Question 1

Which of the following is not an example of nonprice competition in the airline market?

Accepted Answer

A) A low concentration ratio. 
B) Advertising on the radio. 
C) More on-time flights. 
D) Increased frequency of flights. 
A) A low concentration ratio. 
B) Advertising on the radio. 
C) More on-time flights. 
D) Increased frequency of flights. A

Question 2

If monopolistically competitive firms have some control over the prices they charge,why do they experience zero economic profits in the long run?

Accepted Answer

The key is the relatively easy entry into monopolistically competitive markets.If a typical firm is experiencing economic profits in the short run,new firms will enter the market,reducing the demand and increasing the price elasticity for the typical firm's product.This process will continue as long as there are economic profits-that is,competition will force economic profits to zero in the long run.

Question 3

Which of the following is not true about a monopolistic competitor?

Accepted Answer

A) It maximizes profit at the point where MC = MR. 
B) It produces less output than a perfectly competitive firm,ceteris paribus. 
C) It charges a higher price than a perfectly competitive firm,ceteris paribus. 
D) It can earn economic profits in the long run. 
A) It maximizes profit at the point where MC = MR. 
B) It produces less output than a perfectly competitive firm,ceteris paribus. 
C) It charges a higher price than a perfectly competitive firm,ceteris paribus. 
D) It can earn economic profits in the long run. D

Question 4

The demand curve faced by a monopolistically competitive firm is

Accepted Answer

A) Downward-sloping. 
B) Flat. 
C) Kinked. 
D) Upward-sloping. 
A) Downward-sloping. 
B) Flat. 
C) Kinked. 
D) Upward-sloping.

Question 5

A monopolistically competitive firm can raise its price somewhat without fear of great change in unit sales because

Accepted Answer

A) The demand for its product is typically very price-elastic. 
B) Its demand curve is horizontal. 
C) Of product differentiation and brand loyalty. 
D) Of the gap in its marginal revenue curve. 
A) The demand for its product is typically very price-elastic. 
B) Its demand curve is horizontal. 
C) Of product differentiation and brand loyalty. 
D) Of the gap in its marginal revenue curve.

Question 6

In monopolistic competition,each firm competes with other firms offering identical substitutes.

Accepted Answer

A) True 
 B)False

Question 7

Refer to Figure 26.5.Which firm is least likely to engage in advertising?

Accepted Answer

A) Firm A only. 
B) Firm B only. 
C) Firm C only. 
D) Firms A,C,and D. 
A) Firm A only. 
B) Firm B only. 
C) Firm C only. 
D) Firms A,C,and D.

Question 8

The monopoly aspect of monopolistic competition is that there is only one seller.

Accepted Answer

A) True 
 B)False

Question 9

Advertising plays a role in reducing the cross-price elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following market structures will have lower prices in the long run than monopoly,ceteris paribus?

Accepted Answer

A) Perfect competition,oligopoly,and monopolistic competition. 
B) Perfect competition,but not oligopoly or monopolistic competition. 
C) Perfect competition and oligopoly,but not monopolistic competition. 
D) Oligopoly and monopolistic competition,but not perfect competition. 
A) Perfect competition,oligopoly,and monopolistic competition. 
B) Perfect competition,but not oligopoly or monopolistic competition. 
C) Perfect competition and oligopoly,but not monopolistic competition. 
D) Oligopoly and monopolistic competition,but not perfect competition.

Question 11

Monopolistically competitive firms use marginal cost pricing.

Accepted Answer

A) True 
 B)False

Question 12

When new firms enter a monopolistically competitive industry,the market

Accepted Answer

A) Supply curve shifts to the left. 
B) Supply curve shifts to the right. 
C) Demand curve shifts to the left. 
D) Demand curve shifts to the right. 
A) Supply curve shifts to the left. 
B) Supply curve shifts to the right. 
C) Demand curve shifts to the left. 
D) Demand curve shifts to the right.

Question 13

If economic profits are earned in a monopolistically competitive market,

Accepted Answer

A) More firms will enter the market. 
B) The market supply curve will shift to the left. 
C) Price will rise. 
D) The market demand curve will shift to the right. 
A) More firms will enter the market. 
B) The market supply curve will shift to the left. 
C) Price will rise. 
D) The market demand curve will shift to the right.

Question 14

For a monopolistically competitive firm,barriers to entry are high,which allows the firm to earn positive economic profits in the long run.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is similar for oligopoly and monopolistic competition?

Accepted Answer

A) Both have many firms. 
B) Both have low concentration ratios. 
C) Both have market power. 
D) Both make independent production decisions. 
A) Both have many firms. 
B) Both have low concentration ratios. 
C) Both have market power. 
D) Both make independent production decisions.

Question 16

Monopolistic competition results in allocative efficiency.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following characterizes monopolistic competition?

Accepted Answer

A) Price leadership. 
B) Zero long-run profit. 
C) Retaliation. 
D) Marginal cost pricing. 
A) Price leadership. 
B) Zero long-run profit. 
C) Retaliation. 
D) Marginal cost pricing.

Question 18

Entry into a market characterized by monopolistic competition is generally

Accepted Answer

A) Entirely blocked by existing firms. 
B) Very easy because few barriers exist. 
C) As difficult as in oligopoly. 
D) More difficult than entry into monopolized markets. 
A) Entirely blocked by existing firms. 
B) Very easy because few barriers exist. 
C) As difficult as in oligopoly. 
D) More difficult than entry into monopolized markets.

Question 19

Which of the firms in Figure 26.5 is most likely a monopoly in the long run?

Accepted Answer

A) Firm A. 
B) Firm B. 
C) Firm C. 
D) Firm D. 
A) Firm A. 
B) Firm B. 
C) Firm C. 
D) Firm D.

Question 20

A monopolistically competitive firm that runs a successful advertising campaign creates enormous goodwill,but this goodwill does little to increase the value of the company.

Accepted Answer

A) True 
 B)False

Exam 26: Monopolistic Competition

Which of the following is not an example of nonprice competition in the airline market?

If monopolistically competitive firms have some control over the prices they charge,why do they experience zero economic profits in the long run?

Which of the following is not true about a monopolistic competitor?

The demand curve faced by a monopolistically competitive firm is

A monopolistically competitive firm can raise its price somewhat without fear of great change in unit sales because

In monopolistic competition,each firm competes with other firms offering identical substitutes.

Refer to Figure 26.5.Which firm is least likely to engage in advertising?

The monopoly aspect of monopolistic competition is that there is only one seller.

Advertising plays a role in reducing the cross-price elasticity of demand.

Which of the following market structures will have lower prices in the long run than monopoly,ceteris paribus?

Monopolistically competitive firms use marginal cost pricing.

When new firms enter a monopolistically competitive industry,the market

If economic profits are earned in a monopolistically competitive market,

For a monopolistically competitive firm,barriers to entry are high,which allows the firm to earn positive economic profits in the long run.

Which of the following is similar for oligopoly and monopolistic competition?

Monopolistic competition results in allocative efficiency.

Which of the following characterizes monopolistic competition?

Entry into a market characterized by monopolistic competition is generally

Which of the firms in Figure 26.5 is most likely a monopoly in the long run?

A monopolistically competitive firm that runs a successful advertising campaign creates enormous goodwill,but this goodwill does little to increase the value of the company.

Economics: the Core Issues

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National Income Accounting

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Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Natural Monopolies: Deregulation

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Transfer Payments: Welfare and Social Security

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