Question 1

Cross-price elasticity is very low in monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 2

Each producer in monopolistic competition has

Accepted Answer

A) Complete market power. 
B) Substantial market power. 
C) Some market power. 
D) No market power. 
A) Complete market power. 
B) Substantial market power. 
C) Some market power. 
D) No market power.

Question 3

The competitive dimension of monopolistic competition is that

Accepted Answer

A) High barriers to entry tend to push economic profits toward zero. 
B) Consumers view each firm's products as interchangeable. 
C) Low barriers to entry tend to push economic profits toward zero. 
D) Each firm in the industry will lose all of its customers if it raises its price. 
A) High barriers to entry tend to push economic profits toward zero. 
B) Consumers view each firm's products as interchangeable. 
C) Low barriers to entry tend to push economic profits toward zero. 
D) Each firm in the industry will lose all of its customers if it raises its price.

Question 4

In the short run,a monopolistically competitive firm

Accepted Answer

A) May make economic profits,but it fails to make economic profits in the long run because of the entry of new firms. 
B) May make profits just as it does in the long run because firms can enter easily. 
C) Produces at a rate at which long-run average cost equals price,but not at which long-run marginal cost equals marginal revenue. 
D) Makes profits just as it does in the long run because entry is blocked. 
A) May make economic profits,but it fails to make economic profits in the long run because of the entry of new firms. 
B) May make profits just as it does in the long run because firms can enter easily. 
C) Produces at a rate at which long-run average cost equals price,but not at which long-run marginal cost equals marginal revenue. 
D) Makes profits just as it does in the long run because entry is blocked.

Question 5

Entry into a market characterized by monopolistic competition

Accepted Answer

A) Is rare because firms have market power. 
B) Is frequent because barriers to entry are low. 
C) Occurs when a firm's demand is everywhere below its long-run average cost curve. 
D) Results from economies of scale. 
A) Is rare because firms have market power. 
B) Is frequent because barriers to entry are low. 
C) Occurs when a firm's demand is everywhere below its long-run average cost curve. 
D) Results from economies of scale.

Question 6

Large cities typically have many drugstores that offer different levels of service and product selection.The drugstore market in big cities can best be classified as

Accepted Answer

A) A competitive market. 
B) Monopolistic competition. 
C) Oligopoly. 
D) Monopoly. 
A) A competitive market. 
B) Monopolistic competition. 
C) Oligopoly. 
D) Monopoly.

Question 7

When a monopolistically competitive firm advertises,it is attempting to increase

Accepted Answer

A) The demand and decrease the price elasticity of demand for its product. 
B) The demand and increase the price elasticity of demand for its product. 
C) Long-run profits. 
D) Market demand. 
A) The demand and decrease the price elasticity of demand for its product. 
B) The demand and increase the price elasticity of demand for its product. 
C) Long-run profits. 
D) Market demand.

Question 8

A monopolistically competitive firm confronts a downward-sloping demand curve and as a result has some market power.

Accepted Answer

A) True 
 B)False

Question 9

Firms in a monopolistically competitive market will

Accepted Answer

A) Produce efficiently. 
B) Make economic profits in the long run. 
C) Use the profit-maximizing rule MC = MR. 
D) Produce at the minimum of ATC. 
A) Produce efficiently. 
B) Make economic profits in the long run. 
C) Use the profit-maximizing rule MC = MR. 
D) Produce at the minimum of ATC.

Question 10

An In the News article titled "Selling "Pure Water": A $Billion Scam?" refers to the use of advertising.Successful advertising can do all of the following except

Accepted Answer

A) Differentiate products. 
B) Create brand loyalty. 
C) Decrease the price elasticity of demand for the product. 
D) Maximize efficiency. 
A) Differentiate products. 
B) Create brand loyalty. 
C) Decrease the price elasticity of demand for the product. 
D) Maximize efficiency.

Question 11

One of the main differences between an oligopolistic firm and a monopolistically competitive firm is that a monopolistically competitive firm

Accepted Answer

A) Faces a horizontal demand curve;an oligopoly does not. 
B) Is relatively independent;an oligopoly is interdependent. 
C) Has no market power;an oligopoly has some market power. 
D) Has high barriers to entry;an oligopoly does not. 
A) Faces a horizontal demand curve;an oligopoly does not. 
B) Is relatively independent;an oligopoly is interdependent. 
C) Has no market power;an oligopoly has some market power. 
D) Has high barriers to entry;an oligopoly does not.

Question 12

A distinguishing characteristic of monopolistic competition is that there are many firms in an industry.

Accepted Answer

A) True 
 B)False

Question 13

Discuss both the price elasticity of demand and the cross-price elasticity of demand conditions facing a firm in a monopolistically competitive industry.Include in your essay the role of advertising and the creation of brand loyalty.

Accepted Answer

Firms in monopolistic competition advert

Question 14

Demand and Cost Data for Will's Beach Ball Company Table 26.1
A Monopolistically Competitive Firm
$\begin{array}{|r|r|r|r|r|}
\hline&\text { Demand Data }&&\
\text { Price } & \text { Quantity } & \text { Cost Data Output } & \text { Total Cost } \
\hline \$ 11 & 6 & 6 & \$ 48 \
\hline \$ 10 & 7 & 7 & \$ 52 \
\hline\$9&8&8&\$57\
\hline \$ 8 & 9 & 9 & \$63 \
\hline  \$7 & 10& 10&\$70 \
\hline
\end{array}$
 Refer to Table 26.1.At the profit-maximizing output and price,Will's Beach Ball Company will earn a profit equal to

Accepted Answer

A) $18. 
B) $70. 
C) $72. 
D) -$12. 
A) $18. 
B) $70. 
C) $72. 
D) -$12.

Question 15

One symptom of the inefficiencies associated with monopolistic competition is industry wide excess capacity.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following characterizes the difference between oligopoly and monopolistic competition?

Accepted Answer

A) Oligopolists are independent of each other;monopolistically competitive firms are interdependent. 
B) Monopolistically competitive firms experience zero long-run economic profit;oligopolists may experience positive long-run economic profit. 
C) There are many oligopolists but only a few monopolistically competitive firms. 
D) Monopolistically competitive firms face horizontal demand curves;oligopolists face downward-sloping demand curves. 
A) Oligopolists are independent of each other;monopolistically competitive firms are interdependent. 
B) Monopolistically competitive firms experience zero long-run economic profit;oligopolists may experience positive long-run economic profit. 
C) There are many oligopolists but only a few monopolistically competitive firms. 
D) Monopolistically competitive firms face horizontal demand curves;oligopolists face downward-sloping demand curves.

Question 17

One In the News article is titled "The Cola Wars: It's Not All Taste." Firms in a monopolistically competitive industry,such as the soft drink market,are likely to

Accepted Answer

A) Meet together to set prices. 
B) Behave exactly like a monopoly. 
C) Advertise to create brand loyalty. 
D) Attempt to reduce market power. 
A) Meet together to set prices. 
B) Behave exactly like a monopoly. 
C) Advertise to create brand loyalty. 
D) Attempt to reduce market power.

Question 18

Product differentiation refers to

Accepted Answer

A) Features that make one product appear different from competing products in the same market. 
B) Different prices for the same product in a certain market. 
C) The selling of identical products in different markets. 
D) The charging of different prices for the same product in different markets. 
A) Features that make one product appear different from competing products in the same market. 
B) Different prices for the same product in a certain market. 
C) The selling of identical products in different markets. 
D) The charging of different prices for the same product in different markets.

Question 19

Price reductions are often used as an effective way to increase sales in monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 20

Describe the typical demand curve facing an individual firm in perfectly competitive,monopoly,and monopolistically competitive markets.Explain what the shape of each firm's demand curve indicates about the amount of market power each firm possesses.

Accepted Answer

The perfectly elastic demand curve facin

Exam 26: Monopolistic Competition

Cross-price elasticity is very low in monopolistic competition.

Each producer in monopolistic competition has

The competitive dimension of monopolistic competition is that

In the short run,a monopolistically competitive firm

Entry into a market characterized by monopolistic competition

Large cities typically have many drugstores that offer different levels of service and product selection.The drugstore market in big cities can best be classified as

When a monopolistically competitive firm advertises,it is attempting to increase

A monopolistically competitive firm confronts a downward-sloping demand curve and as a result has some market power.

Firms in a monopolistically competitive market will

An In the News article titled "Selling "Pure Water": A $Billion Scam?" refers to the use of advertising.Successful advertising can do all of the following except

One of the main differences between an oligopolistic firm and a monopolistically competitive firm is that a monopolistically competitive firm

A distinguishing characteristic of monopolistic competition is that there are many firms in an industry.

Discuss both the price elasticity of demand and the cross-price elasticity of demand conditions facing a firm in a monopolistically competitive industry.Include in your essay the role of advertising and the creation of brand loyalty.

One symptom of the inefficiencies associated with monopolistic competition is industry wide excess capacity.

Which of the following characterizes the difference between oligopoly and monopolistic competition?

One In the News article is titled "The Cola Wars: It's Not All Taste." Firms in a monopolistically competitive industry,such as the soft drink market,are likely to

Product differentiation refers to

Price reductions are often used as an effective way to increase sales in monopolistic competition.

Describe the typical demand curve facing an individual firm in perfectly competitive,monopoly,and monopolistically competitive markets.Explain what the shape of each firm's demand curve indicates about the amount of market power each firm possesses.

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

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

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

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