22

Which of the following statements is FALSE concerning monopolistic competition?

A) There are many firms.
B) Firms sell a differentiated product.
C) Each firm's actions influence rival firms.
D) Firms are free to enter and exit.

Question 23

Which of the following is NOT true of firms in monopolistic competition?

A) They are price takers.
B) They practice product differentiation.
C) They have excess capacity in the long run.
D) They earn a normal profit in the long run.

Question 24

In monopolistic competition

A) each firm's price cannot deviate from the average price of other firms.
B) each firm supplies a large part of the total industry output.
C) no one firm's actions directly affect the actions of the other firms.
D) firms set their prices based on agreements with their competitors.

Question 25

Monopolistic competition differs from monopoly because in monopolistic competition

A) firms maximize profits.
B) firms set marginal revenue equal to marginal cost to maximize profit.
C) firms are free to enter and exit.
D) All of the above are differences between monopoly and monopolistically competitive firms.

Question 26

A monopolistically competitive firm has ________ power to set the price of its product because ________.

A) no; there are no barriers to entry
B) some; there are barriers to entry
C) no; of product differentiation
D) some; of product differentiation

Question 27

Monopolistic competition differs from monopoly because in monopolistic competition

A) there are many firms.
B) there are no close substitutes for each firm's product.
C) the firms compete only on price.
D) None of the above are differences between monopoly and monopolistically competitive firms.

Question 28

Monopolistic competition is a market structure in which

A) a small number of firms compete.
B) each firm produces an identical product.
C) firms compete on product quality, price, and marketing.
D) there are barriers to entry.

Question 29

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

A) A large number of firms compete.
B) Entry and exit is restricted.
C) Firms compete on product quality.
D) Firms compete on price.

Question 30

Which of the following statements is FALSE concerning monopolistic competition?

A) There are many firms.
B) Firms sell a differentiated product.
C) There are no barriers to entry.
D) Monopolistically competitive firms are price takers because of product differentiation.

Question 31

Which of the following is NOT true of monopolistic competition?

A) Firms produce a good that is a perfect substitute for their competitors' goods.
B) There is free entry and exit.
C) There are a large number of firms.
D) Firms can compete on price and quality.

Question 32

All of the following characteristics apply to monopolistic competition EXCEPT

A) a large number of firms compete.
B) each firm produces the same identical product.
C) firms compete on product quality, price, and marketing.
D) there are no barriers to enter or exit the industry.

Question 33

Dole Co. operates in a monopolistically competitive market. Which of the following characterizes 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) All of the above describe Dole Co.'s market.

Question 34

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

A) Firms are free to enter and exit.
B) Firms are price takers.
C) Firms compete on product quality, price, and marketing.
D) There are a large number of firms.

Question 35

In monopolistically competitive markets, products are ________ and there ________ barriers to entry.

A) identical; are no
B) differentiated; are no
C) identical; are
D) differentiated; are

Question 36

In monopolistic competition, a firm has some ability to affect the price for its product because of

A) easy entry and exit.
B) economic profits.
C) product differentiation.
D) many competitors.

Question 37

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

A) many firms
B) price taking firms
C) advertising
D) product differentiation

Question 38

In monopolistic competition, when firms make an economic profit

A) the existing firms continue to make an economic profit in the long run because of product differentiation.
B) new firms enter the industry so that the price falls and the economic profit eventually falls to zero.
C) new firms enter the industry so that output decreases and the economic profit increases.
D) new firms enter the industry so that output increases and the economic profit increases.

Question 39

Monopolistic competition is a market structure in which

A) a small number of firms compete.
B) firms produce identical products.
C) firms compete on product quality, price, and marketing.
D) natural or legal barriers prevent the entry of new firms.

Question 40

Within a monopolistically competitive industry

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

Question 41

A product that is a close substitute but not a perfect substitute for the products of the other firms is called

A) a homogeneous product.
B) an efficient product.
C) a differentiated product.
D) an inelastic product.

Question 42

Product differentiation is a defining characteristic of

A) perfectly elastic demand.
B) oligopoly.
C) perfect competition.
D) monopolistic competition.

Question 43

A monopolistically competitive firm and a perfectly competitive firm are alike because both types of firms I. face downward sloping demand curves.
II) have marginal revenue curves that lie beneath their demand curves.
III) can make only zero economic profit in the long run.

A) I and II
B) I and III
C) III only
D) I only

Question 44

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

A) Monopolistically competitive firms sell a differentiated good.
B) Monopolistically competitive industries have only a few firms.
C) Monopolistically competitive firms have barriers to entry.
D) Only industries with free entry and exit have firms that face horizontal demand curves.

Question 45

Firms in which type of market make zero economic profit in the long run?

A) perfect competition and monopolistic competition
B) monopoly
C) perfect competition
D) monopolistic competition

Question 46

Product differentiation exists within an industry if

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

Question 47

Firms in monopolistic competition can achieve product differentiation by

A) expanding plant size.
B) exploiting economies of scale in production.
C) advertising special characteristics.
D) setting the price equal to average revenue.

Question 48

A characteristic of monopolistic competition is

A) product differentiation.
B) a high capital-output ratio.
C) a low ratio of fixed costs to variable costs.
D) the absence of advertising.

Question 49

A firm in monopolistic competition can determine what price to charge for its product because of

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

Question 50

Brand names are an example of

A) economies of scale.
B) product differentiation.
C) oligopoly.
D) illegal barriers to entry.

Question 51

One difference between perfect competition and monopolistic competition is that

A) a perfectly competitive industry has fewer firms.
B) in perfect competition, firms produce slightly differentiated products.
C) monopolistic competition has barriers to entry.
D) firms in monopolistic competition face a downward-sloping demand curve.

Question 52

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.

Question 53

Brand name aspirin is chemically identical to store brand aspirin. Yet, consumers often prefer the brand name product to the store brand product. This preference is an example of

A) product differentiation.
B) perfect product competition.
C) oligopolistic product competition.
D) price taking behavior.

Question 54

A monopolistically competitive industry has

A) significant barriers to entry.
B) differentiated products.
C) mutually dependent firms.
D) a small number of large firms.

Question 55

A monopolistically competitive firm and a monopoly are alike because both I. face downward sloping demand curves.
II) have marginal revenue curves that lie beneath their demand curves.
III) can make an economic profit in the long run.

A) I only.
B) I and II.
C) I, II, and III.
D) I and III.

Question 56

Brand name drugs are chemically identical to their generic counterparts. Yet, consumers often prefer the brand name product to the generic product. Making consumers think that a brand name drug differs from its generic counterpart is an example of

A) product differentiation.
B) perfect competition.
C) oligopolistic behavior.
D) price taking behavior.

Question 57

Firms in monopolistic competition make products that are

A) perfect complements.
B) close but not perfect complements.
C) perfect substitutes.
D) close but not perfect substitutes.

Question 58

In monopolistically competitive industries

A) non-price competition through product differentiation is actively pursued by firms.
B) product variety is the same as in perfectly competitive industries.
C) firms do not respond to changes in consumer demand.
D) firms' economic profits are protected by barriers to entry.

Question 59

The Firefox, Safari, and Opera browsers are an example of ________.

A) products produced in monopoly industries
B) products produced in perfectly competitive industries
C) product differentiation
D) homogeneous products

Question 60

Product differentiation

A) is why a monopolistic competitor faces a downward-sloping demand curve.
B) means that the monopolistic competitor's product is a close but not a perfect substitute for the products of its competitors.
C) enables the monopolistic competitor to compete in product quality.
D) All of the above answers are correct.

Question 61

If an industry lacks barriers to entry and each of the many firm faces a demand curve with a negative slope, the industry is

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

Question 62

In monopolistic competition, each firm's marginal revenue curve has a ________ and its demand curve has a ________.

A) slope equal to zero; slope equal to zero
B) slope equal to zero; negative slope
C) negative slope; a slope equal to zero
D) negative slope; negative slope

Question 63

For a firm in monopolistic competition, the marginal cost curve intersects the average total cost curve

A) at the minimum average total cost.
B) to the left of the minimum average total cost.
C) to the right of the minimum average total cost.
D) at no point.

Question 64

A monopolistically competitive firm is like a perfectly competitive firm insofar as

A) both face perfectly elastic demand.
B) both make an economic profit in the long run.
C) both have MR curves that lie below their demand curves.
D) both make zero economic profit in the long run.

Question 65

One important difference between monopoly and monopolistic competition is the

A) slope of the demand curve that the firms faces.
B) point there are no barriers to entry in monopolistic competition.
C) greater restriction of output in monopolistic competition.
D) result that the marginal revenue and demand curves are the same for a monopoly.

Question 66

The best example of a good sold in a monopolistically competitive market is

A) pizza.
B) the local newspaper.
C) sewer services.
D) peaches.

Question 67

How is a monopolistically competitive firm similar to a perfectly competitive firm?

A) Both will observe entry into the industry if economic profit is positive.
B) Both produce where average total cost equals marginal cost.
C) Both make a positive economic profit in the long run.
D) Both produce a homogeneous good.

Question 68

In monopolistic competition, the demand curve for a firm's product is negatively sloped because of

A) barriers to entry.
B) no barriers to entry.
C) product differentiation.
D) economies of scale.

Question 69

In monopolistic competition, each firm has a demand curve with a ________ and there ________ barriers to entry into the market.

A) negative slope; are no
B) slope equal to zero; are no
C) negative slope; are
D) slope equal to zero; are

Question 70

A monopolistically competitive firm is like a monopoly firm insofar as

A) both face perfectly elastic demand.
B) both earn an economic profit in the long run.
C) both have MR curves that lie below their demand curves.
D) neither is protected by high barriers to entry.

Question 71

Graphically we can illustrate a firm with price setting ability by drawing its demand curve as ________.

A) downward sloping
B) upward sloping
C) horizontal
D) vertical

Question 72

A monopolistically competitive firm

A) cannot make a positive economic profit in the long run because of entry.
B) can make a positive economic profit in the long run because it sells a differentiated good.
C) can make a positive economic profit in the long run because there are only a few firms in the industry.
D) cannot make a positive economic profit in the long run because it sells a homogeneous good.

Question 73

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

A) automobiles
B) wheat
C) fast food
D) postage stamps

Question 74

A firm in monopolistic competition has some degree of price-setting power because

A) in the long run it earns a normal profit.
B) it can never earn less than normal profit.
C) the price it charges is never more than its marginal cost.
D) if it raises its price, the quantity it can sell will not decrease to zero.

Question 75

Firms in monopolistic competition always will

A) make an economic profit.
B) set their price equal to their marginal cost.
C) set their price above their marginal cost.
D) produce at the minimum average total cost.

Question 76

In monopolistic competition, a firm must determine what price to set for its good because

A) the demand for its good is not perfectly elastic.
B) the demand for its good is perfectly elastic.
C) there are many buyers.
D) there are many sellers.

Question 77

In monopolistic competition, each firm's marginal revenue curve lies ________ its demand curve because of ________.

A) below; barriers to entry
B) below; product differentiation
C) above; barriers to entry
D) above; product differentiation

Question 78

Which of the following firms are in a monopolistically competitive market?

A) the many retail firms such as JCPenney, Sears, The Gap, and so on
B) the sole local providers of electricity, such as Kansas Power and Light, or Pacific Gas and Electric
C) the many farmers that grow wheat
D) None of the above are in a monopolistically competitive market.

Question 79

A characteristic of monopolistic competition is that each firm

A) faces perfectly elastic demand.
B) faces a downward-sloping demand curve.
C) has a perfectly elastic supply.
D) has a perfectly inelastic supply.

Question 80

Small pizza parlors exist in just about every town. Anyone can open a pizza parlor, and the pizzas from one parlor typically have different tastes and sizes than pizzas from another parlor. Thus, the pizza industry is an example of

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