Question 1

Which of the following is not characteristic of monopolistic competition?

Accepted Answer

A) Many firms in an industry. 
B) Low concentration ratios. 
C) Some market power. 
D) Firms have zero control over price. 
A) Many firms in an industry. 
B) Low concentration ratios. 
C) Some market power. 
D) Firms have zero control over price.

Question 2

Refer to Figure 26.4 for a monopolistically competitive firm.If the firm currently faces Demand2 and MR2,then it will earn

Accepted Answer

A) A positive economic profit,and firms will enter the industry. 
B) A positive economic profit,and firms will exit the industry. 
C) A negative economic profit,and firms will exit the industry. 
D) Zero economic profit,and neither entry nor exit will occur. 
A) A positive economic profit,and firms will enter the industry. 
B) A positive economic profit,and firms will exit the industry. 
C) A negative economic profit,and firms will exit the industry. 
D) Zero economic profit,and neither entry nor exit will occur.

Question 3

Which of the following is true about a monopolistically competitive firm in the long run?

Accepted Answer

A) It is as efficient as a purely competitive firm. 
B) It tends to realize only a normal profit. 
C) It produces at the level where costs are minimized. 
D) It will practice marginal cost pricing. 
A) It is as efficient as a purely competitive firm. 
B) It tends to realize only a normal profit. 
C) It produces at the level where costs are minimized. 
D) It will practice marginal cost pricing.

Question 4

One of the reasons for low cross-price elasticity in monopolistic competition and high cross-price elasticity in perfect competition is that

Accepted Answer

A) Firms in perfect competition differentiate their products. 
B) In monopolistic competition consumers loyal to particular brands view other available products as poor substitutes. 
C) Consumers do not have perfect substitutes in perfect competition. 
D) To save money,firms in monopolistic competition do not advertise. 
A) Firms in perfect competition differentiate their products. 
B) In monopolistic competition consumers loyal to particular brands view other available products as poor substitutes. 
C) Consumers do not have perfect substitutes in perfect competition. 
D) To save money,firms in monopolistic competition do not advertise.

Question 5

Concentration ratios for monopolistically competitive markets typically fall in the range of 70 to 100 percent.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following market structures will have higher output in the long run than monopolistic competition,ceteris paribus?

Accepted Answer

A) Perfect competition. 
B) Monopoly. 
C) Duopoly. 
D) Oligopoly. 
A) Perfect competition. 
B) Monopoly. 
C) Duopoly. 
D) Oligopoly.

Question 7

Which of the following real-world situations is the result of excess capacity in a monopolistically competitive market?

Accepted Answer

A) A factory producing women's clothing produces more than it can sell during a season. 
B) Gas stations with infrequently used pumps are located at all four corners of an intersection. 
C) A retail auto tire store orders too much inventory. 
D) Monopolistically competitive firms do not exist in the real world. 
A) A factory producing women's clothing produces more than it can sell during a season. 
B) Gas stations with infrequently used pumps are located at all four corners of an intersection. 
C) A retail auto tire store orders too much inventory. 
D) Monopolistically competitive firms do not exist in the real world.

Question 8

Brand loyalty makes the demand curve facing the monopolistically competitive firm less price-elastic.

Accepted Answer

A) True 
 B)False

Question 9

A World View article titled "The Best Global Brands" discusses the value of brand names.Establishing brand loyalty can do all of the following except

Accepted Answer

A) Improve resource allocation efficiency. 
B) Decrease the price elasticity of demand for the product. 
C) Become a valuable economic asset. 
D) Increase demand for the product. 
A) Improve resource allocation efficiency. 
B) Decrease the price elasticity of demand for the product. 
C) Become a valuable economic asset. 
D) Increase demand for the product.

Question 10

When new firms enter a monopolistically competitive industry,ceteris paribus,the

Accepted Answer

A) Market price decreases. 
B) Market price increases. 
C) Market price remains unchanged. 
D) Change in market price cannot be determined based on the information given. 
A) Market price decreases. 
B) Market price increases. 
C) Market price remains unchanged. 
D) Change in market price cannot be determined based on the information given.

Question 11

Low concentration ratios are typical of monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 12

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 advertise in an attempt to

Accepted Answer

A) Allocate resources more efficiently. 
B) Decrease the price elasticity of demand. 
C) Reduce market power. 
D) Increase the cross-price elasticity of demand 
A) Allocate resources more efficiently. 
B) Decrease the price elasticity of demand. 
C) Reduce market power. 
D) Increase the cross-price elasticity of demand

Question 13

Monopolistically competitive firms want to behave like a cartel,choosing a rate of output that maximizes total profit for all of the firms in the market.

Accepted Answer

A) True 
 B)False

Question 14

Nonprice competition results in

Accepted Answer

A) Resource misallocation. 
B) Low entry barriers. 
C) Marginal cost pricing. 
D) Production efficiency. 
A) Resource misallocation. 
B) Low entry barriers. 
C) Marginal cost pricing. 
D) Production efficiency.

Question 15

Which firm in Figure 26.5 is using marginal cost pricing?

Accepted Answer

A) Firms B and D only. 
B) Firm B only. 
C) Firm C only. 
D) All of the firms are using marginal cost pricing. 
A) Firms B and D only. 
B) Firm B only. 
C) Firm C only. 
D) All of the firms are using marginal cost pricing.

Question 16

Which firm in Figure 26.5 is most likely a monopolistically competitive firm 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 17

Which of the following is not true about advertising?

Accepted Answer

A) It creates brand loyalty. 
B) It is a form of nonprice competition. 
C) It results in efficient allocation of resources. 
D) It raises the price of goods and services. 
A) It creates brand loyalty. 
B) It is a form of nonprice competition. 
C) It results in efficient allocation of resources. 
D) It raises the price of goods and services.

Question 18

Monopolistically competitive firms advertise to differentiate their product from those of competitors.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is true about advertising?

Accepted Answer

A) It is an efficient form of competition. 
B) It is less important than price competition in oligopolistic and monopolistic competition. 
C) It is a form of nonprice competition. 
D) It is a major component of competition in perfectly competitive markets. 
A) It is an efficient form of competition. 
B) It is less important than price competition in oligopolistic and monopolistic competition. 
C) It is a form of nonprice competition. 
D) It is a major component of competition in perfectly competitive markets.

Question 20

Refer to Figure 26.5.Which firm faces possible retaliation from rival firms?

Accepted Answer

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

Exam 26: Monopolistic Competition

Which of the following is not characteristic of monopolistic competition?

Refer to Figure 26.4 for a monopolistically competitive firm.If the firm currently faces Demand2 and MR2,then it will earn

Which of the following is true about a monopolistically competitive firm in the long run?

One of the reasons for low cross-price elasticity in monopolistic competition and high cross-price elasticity in perfect competition is that

Concentration ratios for monopolistically competitive markets typically fall in the range of 70 to 100 percent.

Which of the following market structures will have higher output in the long run than monopolistic competition,ceteris paribus?

Which of the following real-world situations is the result of excess capacity in a monopolistically competitive market?

Brand loyalty makes the demand curve facing the monopolistically competitive firm less price-elastic.

A World View article titled "The Best Global Brands" discusses the value of brand names.Establishing brand loyalty can do all of the following except

When new firms enter a monopolistically competitive industry,ceteris paribus,the

Low concentration ratios are typical of 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 advertise in an attempt to

Monopolistically competitive firms want to behave like a cartel,choosing a rate of output that maximizes total profit for all of the firms in the market.

Nonprice competition results in

Which firm in Figure 26.5 is using marginal cost pricing?

Which firm in Figure 26.5 is most likely a monopolistically competitive firm in the long run?

Which of the following is not true about advertising?

Monopolistically competitive firms advertise to differentiate their product from those of competitors.

Which of the following is true about advertising?

Refer to Figure 26.5.Which firm faces possible retaliation from rival firms?

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

Filters

Refer to Figure 26.4 for a monopolistically competitive firm.If the firm currently faces Demand₂ and MR₂,then it will earn