Question 1

What are types of firms that exemplify monopolistic competition?

Accepted Answer

In addition to some manufacturers, many

Question 2

The monopolistically competitive seller maximizes profit by producing at the point where

Accepted Answer

A) total revenue is at a maximum. 
B) average costs are at a minimum. 
C) marginal revenue equals marginal cost. 
D) price equals marginal revenue. 
A) total revenue is at a maximum. 
B) average costs are at a minimum. 
C) marginal revenue equals marginal cost. 
D) price equals marginal revenue.

Question 3

Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion.   What output and price levels will maximize the firm's profit in the short run?

Accepted Answer

A) 2 units and $24 
B) 3 units and $21 
C) 4 units and $18 
D) 5 units and $15 
A) 2 units and $24 
B) 3 units and $21 
C) 4 units and $18 
D) 5 units and $15

Question 4

Pure competition results in a lower price but identical output level compared to those in monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 5

An important similarity between a monopolistically competitive firm and a purely competitive firm is that

Accepted Answer

A) both face perfectly elastic demand schedules. 
B) economic profit tends toward zero for both. 
C) both realize productive efficiency. 
D) both realize allocative efficiency. 
A) both face perfectly elastic demand schedules. 
B) economic profit tends toward zero for both. 
C) both realize productive efficiency. 
D) both realize allocative efficiency.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The larger the number of firms in an industry and the less the extent of product differentiation, the greater will be the elasticity of the individual seller's demand curve.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

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

Question 9

If the four-firm concentration ratio for industry X is 80,

Accepted Answer

A) the four largest firms account for 80 percent of total sales. 
B) each of the four largest firms accounts for 20 percent of total sales. 
C) the four largest firms account for 20 percent of total sales. 
D) the industry is monopolistically competitive. 
A) the four largest firms account for 80 percent of total sales. 
B) each of the four largest firms accounts for 20 percent of total sales. 
C) the four largest firms account for 20 percent of total sales. 
D) the industry is monopolistically competitive.

Question 10

Refer to the diagram. If all monopolistically competitive firms in the industry have profit circumstances similar to the firm shown above,

Accepted Answer

A) new firms will enter the industry. 
B) some firms will exit the industry. 
C) all firms will exit the industry. 
D) no firms will enter the industry. 
A) new firms will enter the industry. 
B) some firms will exit the industry. 
C) all firms will exit the industry. 
D) no firms will enter the industry.

Question 11

Refer to the data. If Firm B merged with Firm E, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____.

Accepted Answer

A) rise; rise 
B) fall; rise 
C) remain the same; rise 
D) remain the same; fall 
A) rise; rise 
B) fall; rise 
C) remain the same; rise 
D) remain the same; fall

Question 12

Which of the following best explains why an increase in the minimum wage is more problematic for mom and pop restaurants than for big chain restaurants?

Accepted Answer

A) Chain restaurants are exempt from minimum wage laws. 
B) Mom and pop restaurants have more difficulty attracting workers when wages rise. 
C) Mom and pop restaurants are more dependent on labor relative to chain restaurants. 
D) Chain restaurants have more monopoly pricing power and can more easily raise prices than mom and pop stores. 
A) Chain restaurants are exempt from minimum wage laws. 
B) Mom and pop restaurants have more difficulty attracting workers when wages rise. 
C) Mom and pop restaurants are more dependent on labor relative to chain restaurants. 
D) Chain restaurants have more monopoly pricing power and can more easily raise prices than mom and pop stores.

Question 13

The Herfindahl index is a measure of the degree of product differentiation in an industry.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

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

Question 15

In monopolistic competition, which of the following would make an individual firm's demand curve less elastic?

Accepted Answer

A) the purchase of more efficient machinery 
B) an increase in the price of the firm's product 
C) increased brand loyalty toward the firm's product 
D) an increase in the number of rival firms 
A) the purchase of more efficient machinery 
B) an increase in the price of the firm's product 
C) increased brand loyalty toward the firm's product 
D) an increase in the number of rival firms

Question 16

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

Accepted Answer

A) former does not seek to maximize profits. 
B) latter recognizes that price must be reduced to sell more output. 
C) former sells similar, although not identical, products. 
D) former's demand curve is perfectly inelastic. 
A) former does not seek to maximize profits. 
B) latter recognizes that price must be reduced to sell more output. 
C) former sells similar, although not identical, products. 
D) former's demand curve is perfectly inelastic.

Question 17

Refer to the diagram. 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 18

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor?

Accepted Answer

A) Subway Sandwiches 
B) Pittsburgh Plate Glass 
C) Ford Motor Company 
D) Microsoft 
A) Subway Sandwiches 
B) Pittsburgh Plate Glass 
C) Ford Motor Company 
D) Microsoft

Question 19

In long-run equilibrium, monopolistic competition entails

Accepted Answer

A) an efficient allocation of resources. 
B) an overallocation of resources due to inadequate capacity. 
C) an underallocation of resources due to excess capacity. 
D) production at the minimum attainable average total cost. 
A) an efficient allocation of resources. 
B) an overallocation of resources due to inadequate capacity. 
C) an underallocation of resources due to excess capacity. 
D) production at the minimum attainable average total cost.

Question 20

If monopolistically competitive firms have some control over their prices, why don't they set price above average total cost so they will realize an economic profit in the long run?

Accepted Answer

Entry is relatively easy in monopolistic

Exam 13: Monopolistic Competition

What are types of firms that exemplify monopolistic competition?

The monopolistically competitive seller maximizes profit by producing at the point where

Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. What output and price levels will maximize the firm's profit in the short run?

Pure competition results in a lower price but identical output level compared to those in monopolistic competition.

An important similarity between a monopolistically competitive firm and a purely competitive firm is that

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

The larger the number of firms in an industry and the less the extent of product differentiation, the greater will be the elasticity of the individual seller's demand curve.

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

If the four-firm concentration ratio for industry X is 80,

Refer to the diagram. If all monopolistically competitive firms in the industry have profit circumstances similar to the firm shown above,

Refer to the data. If Firm B merged with Firm E, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____.

Which of the following best explains why an increase in the minimum wage is more problematic for mom and pop restaurants than for big chain restaurants?

The Herfindahl index is a measure of the degree of product differentiation in an industry.

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

In monopolistic competition, which of the following would make an individual firm's demand curve less elastic?

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

Refer to the diagram. In short-run equilibrium, the monopolistically competitive firm shown will set its price

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor?

In long-run equilibrium, monopolistic competition entails

If monopolistically competitive firms have some control over their prices, why don't they set price above average total cost so they will realize an economic profit in the long run?

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

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Refer to the data. If Firm B merged with Firm E, the industry's four-firm concentration ratio would and its Herfindahl index would .