Question 1

In the long run, a typical firm in a monopolistically competitive market earns positive economic profits.

Accepted Answer

A) True 
 B)False  False

Question 2

Monopolistically competitive industries are inefficient because

Accepted Answer

A) they realize diseconomies of scale. 
B) advertising costs retard technological advance and product development. 
C) they are overpopulated with firms whose plants are underutilized. 
D) monopolistically competitive sellers engage in misleading advertising. 
A) they realize diseconomies of scale. 
B) advertising costs retard technological advance and product development. 
C) they are overpopulated with firms whose plants are underutilized. 
D) monopolistically competitive sellers engage in misleading advertising. C

Question 3

The less elastic a monopolistic competitor's long-run demand curve, the

Accepted Answer

A) less its excess capacity. 
B) higher its price relative to that of a pure competitor having the same cost curves. 
C) higher its long-run profits. 
D) lower its average total cost at its equilibrium level of output. 
A) less its excess capacity. 
B) higher its price relative to that of a pure competitor having the same cost curves. 
C) higher its long-run profits. 
D) lower its average total cost at its equilibrium level of output. B

Question 4

In a monopolistically competitive market like restaurants, large capital-intensive firms like McDonaldâ€™s may co-exist with more labor-intensive mom-and-pop shops.In this case, higher labor costs would tend to favor the survival of

Accepted Answer

A) large-scale capital-intensive firms more than the small firms. 
B) small firms more than the large-scale capital-intensive firms. 
C) foreign firms more than the large-scale capital-intensive firms. 
D) domestic restaurant firms more than the foreign firms. 
A) large-scale capital-intensive firms more than the small firms. 
B) small firms more than the large-scale capital-intensive firms. 
C) foreign firms more than the large-scale capital-intensive firms. 
D) domestic restaurant firms more than the foreign firms.

Question 5

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will

Accepted Answer

A) increase. 
B) become less elastic. 
C) not be affected. 
D) decrease. 
A) increase. 
B) become less elastic. 
C) not be affected. 
D) decrease.

Question 6

In monopolistic competition, a firm has a limited degree of "price-making" ability.This means that the profit-maximizing firm will

Accepted Answer

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

Question 7

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

Accepted Answer

A) each firm has to take the market price as given. 
B) product differentiation allows each firm some degree of monopoly power. 
C) there are a few large firms in the industry and they each act as a monopolist. 
D) mutual interdependence among all firms in the industry leads to collusion. 
A) each firm has to take the market price as given. 
B) product differentiation allows each firm some degree of monopoly power. 
C) there are a few large firms in the industry and they each act as a monopolist. 
D) mutual interdependence among all firms in the industry leads to collusion.

Question 8

In monopolistically competitive markets, resources are

Accepted Answer

A) overallocated because long-run equilibrium occurs where price exceeds marginal cost. 
B) underallocated because long-run equilibrium occurs where price exceeds marginal cost. 
C) overallocated because long-run equilibrium occurs where marginal cost exceeds price. 
D) underallocated because long-run equilibrium occurs where marginal cost exceeds price. 
A) overallocated because long-run equilibrium occurs where price exceeds marginal cost. 
B) underallocated because long-run equilibrium occurs where price exceeds marginal cost. 
C) overallocated because long-run equilibrium occurs where marginal cost exceeds price. 
D) underallocated because long-run equilibrium occurs where marginal cost exceeds price.

Question 9

An industry having a four-firm concentration ratio of 30 percent

Accepted Answer

A) approximates pure competition. 
B) is an oligopoly. 
C) is a pure monopoly. 
D) is monopolistically competitive. 
A) approximates pure competition. 
B) is an oligopoly. 
C) is a pure monopoly. 
D) is monopolistically competitive.

Question 10

"Excess capacity" exists in monopolistic competition but not in pure competition.

Accepted Answer

A) True 
 B)False

Question 11

Monopolistic competitive firms are productively inefficient because production occurs where

Accepted Answer

A) price is greater than marginal revenue. 
B) marginal cost is less than price. 
C) marginal cost is not at its lowest. 
D) average total cost is not at its lowest. 
A) price is greater than marginal revenue. 
B) marginal cost is less than price. 
C) marginal cost is not at its lowest. 
D) average total cost is not at its lowest.

Question 12

The larger the number of firms and the less the degree of product differentiation, the greater will be the elasticity of a monopolistically competitive seller's demand curve.

Accepted Answer

A) True 
 B)False

Question 13

The highest possible value of the Herfindahl index is 1,000.

Accepted Answer

A) True 
 B)False

Question 14

The monopolistically competitive seller's demand curve will become more elastic the

Accepted Answer

A) larger the number of competitors. 
B) greater the degree of product differentiation. 
C) more significant the barriers to entry. 
D) smaller the number of competitors. 
A) larger the number of competitors. 
B) greater the degree of product differentiation. 
C) more significant the barriers to entry. 
D) smaller the number of competitors.

Question 15

In the long run, economic theory predicts that a monopolistically competitive firm will

Accepted Answer

A) earn an economic profit. 
B) realize all economies of scale. 
C) equate price and marginal cost. 
D) have excess production capacity. 
A) earn an economic profit. 
B) realize all economies of scale. 
C) equate price and marginal cost. 
D) have excess production capacity.

Question 16

Which set of characteristics below best describes the basic features of monopolistic competition?

Accepted Answer

A) easy entry, many firms, and standardized products 
B) barriers to entry, few firms, and differentiated products 
C) easy entry, many firms, and differentiated products 
D) easy entry, few firms, and standardized products 
A) easy entry, many firms, and standardized products 
B) barriers to entry, few firms, and differentiated products 
C) easy entry, many firms, and differentiated products 
D) easy entry, few firms, and standardized products

Question 17

Monopolistically competitive sellers realize economic profits in the long run because entry barriers are significant.

Accepted Answer

A) True 
 B)False

Question 18

The four-firm sales concentration ratio for an industry measures the

Accepted Answer

A) geographic concentration of firms. 
B) extent to which the four largest firms dominate the production of a good. 
C) percentage of the industry's capital facilities owned by the four largest firms. 
D) degree of X-inefficiency in the industry. 
A) geographic concentration of firms. 
B) extent to which the four largest firms dominate the production of a good. 
C) percentage of the industry's capital facilities owned by the four largest firms. 
D) degree of X-inefficiency in the industry.

Question 19

The restaurant, legal assistance, and clothing industries are each illustrations of

Accepted Answer

A) countervailing power. 
B) homogeneous oligopoly. 
C) monopolistic competition. 
D) pure monopoly. 
A) countervailing power. 
B) homogeneous oligopoly. 
C) monopolistic competition. 
D) pure monopoly.

Question 20

Which is not a common form of nonprice competition in monopolistic competition?

Accepted Answer

A) customer services such as liberal guarantee and repair policies 
B) advertisements featuring brand names 
C) cash rebates and discount coupons 
D) annual design and model changes 
A) customer services such as liberal guarantee and repair policies 
B) advertisements featuring brand names 
C) cash rebates and discount coupons 
D) annual design and model changes

Exam 13: Monopolistic Competition

In the long run, a typical firm in a monopolistically competitive market earns positive economic profits.

Monopolistically competitive industries are inefficient because

The less elastic a monopolistic competitor's long-run demand curve, the

In a monopolistically competitive market like restaurants, large capital-intensive firms like McDonaldâ€™s may co-exist with more labor-intensive mom-and-pop shops.In this case, higher labor costs would tend to favor the survival of

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will

In monopolistic competition, a firm has a limited degree of "price-making" ability.This means that the profit-maximizing firm will

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

In monopolistically competitive markets, resources are

An industry having a four-firm concentration ratio of 30 percent

"Excess capacity" exists in monopolistic competition but not in pure competition.

Monopolistic competitive firms are productively inefficient because production occurs where

The larger the number of firms and the less the degree of product differentiation, the greater will be the elasticity of a monopolistically competitive seller's demand curve.

The highest possible value of the Herfindahl index is 1,000.

The monopolistically competitive seller's demand curve will become more elastic the

In the long run, economic theory predicts that a monopolistically competitive firm will

Which set of characteristics below best describes the basic features of monopolistic competition?

Monopolistically competitive sellers realize economic profits in the long run because entry barriers are significant.

The four-firm sales concentration ratio for an industry measures the

The restaurant, legal assistance, and clothing industries are each illustrations of

Which is not a common form of nonprice competition in monopolistic competition?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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