Question 1

Which industry would be best characterized as monopolistically competitive?

Accepted Answer

A) smartphone manufacturing 
B) Internet-search sites 
C) web design consulting 
D) business cloud-computing services 
A) smartphone manufacturing 
B) Internet-search sites 
C) web design consulting 
D) business cloud-computing services

Question 2

The four-firm concentration ratio cannot have a value above 1.0, or 100 percent.

Accepted Answer

A) True 
 B)False

Question 3

A monopolistically competitive firm is operating at a short-run level of output where price is $30, average total cost is $27, marginal cost is $20, and marginal revenue is $25. In the short run this firm should

Accepted Answer

A) increase product price. 
B) decrease the level of output. 
C) not change the level of output. 
D) increase the level of output. 
A) increase product price. 
B) decrease the level of output. 
C) not change the level of output. 
D) increase the level of output.

Question 4

Concentration ratios measure the

Accepted Answer

A) geographic location of the largest corporations in each industry. 
B) degree to which product price exceeds marginal cost in various industries. 
C) percentage of total industry sales accounted for by the largest firms in the industry. 
D) number of firms in an industry. 
A) geographic location of the largest corporations in each industry. 
B) degree to which product price exceeds marginal cost in various industries. 
C) percentage of total industry sales accounted for by the largest firms in the industry. 
D) number of firms in an industry.

Question 5

Suppose the Herfindahl indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that

Accepted Answer

A) market power is greatest in industry A. 
B) market power is greatest in industry B. 
C) market power is greatest in industry C. 
D) industry A is more monopolistic than industry C. 
A) market power is greatest in industry A. 
B) market power is greatest in industry B. 
C) market power is greatest in industry C. 
D) industry A is more monopolistic than industry C.

Question 6

Firms in an industry will not earn long-run economic profits if

Accepted Answer

A) fixed costs are zero. 
B) the number of firms in the industry is fixed. 
C) there is free entry and exit of firms in the industry. 
D) production costs for a given level of output are minimized. 
A) fixed costs are zero. 
B) the number of firms in the industry is fixed. 
C) there is free entry and exit of firms in the industry. 
D) production costs for a given level of output are minimized.

Question 7

The market situation of a monopolistic competitor is made more complex than our simple revenue-and-costs graphs would suggest, because the firm in reality juggles three decisions:

Accepted Answer

A) price, output quantity, and revenues. 
B) revenue, costs, and profits. 
C) advertising, resources, and product. 
D) price, product, and advertising. 
A) price, output quantity, and revenues. 
B) revenue, costs, and profits. 
C) advertising, resources, and product. 
D) price, product, and advertising.

Question 8

Monopolistic competition resembles pure competition because

Accepted Answer

A) both industries emphasize nonprice competition. 
B) in both instances firms will operate at the minimum point on their long-run average total cost curves. 
C) both industries entail the production of differentiated products. 
D) in both industries barriers to entry are either weak or nonexistent. 
A) both industries emphasize nonprice competition. 
B) in both instances firms will operate at the minimum point on their long-run average total cost curves. 
C) both industries entail the production of differentiated products. 
D) in both industries barriers to entry are either weak or nonexistent.

Question 9

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below.   What price will this monopolistically competitive firm charge to maximize profits?

Accepted Answer

A) $18 
B) $16 
C) $12 
D) $10 
A) $18 
B) $16 
C) $12 
D) $10

Question 10

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

Accepted Answer

A) fall by $11.50. 
B) fall to $8. 
C) increase by $15. 
D) decline to zero. 
A) fall by $11.50. 
B) fall to $8. 
C) increase by $15. 
D) decline to zero.

Question 11

Answer the question on the basis of the following demand and cost data for a specific firm.   If columns (1)and (3)of the demand data shown are this firm's demand schedule, economic profit will be

Accepted Answer

A) $72. 
B) $24. 
C) $23. 
D) $21.1. 
A) $72. 
B) $24. 
C) $23. 
D) $21.1.

Question 12

Refer to the diagrams, which pertain to monopolistically competitive firms. Long-run equilibrium is shown by

Accepted Answer

A) diagram a only. 
B) diagram b only. 
C) diagram c only. 
D) none of these diagrams. 
A) diagram a only. 
B) diagram b only. 
C) diagram c only. 
D) none of these diagrams.

Question 13

In the long run, the economic profits for a monopolistically competitive firm will be

Accepted Answer

A) the same as the profits for a monopolist. 
B) slightly less than the profits of a monopolist. 
C) the same as the profits for a purely competitive firm. 
D) slightly more than the profits of a purely competitive firm. 
A) the same as the profits for a monopolist. 
B) slightly less than the profits of a monopolist. 
C) the same as the profits for a purely competitive firm. 
D) slightly more than the profits of a purely competitive firm.

Question 14

If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry sales), you are calculating the

Accepted Answer

A) four-firm concentration ratio. 
B) Herfindahl index. 
C) degree of collusion. 
D) Lerner index. 
A) four-firm concentration ratio. 
B) Herfindahl index. 
C) degree of collusion. 
D) Lerner index.

Question 15

Which of the following statements is not true for a monopolistically competitive industry?

Accepted Answer

A) Firms tend to operate with excess capacity. 
B) Each firm faces a downward-sloping demand curve. 
C) These firms earn zero economic profits in the long run. 
D) Firms operate at the lowest point of their ATC curves in the long run. 
A) Firms tend to operate with excess capacity. 
B) Each firm faces a downward-sloping demand curve. 
C) These firms earn zero economic profits in the long run. 
D) Firms operate at the lowest point of their ATC curves in the long run.

Question 16

Nonprice competition refers to

Accepted Answer

A) competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts. 
B) price increases by a firm that are ignored by its rivals. 
C) advertising, product promotion, and changes in the real or perceived characteristics of a product. 
D) reductions in production costs that are not reflected in price reductions. 
A) competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts. 
B) price increases by a firm that are ignored by its rivals. 
C) advertising, product promotion, and changes in the real or perceived characteristics of a product. 
D) reductions in production costs that are not reflected in price reductions.

Question 17

Monopolistically competitive firms

Accepted Answer

A) realize normal profits in the short run but losses in the long run. 
B) incur persistent losses in both the short run and long run. 
C) may realize either profits or losses in the short run but realize normal profits in the long run. 
D) persistently realize economic profits in both the short run and long run. 
A) realize normal profits in the short run but losses in the long run. 
B) incur persistent losses in both the short run and long run. 
C) may realize either profits or losses in the short run but realize normal profits in the long run. 
D) persistently realize economic profits in both the short run and long run.

Question 18

Refer to the data. The four-firm concentration ratio for this industry is

Accepted Answer

A) 90 percent. 
B) 95 percent. 
C) 100 percent. 
D) indeterminate because we don't know which four firms are included. 
A) 90 percent. 
B) 95 percent. 
C) 100 percent. 
D) indeterminate because we don't know which four firms are included.

Question 19

In short-run equilibrium, the monopolistically competitive firm shown will set its price

Accepted Answer

A) below ATC. 
B) above ATC. 
C) below MC. 
D) below MR. 
A) below ATC. 
B) above ATC. 
C) below MC. 
D) below MR.

Question 20

We would expect the four-firm concentration ratio of the restaurant industry in a large metropolitan area to be about 0.80, or 80 percent, and higher.

Accepted Answer

A) True 
 B)False

Exam 13: Monopolistic Competition

Which industry would be best characterized as monopolistically competitive?

The four-firm concentration ratio cannot have a value above 1.0, or 100 percent.

A monopolistically competitive firm is operating at a short-run level of output where price is $30, average total cost is $27, marginal cost is $20, and marginal revenue is $25. In the short run this firm should

Concentration ratios measure the

Suppose the Herfindahl indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that

Firms in an industry will not earn long-run economic profits if

The market situation of a monopolistic competitor is made more complex than our simple revenue-and-costs graphs would suggest, because the firm in reality juggles three decisions:

Monopolistic competition resembles pure competition because

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. What price will this monopolistically competitive firm charge to maximize profits?

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

Answer the question on the basis of the following demand and cost data for a specific firm. If columns (1)and (3)of the demand data shown are this firm's demand schedule, economic profit will be

Refer to the diagrams, which pertain to monopolistically competitive firms. Long-run equilibrium is shown by

In the long run, the economic profits for a monopolistically competitive firm will be

If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry sales), you are calculating the

Which of the following statements is not true for a monopolistically competitive industry?

Nonprice competition refers to

Monopolistically competitive firms

Refer to the data. The four-firm concentration ratio for this industry is

In short-run equilibrium, the monopolistically competitive firm shown will set its price

We would expect the four-firm concentration ratio of the restaurant industry in a large metropolitan area to be about 0.80, or 80 percent, and higher.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, 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

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Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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