Question 1

The kinked demand theory attempts to explain why an oligopolistic firm:

Accepted Answer

A)  has relatively large advertising expenditures. 
B)  fails to invest in research and development. 
C)  infrequently changes its price. 
D)  engages in excessive brand proliferation. 
A)  has relatively large advertising expenditures. 
B)  fails to invest in research and development. 
C)  infrequently changes its price. 
D)  engages in excessive brand proliferation. C

Question 2

The automobile, steel, and oil markets are all examples of:

Accepted Answer

A)  perfectly competitive markets. 
B)  monopolies. 
C)  monopolistically competitive markets. 
D)  oligopolies. 
A)  perfectly competitive markets. 
B)  monopolies. 
C)  monopolistically competitive markets. 
D)  oligopolies. D

Question 3

Exhibit 10-2 A monopolistic competitive firm
 
If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 10-2, we would expect that in the long run:

Accepted Answer

A)  all firms will leave the industry. 
B)  some firms will leave the industry. 
C)  firms in the industry earn zero economic profits. 
D)  a number of new firms will enter the industry. 
A)  all firms will leave the industry. 
B)  some firms will leave the industry. 
C)  firms in the industry earn zero economic profits. 
D)  a number of new firms will enter the industry. C

Question 4

Which of the following is always associated with monopolistic competition?

Accepted Answer

A)  identical products 
B)  economic profits in the short run 
C)  product differentiation 
D)  Demand curves become more inelastic as new entry occurs. 
A)  identical products 
B)  economic profits in the short run 
C)  product differentiation 
D)  Demand curves become more inelastic as new entry occurs.

Question 5

Exhibit 10-2 A monopolistic competitive firm
 
To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 10-2 will charge a price per unit of:

Accepted Answer

A)  zero. 
B)  $5. 
C)  $10. 
D)  $15. 
A)  zero. 
B)  $5. 
C)  $10. 
D)  $15.

Question 6

As a result of a kinked demand curve, the price:

Accepted Answer

A)  fluctuates. 
B)  falls below the kink. 
C)  settles at the kink. 
D)  rises above the kink. 
A)  fluctuates. 
B)  falls below the kink. 
C)  settles at the kink. 
D)  rises above the kink.

Question 7

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

Accepted Answer

A)  produce the output level at which price equals long-run marginal cost. 
B)  operate at minimum long-run average cost. 
C)  overutilize its insufficient capacity. 
D)  produce the output level at which price equals long-run average cost. 
A)  produce the output level at which price equals long-run marginal cost. 
B)  operate at minimum long-run average cost. 
C)  overutilize its insufficient capacity. 
D)  produce the output level at which price equals long-run average cost.

Question 8

Monopolistic competition is inefficient because:

Accepted Answer

A)  firms earn positive economic profits. 
B)  the firms' marginal costs and marginal revenues are not equal. 
C)  firms have excess capacity in the long run. 
D)  entry is difficult. 
A)  firms earn positive economic profits. 
B)  the firms' marginal costs and marginal revenues are not equal. 
C)  firms have excess capacity in the long run. 
D)  entry is difficult.

Question 9

When the price and output decisions of one firm include the possible price and output reactions of the firm's rivals, the market is

Accepted Answer

A)  a monopoly characterized by differentiated products. 
B)  an oligopoly characterized by mutual interdependence. 
C)  perfectly competitive characterized by collusion. 
D)  monopolistically competitive characterized by nonprice competition. 
A)  a monopoly characterized by differentiated products. 
B)  an oligopoly characterized by mutual interdependence. 
C)  perfectly competitive characterized by collusion. 
D)  monopolistically competitive characterized by nonprice competition.

Question 10

Which of the following is a distinction between perfectly competitive and monopolistic competition?

Accepted Answer

A)  Perfectly competitive firms must compete with rival sellers; monopolistically competitive firms do not confront rival sellers. 
B)  Monopolistically competitive firms can raise their price without losing sales; perfectly competitive firms must lower their price in order to sell more of their product. 
C)  Perfectly competitive firms confront a perfectly elastic demand curve; monopolistically competitive firms face a downward-sloping demand curve. 
D)  Perfectly competitive firms may make either economic profits or losses in the short run, but monopolistically competitive firms always earn an economic profit. 
A)  Perfectly competitive firms must compete with rival sellers; monopolistically competitive firms do not confront rival sellers. 
B)  Monopolistically competitive firms can raise their price without losing sales; perfectly competitive firms must lower their price in order to sell more of their product. 
C)  Perfectly competitive firms confront a perfectly elastic demand curve; monopolistically competitive firms face a downward-sloping demand curve. 
D)  Perfectly competitive firms may make either economic profits or losses in the short run, but monopolistically competitive firms always earn an economic profit.

Question 11

The industry that most closely approximates the conditions of the oligopoly model is:

Accepted Answer

A)  restaurants. 
B)  retail clothing. 
C)  home construction. 
D)  tires. 
A)  restaurants. 
B)  retail clothing. 
C)  home construction. 
D)  tires.

Question 12

Compared to monopoly, the market results with monopolistic competition are usually expected to be:

Accepted Answer

A)  worse because consumers get fewer choices. 
B)  worse because consumers pay a higher price. 
C)  better because consumers pay a lower price. 
D)  better because consumers get less output. 
A)  worse because consumers get fewer choices. 
B)  worse because consumers pay a higher price. 
C)  better because consumers pay a lower price. 
D)  better because consumers get less output.

Question 13

Suppose Ford, GM, and Dodge make the majority of pick-up trucks sold in the United States If they all sell for approximately the same price, and Ford offers a $2,000 rebate on new truck sales, what can Ford expect to see?

Accepted Answer

A)  an unprecedented increase in truck sales 
B)  an immediate response by GM and Dodge 
C)  a visit from the antitrust authorities of the government 
D)  a revolution from Ford stockholders 
A)  an unprecedented increase in truck sales 
B)  an immediate response by GM and Dodge 
C)  a visit from the antitrust authorities of the government 
D)  a revolution from Ford stockholders

Question 14

Exhibit 10-1 A monopolistic competitive firm
 
As represented in Exhibit 10-1, the maximum long-run economic profit earned by this monopolistic competitive firm is:

Accepted Answer

A)  zero. 
B)  $200 per day. 
C)  $1,000 per day. 
D)  $20,000 per day. 
A)  zero. 
B)  $200 per day. 
C)  $1,000 per day. 
D)  $20,000 per day.

Question 15

Which of the following is true for perfect competition, monopolistic competition, and monopoly?

Accepted Answer

A)  The product of all firms is homogeneous. 
B)  Firms will earn zero economic profits in the long run. 
C)  Short-run profits are maximized when marginal cost equals marginal revenue. 
D)  Price is greater than marginal cost at the profit-maximizing quantity. 
A)  The product of all firms is homogeneous. 
B)  Firms will earn zero economic profits in the long run. 
C)  Short-run profits are maximized when marginal cost equals marginal revenue. 
D)  Price is greater than marginal cost at the profit-maximizing quantity.

Question 16

In monopolistic competition if there is profit, there is:

Accepted Answer

A)  a signal for new firms to enter. 
B)  a motive for existing firms to increase prices. 
C)  proof that advertising works. 
D)  a motive for existing firms to decrease prices. 
A)  a signal for new firms to enter. 
B)  a motive for existing firms to increase prices. 
C)  proof that advertising works. 
D)  a motive for existing firms to decrease prices.

Question 17

Exhibit 10-2 A monopolistic competitive firm
 
Comparing the monopolistically competitive firm in Exhibit 10-2 to the long-run profit-maximizing outcome for a perfectly competitive firm with a price of $15 per unit and a quantity of 600,

Accepted Answer

A)  the quantity produced by the monopolistically competitive firm is higher than that of the perfectly competitive firm. 
B)  the profit earned by the monopolistically competitive firm is higher than that of the perfectly competitive firm. 
C)  the marginal revenue of the monopolistically competitive firm is lower than that of the perfectly competitive firm at the profit-maximizing quantity. 
D)  the long run average cost of the monopolistically competitive firm is higher than that of the perfectly competitive firm at the profit-maximizing quantity. 
A)  the quantity produced by the monopolistically competitive firm is higher than that of the perfectly competitive firm. 
B)  the profit earned by the monopolistically competitive firm is higher than that of the perfectly competitive firm. 
C)  the marginal revenue of the monopolistically competitive firm is lower than that of the perfectly competitive firm at the profit-maximizing quantity. 
D)  the long run average cost of the monopolistically competitive firm is higher than that of the perfectly competitive firm at the profit-maximizing quantity.

Question 18

In long-run equilibrium, output is expanded to the minimum long-run average total cost by:

Accepted Answer

A)  perfectly competitive firms but not by monopolistically competitive firms. 
B)  monopolistically competitive firms but not by perfectly competitive firms. 
C)  both monopolistically competitive firms and perfectly competitive firms. 
D)  neither perfectly competitive firms nor monopolistically competitive firms. 
A)  perfectly competitive firms but not by monopolistically competitive firms. 
B)  monopolistically competitive firms but not by perfectly competitive firms. 
C)  both monopolistically competitive firms and perfectly competitive firms. 
D)  neither perfectly competitive firms nor monopolistically competitive firms.

Question 19

The market for Product A has many sellers, selling identical products, each earning an economic profit of zero in the long run. The market for Product B has many sellers, selling differentiated products, each earning an economics profit of zero in the long run. Given this information, one can conclude that

Accepted Answer

A)  The markets for Product A and Product B are perfectly competitive. 
B)  The markets for Product A and Product B are monopolistically competitive. 
C)  The market for Product A is monopolistically competitive and the market for Product B is perfectly competitive. 
D)  The market for Product A is perfectly competitive and the market for Product B is monopolistically competitive. 
A)  The markets for Product A and Product B are perfectly competitive. 
B)  The markets for Product A and Product B are monopolistically competitive. 
C)  The market for Product A is monopolistically competitive and the market for Product B is perfectly competitive. 
D)  The market for Product A is perfectly competitive and the market for Product B is monopolistically competitive.

Question 20

Which of the following most closely approximates the conditions of a monopolistically competitive market?

Accepted Answer

A)  The market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product. 
B)  The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers. 
C)  Local cable television service, where a licensed supplier competes with firms offering satellite service. 
D)  The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm. 
A)  The market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product. 
B)  The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers. 
C)  Local cable television service, where a licensed supplier competes with firms offering satellite service. 
D)  The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm.

Exam 10: Monopolistic Competition and Oligopoly

The kinked demand theory attempts to explain why an oligopolistic firm:

The automobile, steel, and oil markets are all examples of:

Exhibit 10-2 A monopolistic competitive firm If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 10-2, we would expect that in the long run:

Which of the following is always associated with monopolistic competition?

Exhibit 10-2 A monopolistic competitive firm To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 10-2 will charge a price per unit of:

As a result of a kinked demand curve, the price:

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

Monopolistic competition is inefficient because:

When the price and output decisions of one firm include the possible price and output reactions of the firm's rivals, the market is

Which of the following is a distinction between perfectly competitive and monopolistic competition?

The industry that most closely approximates the conditions of the oligopoly model is:

Compared to monopoly, the market results with monopolistic competition are usually expected to be:

Suppose Ford, GM, and Dodge make the majority of pick-up trucks sold in the United States If they all sell for approximately the same price, and Ford offers a $2,000 rebate on new truck sales, what can Ford expect to see?

Exhibit 10-1 A monopolistic competitive firm As represented in Exhibit 10-1, the maximum long-run economic profit earned by this monopolistic competitive firm is:

Which of the following is true for perfect competition, monopolistic competition, and monopoly?

In monopolistic competition if there is profit, there is:

Exhibit 10-2 A monopolistic competitive firm Comparing the monopolistically competitive firm in Exhibit 10-2 to the long-run profit-maximizing outcome for a perfectly competitive firm with a price of $15 per unit and a quantity of 600,

In long-run equilibrium, output is expanded to the minimum long-run average total cost by:

Which of the following most closely approximates the conditions of a monopolistically competitive market?

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

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