Question 1

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

Accepted Answer

A) former has fewer barriers to entry into the industry. 
B) latter recognizes that price must be reduced to sell more output. 
C) latter's demand curve is perfectly elastic. 
D) latter differentiates its product. 
A) former has fewer barriers to entry into the industry. 
B) latter recognizes that price must be reduced to sell more output. 
C) latter's demand curve is perfectly elastic. 
D) latter differentiates its product.

Question 2

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.

Question 3

Answer the question on the basis of the following demand and cost data for a specific firm.   With the demand schedule shown by columns (2)and (3), in long-run equilibrium

Accepted Answer

A) price will equal average total cost. 
B) total cost will exceed total revenue. 
C) marginal cost will exceed price. 
D) price will equal marginal revenue. 
A) price will equal average total cost. 
B) total cost will exceed total revenue. 
C) marginal cost will exceed price. 
D) price will equal marginal revenue.

Question 4

Brand names and packaging are forms of product differentiation under monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 5

In theory, the representative firm in monopolistic competition earns only a normal profit. Why might that outcome not always occur in the real world?

Accepted Answer

Some firms may achieve sufficient produc

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Monopolistic competition entails a deadweight loss to society, even if the firms earn zero economic profits.

Accepted Answer

A) True 
 B)False

Question 10

The demand curve faced by a monopolistically competitive firm

Accepted Answer

A) is more elastic than the monopolist's demand curve. 
B) is less elastic than the monopolist's demand curve. 
C) will shift outward as new firms enter the industry. 
D) is more elastic than the demand curve faced by the purely competitive firm. 
A) is more elastic than the monopolist's demand curve. 
B) is less elastic than the monopolist's demand curve. 
C) will shift outward as new firms enter the industry. 
D) is more elastic than the demand curve faced by the purely competitive firm.

Question 11

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

Accepted Answer

A) $60. 
B) $70. 
C) $90. 
D) $80. 
A) $60. 
B) $70. 
C) $90. 
D) $80.

Question 12

Refer to the data. Suppose that firms in this industry split up such that there were 100 firms, each with a 1 percent market share. The four-firm concentration ratio and the Herfindahl index respectively would be

Accepted Answer

A) 100 percent and 10,000. 
B) 4 percent and 4. 
C) 100 percent and 16. 
D) 4 percent and 100. 
A) 100 percent and 10,000. 
B) 4 percent and 4. 
C) 100 percent and 16. 
D) 4 percent and 100.

Question 13

Suppose that total sales in an industry in a particular year are $500 million and sales by the top four sellers are $80 million, $25 million, $12 million, and $8 million, respectively. We can conclude that

Accepted Answer

A) allocative efficiency will be achieved. 
B) this industry is monopolistically competitive. 
C) the concentration ratio is 35 percent. 
D) firms in this industry likely collude with each other. 
A) allocative efficiency will be achieved. 
B) this industry is monopolistically competitive. 
C) the concentration ratio is 35 percent. 
D) firms in this industry likely collude with each other.

Question 14

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) $16 
B) $12 
C) $20 
D) $8 
A) $16 
B) $12 
C) $20 
D) $8

Question 15

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 by $15. 
B) decrease by $150. 
C) decrease by $45. 
D) decrease to zero. 
A) decrease by $15. 
B) decrease by $150. 
C) decrease by $45. 
D) decrease to zero.

Question 16

If an industry evolves from oligopoly to monopolistic competition, we would expect

Accepted Answer

A) the four-firm concentration ratio to increase. 
B) the four-firm concentration ratio to decrease. 
C) the four-firm concentration ratio to remain the same. 
D) barriers to entry to strengthen. 
A) the four-firm concentration ratio to increase. 
B) the four-firm concentration ratio to decrease. 
C) the four-firm concentration ratio to remain the same. 
D) barriers to entry to strengthen.

Question 17

As firms exit from a monopolistically competitive industry in the long run, the remaining firms' profits will begin to rise.

Accepted Answer

A) True 
 B)False

Question 18

Suppose the Herfindahl indexes for industries A, B, and C are 672, 450, and 875 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 B is more monopolistic than industry A. 
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 B is more monopolistic than industry A.

Question 19

Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a

Accepted Answer

A) lower price and lower output. 
B) higher price and lower output. 
C) higher price and higher output. 
D) price and output that may be higher or lower. 
A) lower price and lower output. 
B) higher price and lower output. 
C) higher price and higher output. 
D) price and output that may be higher or lower.

Question 20

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

Accepted Answer

A) 97. 
B) 3,378. 
C) 9,700. 
D) 3,369. 
A) 97. 
B) 3,378. 
C) 9,700. 
D) 3,369.

Exam 13: Monopolistic Competition

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

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

Answer the question on the basis of the following demand and cost data for a specific firm. With the demand schedule shown by columns (2)and (3), in long-run equilibrium

Brand names and packaging are forms of product differentiation under monopolistic competition.

In theory, the representative firm in monopolistic competition earns only a normal profit. Why might that outcome not always occur in the real world?

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

Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.

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

Monopolistic competition entails a deadweight loss to society, even if the firms earn zero economic profits.

The demand curve faced by a monopolistically competitive firm

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

Refer to the data. Suppose that firms in this industry split up such that there were 100 firms, each with a 1 percent market share. The four-firm concentration ratio and the Herfindahl index respectively would be

Suppose that total sales in an industry in a particular year are $500 million and sales by the top four sellers are $80 million, $25 million, $12 million, and $8 million, respectively. We can conclude that

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 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

If an industry evolves from oligopoly to monopolistic competition, we would expect

As firms exit from a monopolistically competitive industry in the long run, the remaining firms' profits will begin to rise.

Suppose the Herfindahl indexes for industries A, B, and C are 672, 450, and 875 respectively. These data imply that

Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a

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

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

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Antitrust Policy and Regulation

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Income Inequality, Poverty, and Discrimination

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The Balance of Payments, Exchange Rates, and Trade Deficits

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