Question 1

On the one hand, the inefficiency of monopolistic competition is that it ____. On the other hand, a positive result is ____.

Accepted Answer

A) produces too many different products; zero economic profit in the long run 
B) fails to minimize total cost; product variety 
C) results in a deadweight loss; product variety 
D) produces at the point at which marginal revenue equals marginal cost; economic profit 
E) fails to maximize profit; normal profit 
A) produces too many different products; zero economic profit in the long run 
B) fails to minimize total cost; product variety 
C) results in a deadweight loss; product variety 
D) produces at the point at which marginal revenue equals marginal cost; economic profit 
E) fails to maximize profit; normal profit

Question 2

In the long run, a monopolistically competitive firm

Accepted Answer

A) makes an economic profit. 
B) charges a price that is above average total cost. 
C) has a horizontal demand curve. 
D) becomes a monopoly. 
E) makes a normal profit. 
A) makes an economic profit. 
B) charges a price that is above average total cost. 
C) has a horizontal demand curve. 
D) becomes a monopoly. 
E) makes a normal profit.

Question 3

Explain why a firm will expend funds to differentiate its product from the products of other firms.

Accepted Answer

Despite the fact that product differenti

Question 4

Strategic behavior refers to

Accepted Answer

A) the situation in which what is best for firm A depends on what firm B does, and what is best for firm B depends on what firm A does. 
B) the behavior of monopoly firms that must take into account the actions of competitors. 
C) the situation in which what is best for firm A depends on what firm A does, and what is best for firm B depends on what firm B does. 
D) the behavior of a firm attempting to increase its profits at the expense of competitors. 
E) the behavior of firms in monopolistic competition. 
A) the situation in which what is best for firm A depends on what firm B does, and what is best for firm B depends on what firm A does. 
B) the behavior of monopoly firms that must take into account the actions of competitors. 
C) the situation in which what is best for firm A depends on what firm A does, and what is best for firm B depends on what firm B does. 
D) the behavior of a firm attempting to increase its profits at the expense of competitors. 
E) the behavior of firms in monopolistic competition.

Question 5

A Nash equilibrium is always achieved in game theory.

Accepted Answer

A) True 
 B)False

Question 6

In the long run, a monopolistically competitive firm operates with excess capacity and excess costs.

Accepted Answer

A) True 
 B)False

Question 7

The difference between short-run demand and long-run demand for a monopolistic competitor is

Accepted Answer

A) There is no difference between long-run and short-run demand for a monopolistic competitor. 
B) long-run demand results in no economic profit, whereas short-run demand might result in profits or losses. 
C) in the long run demand slopes downward, but in the short run it is horizontal. 
D) the long-run demand is elastic, whereas the short-run demand is inelastic. 
E) in the short run demand slopes downward, but in the long run it is horizontal. 
A) There is no difference between long-run and short-run demand for a monopolistic competitor. 
B) long-run demand results in no economic profit, whereas short-run demand might result in profits or losses. 
C) in the long run demand slopes downward, but in the short run it is horizontal. 
D) the long-run demand is elastic, whereas the short-run demand is inelastic. 
E) in the short run demand slopes downward, but in the long run it is horizontal.

Question 8

There is limited entry in a monopolistically competitive industry.

Accepted Answer

A) True 
 B)False

Question 9

In a cartel,

Accepted Answer

A) all firms are exactly alike. 
B) all firms have precisely the same interests. 
C) firms cooperate to form a competitive market. 
D) firms cooperate to form a monopoly arrangement. 
E) the government regulates firms to form a competitive market. 
A) all firms are exactly alike. 
B) all firms have precisely the same interests. 
C) firms cooperate to form a competitive market. 
D) firms cooperate to form a monopoly arrangement. 
E) the government regulates firms to form a competitive market.

Question 10

Suppose a monopolistically competitive industry has 8 firms with identical costs.

Accepted Answer

The answer of Suppose a monopolistically competitive industry has 8...

Question 11

The model of monopolistic competition was developed by

Accepted Answer

A) Milton Friedman. 
B) Adam Smith. 
C) Paul Samuelson. 
D) Edward Chamberlin. 
E) Alfred Marshall. 
A) Milton Friedman. 
B) Adam Smith. 
C) Paul Samuelson. 
D) Edward Chamberlin. 
E) Alfred Marshall.

Question 12

If a monopolistic competitor lowers the price of its product,

Accepted Answer

A) it is a signal that the monopolistic competitor is trying to drive its competition out of the market. 
B) it is a signal that quality has been reduced. 
C) losses will result. 
D) some customers will be drawn from its competitors, ceteris paribus. 
E) it will not be able to advertise and will lose customers. 
A) it is a signal that the monopolistic competitor is trying to drive its competition out of the market. 
B) it is a signal that quality has been reduced. 
C) losses will result. 
D) some customers will be drawn from its competitors, ceteris paribus. 
E) it will not be able to advertise and will lose customers.

Question 13

In oligopoly, any action by one firm causes

Accepted Answer

A) no reaction by other firms. 
B) a reaction by other firms. 
C) a profit gain by other firms. 
D) a profit loss by other firms. 
E) a loss of market share by other firms. 
A) no reaction by other firms. 
B) a reaction by other firms. 
C) a profit gain by other firms. 
D) a profit loss by other firms. 
E) a loss of market share by other firms.

Question 14

Why is game theory useful in predicting firm behavior?

Accepted Answer

Game theory takes explicit account of th

Question 15

The entry of new firms into a monopolistically competitive industry

Accepted Answer

A) will cause existing firms' costs to decrease if existing firms experience economies of scale. 
B) is likely to occur when firms are breaking even. 
C) will cause existing firms' demand curves to change. 
D) will cause existing firms to decrease advertising expenditures. 
E) is limited by significant barriers to entry. 
A) will cause existing firms' costs to decrease if existing firms experience economies of scale. 
B) is likely to occur when firms are breaking even. 
C) will cause existing firms' demand curves to change. 
D) will cause existing firms to decrease advertising expenditures. 
E) is limited by significant barriers to entry.

Question 16

Suppose that A-Mart sells fashion clothing in a shopping mall along with many other fashion retail stores. If A-Mart earns economic profits in the short run, then in the long run

Accepted Answer

A) no more fashion retail stores will open and the demand curve for A-Mart will shift left. 
B) no more fashion retail stores will close and the demand curve for A-Mart will shift right. 
C) some fashion retail stores will open and the demand curve for A-Mart will shift left. 
D) some fashion retail stores will close and the demand curve for A-Mart will shift right. 
E) the number of fashion retail stores will remain the same and the demand curve will stay constant. 
A) no more fashion retail stores will open and the demand curve for A-Mart will shift left. 
B) no more fashion retail stores will close and the demand curve for A-Mart will shift right. 
C) some fashion retail stores will open and the demand curve for A-Mart will shift left. 
D) some fashion retail stores will close and the demand curve for A-Mart will shift right. 
E) the number of fashion retail stores will remain the same and the demand curve will stay constant.

Question 17

How might the deadweight loss of monopolistic competition be offset?

Accepted Answer

Deadweight loss may be offset

Question 18

When two nations trade goods produced by the same industry, they are engaging in

Accepted Answer

A) collusive behavior. 
B) mercantilism. 
C) the creation of deadweight loss. 
D) intraindustry trade. 
E) conspiracy. 
A) collusive behavior. 
B) mercantilism. 
C) the creation of deadweight loss. 
D) intraindustry trade. 
E) conspiracy.

Question 19

If a monopolistically competitive firm is earning above-normal profits, then in the long run its demand will shift to the right and become more elastic.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is true?

Accepted Answer

A) A cost of differentiating one's product from another is that some consumers will stop buying it. 
B) Economists are very good at identifying the proper amount of differentiation to bring about maximum benefit to society. 
C) There is no advantage to making one's product slightly different from another successful product. 
D) Product differentiation will succeed only if an existing firm is driven from the market. 
E) Most firms trying to establish themselves try to copy the competition. 
A) A cost of differentiating one's product from another is that some consumers will stop buying it. 
B) Economists are very good at identifying the proper amount of differentiation to bring about maximum benefit to society. 
C) There is no advantage to making one's product slightly different from another successful product. 
D) Product differentiation will succeed only if an existing firm is driven from the market. 
E) Most firms trying to establish themselves try to copy the competition.

Exam 11: Product Differentiation, Monopolistic Competition, and Oligopoly

On the one hand, the inefficiency of monopolistic competition is that it ____. On the other hand, a positive result is ____.

In the long run, a monopolistically competitive firm

Explain why a firm will expend funds to differentiate its product from the products of other firms.

Strategic behavior refers to

A Nash equilibrium is always achieved in game theory.

In the long run, a monopolistically competitive firm operates with excess capacity and excess costs.

The difference between short-run demand and long-run demand for a monopolistic competitor is

There is limited entry in a monopolistically competitive industry.

In a cartel,

Suppose a monopolistically competitive industry has 8 firms with identical costs.

The model of monopolistic competition was developed by

If a monopolistic competitor lowers the price of its product,

In oligopoly, any action by one firm causes

Why is game theory useful in predicting firm behavior?

The entry of new firms into a monopolistically competitive industry

Suppose that A-Mart sells fashion clothing in a shopping mall along with many other fashion retail stores. If A-Mart earns economic profits in the short run, then in the long run

How might the deadweight loss of monopolistic competition be offset?

When two nations trade goods produced by the same industry, they are engaging in

If a monopolistically competitive firm is earning above-normal profits, then in the long run its demand will shift to the right and become more elastic.

Which of the following statements is true?

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

Filters

On the one hand, the inefficiency of monopolistic competition is that it . On the other hand, a positive result is .