Question 1

Which of the following assumptions is part of the model of monopolistic competition?

Accepted Answer

A) Firms make identical or homogeneous products. 
B) There is no mutual interdependence among firms. 
C) There are significant barriers to entry into the market. 
D) Firms have no control over their products' prices. 
A) Firms make identical or homogeneous products. 
B) There is no mutual interdependence among firms. 
C) There are significant barriers to entry into the market. 
D) Firms have no control over their products' prices.

Question 2

What is the Herfindahl index, and how is it calculated?

Accepted Answer

The Herfindahl index is a measure of the

Question 3

Refer to the data. If all the firms in the industry merged into a single firm, the Herfindahl index would become

Accepted Answer

A) 100. 
B) 1,000. 
C) 10,000. 
D) 100,000. 
A) 100. 
B) 1,000. 
C) 10,000. 
D) 100,000.

Question 4

Explain why the economic analysis of monopolistic competition is so complex.

Accepted Answer

The monopolistically competitive firm ju

Question 5

Industries X and Y both have four-firm concentration ratios of 16 percent, but the Herfindahl index for X is 102, while that for Y is 95. These data suggest

Accepted Answer

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

Question 6

Discuss how an increase in the minimum wage affects a chain restaurant differently than a small, mom-and-pop restaurant.

Accepted Answer

Economists have recently discovered that

Question 7

List and explain the different ways firms can differentiate their product.

Accepted Answer

Product differentiation may entail physi

Question 8

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 9

The monopolistically competitive firm shown in the figure

Accepted Answer

A) is in long-run equilibrium. 
B) might realize an economic profit or a loss, depending on its choice of output level. 
C) cannot operate profitably in the short run. 
D) can realize an economic profit. 
A) is in long-run equilibrium. 
B) might realize an economic profit or a loss, depending on its choice of output level. 
C) cannot operate profitably in the short run. 
D) can realize an economic profit.

Question 10

If we believe that "variety is the spice of life," then we should be more concerned about the excess capacity in monopolistic competition and do our best to eliminate it.

Accepted Answer

A) True 
 B)False

Question 11

Which statement concerning monopolistic competition is false?

Accepted Answer

A) Long-run equilibrium under monopolistic competition and pure competition both entail zero economic profits for firms. 
B) Monopolistic competition is likely to result in a greater variety of product brands than pure competition. 
C) The monopolistically competitive demand curve is more elastic than the demand curve facing a monopoly. 
D) Long-run equilibrium in monopolistic competition does not entail any economic inefficiency because of easy entry and exit. 
A) Long-run equilibrium under monopolistic competition and pure competition both entail zero economic profits for firms. 
B) Monopolistic competition is likely to result in a greater variety of product brands than pure competition. 
C) The monopolistically competitive demand curve is more elastic than the demand curve facing a monopoly. 
D) Long-run equilibrium in monopolistic competition does not entail any economic inefficiency because of easy entry and exit.

Question 12

In the long run, a profit-maximizing monopolistically competitive firm sets it price

Accepted Answer

A) above marginal cost. 
B) below marginal cost. 
C) equal to marginal revenue. 
D) equal to marginal cost. 
A) above marginal cost. 
B) below marginal cost. 
C) equal to marginal revenue. 
D) equal to marginal cost.

Question 13

Excess capacity implies

Accepted Answer

A) productive inefficiency. 
B) allocative inefficiency. 
C) productive efficiency. 
D) allocative efficiency. 
A) productive inefficiency. 
B) allocative inefficiency. 
C) productive efficiency. 
D) allocative efficiency.

Question 14

Define nonprice competition.

Accepted Answer

Competition based on distingui

Question 15

For which market model can we not assume a homogeneous product?

Accepted Answer

A) pure competition 
B) pure monopoly 
C) monopolistic competition 
D) oligopoly 
A) pure competition 
B) pure monopoly 
C) monopolistic competition 
D) oligopoly

Question 16

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

Accepted Answer

A) 3,805. 
B) 2,500. 
C) 3,810. 
D) 97. 
A) 3,805. 
B) 2,500. 
C) 3,810. 
D) 97.

Question 17

Refer to the diagrams, which pertain to monopolistically competitive firms. Short-run equilibrium entailing economic loss is shown by

Accepted Answer

A) diagram a only. 
B) diagram b only. 
C) diagram c only. 
D) both diagrams a and c. 
A) diagram a only. 
B) diagram b only. 
C) diagram c only. 
D) both diagrams a and c.

Question 18

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 19

Monopolistically competitive firms will achieve the most efficient allocation of society's resources because there are no significant barriers to entry into the industry.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is correct for a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

A) MC = ATC. 
B) MC exceeds MR. 
C) P exceeds minimum ATC. 
D) P = MC. 
A) MC = ATC. 
B) MC exceeds MR. 
C) P exceeds minimum ATC. 
D) P = MC.

Exam 13: Monopolistic Competition

Which of the following assumptions is part of the model of monopolistic competition?

What is the Herfindahl index, and how is it calculated?

Refer to the data. If all the firms in the industry merged into a single firm, the Herfindahl index would become

Explain why the economic analysis of monopolistic competition is so complex.

Industries X and Y both have four-firm concentration ratios of 16 percent, but the Herfindahl index for X is 102, while that for Y is 95. These data suggest

Discuss how an increase in the minimum wage affects a chain restaurant differently than a small, mom-and-pop restaurant.

List and explain the different ways firms can differentiate their product.

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

The monopolistically competitive firm shown in the figure

If we believe that "variety is the spice of life," then we should be more concerned about the excess capacity in monopolistic competition and do our best to eliminate it.

Which statement concerning monopolistic competition is false?

In the long run, a profit-maximizing monopolistically competitive firm sets it price

Excess capacity implies

Define nonprice competition.

For which market model can we not assume a homogeneous product?

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

Refer to the diagrams, which pertain to monopolistically competitive firms. Short-run equilibrium entailing economic loss is shown by

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

Monopolistically competitive firms will achieve the most efficient allocation of society's resources because there are no significant barriers to entry into the industry.

Which of the following is correct for a monopolistically competitive firm in long-run equilibrium?

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

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