Question 1

A monopolistically competitive industry combines elements of both competition and monopoly. The competition element results from

Accepted Answer

A) the likelihood of collusion. 
B) product differentiation. 
C) low entry barriers. 
D) mutual interdependence in decision making. 
A) the likelihood of collusion. 
B) product differentiation. 
C) low entry barriers. 
D) mutual interdependence in decision making.

Question 2

An important similarity between a monopolistically competitive firm and a pure monopolist is that both

Accepted Answer

A) realize an economic profit in the long run. 
B) achieve allocative efficiency. 
C) face demand curves that are less than perfectly elastic. 
D) achieve productive efficiency. 
A) realize an economic profit in the long run. 
B) achieve allocative efficiency. 
C) face demand curves that are less than perfectly elastic. 
D) achieve productive efficiency.

Question 3

Answer the question on the basis of the following demand and cost data for a specific firm.   Suppose that entry of firms into the industry changes this firm's demand schedule from columns 1 and 3 to columns 2 and 3. Maximum economic profit will

Accepted Answer

A) decrease to $25. 
B) decrease to $35. 
C) decrease to $70. 
D) decrease to zero. 
A) decrease to $25. 
B) decrease to $35. 
C) decrease to $70. 
D) decrease to zero.

Question 4

The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve.

Accepted Answer

A) True 
 B)False

Question 5

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 6

The demand curve of a monopolistically competitive producer is less elastic than that of a purely competitive producer.

Accepted Answer

A) True 
 B)False

Question 7

In the long run, the price charged by a monopolistically competitive firm seeking to maximize profit will

Accepted Answer

A) be less than both MC and ATC. 
B) exceed ATC but equal MC. 
C) exceed MC but equal ATC. 
D) exceed both MC and ATC. 
A) be less than both MC and ATC. 
B) exceed ATC but equal MC. 
C) exceed MC but equal ATC. 
D) exceed both MC and ATC.

Question 8

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic

Accepted Answer

A) loss of $320. 
B) profit of $480. 
C) profit of $280. 
D) profit of $600. 
A) loss of $320. 
B) profit of $480. 
C) profit of $280. 
D) profit of $600.

Question 9

Explain why monopolistically competitive firms have excess capacity.

Accepted Answer

In monopolistic competition, the gap bet

Question 10

Which of the following is correct?

Accepted Answer

A) The excess capacity problem diminishes as the monopolistically competitive firm's demand curve becomes less elastic. 
B) The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve. 
C) The greater the degree of product variation, the lesser is the excess capacity problem. 
D) The greater the degree of product variation, the greater is the excess capacity problem. 
A) The excess capacity problem diminishes as the monopolistically competitive firm's demand curve becomes less elastic. 
B) The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve. 
C) The greater the degree of product variation, the lesser is the excess capacity problem. 
D) The greater the degree of product variation, the greater is the excess capacity problem.

Question 11

Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264. These data suggest

Accepted Answer

A) greater market power in X than in Y. 
B) greater market power in Y than in X. 
C) both industries are strongly oligopolistic. 
D) that price competition is stronger in Y than in X. 
A) greater market power in X than in Y. 
B) greater market power in Y than in X. 
C) both industries are strongly oligopolistic. 
D) that price competition is stronger in Y than in X.

Question 12

Monopolistic competition is characterized by a

Accepted Answer

A) few dominant firms and low entry barriers. 
B) large number of firms and substantial entry barriers. 
C) large number of firms and low entry barriers. 
D) few dominant firms and substantial entry barriers. 
A) few dominant firms and low entry barriers. 
B) large number of firms and substantial entry barriers. 
C) large number of firms and low entry barriers. 
D) few dominant firms and substantial entry barriers.

Question 13

In the long-run equilibrium of a monopolistically competitive industry,

Accepted Answer

A) P = minimum ATC. B) P > minimum ATC. C) P = MC. D) P < MC. A) P = minimum ATC. B) P > minimum ATC. C) P = MC. D) P < MC.

Question 14

Refer to the data. The Herfindahl index for the industry is

Accepted Answer

A) 1,600. 
B) 18,000. 
C) 1,800. 
D) 80. 
A) 1,600. 
B) 18,000. 
C) 1,800. 
D) 80.

Question 15

Which of the following is a measure of the degree of industry concentration?

Accepted Answer

A) Dow Jones Industrial Average 
B) Herfindahl Index 
C) Employment Cost Index 
D) S&P 500 Index 
A) Dow Jones Industrial Average 
B) Herfindahl Index 
C) Employment Cost Index 
D) S&P 500 Index

Question 16

Monopolistic competition provides the benefit of product variety but at the cost of productive inefficiency.

Accepted Answer

A) True 
 B)False

Question 17

If the representative firm in a monopolistically competitive industry has an optimal output where P < ATC, the industry will expand in the long run.

Accepted Answer

A) True 
 B)False

Question 18

Product variety is likely to be greater in

Accepted Answer

A) monopolistic competition than in pure competition. 
B) pure competition than in monopolistic competition. 
C) homogeneous oligopoly than in monopolistic competition. 
D) homogeneous oligopoly than in differentiated oligopoly. 
A) monopolistic competition than in pure competition. 
B) pure competition than in monopolistic competition. 
C) homogeneous oligopoly than in monopolistic competition. 
D) homogeneous oligopoly than in differentiated oligopoly.

Question 19

At long-run equilibrium in monopolistic competition, there is

Accepted Answer

A) allocative efficiency but not productive efficiency. 
B) productive efficiency but not allocative efficiency. 
C) both allocative and productive efficiency. 
D) neither allocative nor productive efficiency. 
A) allocative efficiency but not productive efficiency. 
B) productive efficiency but not allocative efficiency. 
C) both allocative and productive efficiency. 
D) neither allocative nor productive efficiency.

Question 20

Answer the question on the basis of the following short run demand and cost data for a specific firm.   In the long run, the number of firms in this monopolistic competitive industry will most likely

Accepted Answer

A) decrease. 
B) increase. 
C) stay the same. 
D) The answer cannot be determined from the given data. 
A) decrease. 
B) increase. 
C) stay the same. 
D) The answer cannot be determined from the given data.

Exam 13: Monopolistic Competition

A monopolistically competitive industry combines elements of both competition and monopoly. The competition element results from

An important similarity between a monopolistically competitive firm and a pure monopolist is that both

Answer the question on the basis of the following demand and cost data for a specific firm. Suppose that entry of firms into the industry changes this firm's demand schedule from columns 1 and 3 to columns 2 and 3. Maximum economic profit will

The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve.

In monopolistically competitive markets, resources are

The demand curve of a monopolistically competitive producer is less elastic than that of a purely competitive producer.

In the long run, the price charged by a monopolistically competitive firm seeking to maximize profit will

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic

Explain why monopolistically competitive firms have excess capacity.

Which of the following is correct?

Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264. These data suggest

Monopolistic competition is characterized by a

In the long-run equilibrium of a monopolistically competitive industry,

Refer to the data. The Herfindahl index for the industry is

Which of the following is a measure of the degree of industry concentration?

Monopolistic competition provides the benefit of product variety but at the cost of productive inefficiency.

If the representative firm in a monopolistically competitive industry has an optimal output where P < ATC, the industry will expand in the long run.

Product variety is likely to be greater in

At long-run equilibrium in monopolistic competition, there is

Answer the question on the basis of the following short run demand and cost data for a specific firm. In the long run, the number of firms in this monopolistic competitive industry will most likely

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