Question 1

Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

Accepted Answer

A)  price equals average total cost. 
B)  marginal cost equals average total cost. 
C)  marginal cost equals price. 
D)  marginal revenue equals marginal cost. 
A)  price equals average total cost. 
B)  marginal cost equals average total cost. 
C)  marginal cost equals price. 
D)  marginal revenue equals marginal cost.

Question 2

Exhibit 9-2  A monopolistic competitive firm   As represented in Exhibit 9-2, the maximum long-run economic profit earned by this monopolistic competitive firm is:

Accepted Answer

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

Question 3

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

Question 4

A monopolistic competitive firm is inefficient because the firm:

Accepted Answer

A)  earns positive economic profit in the long run. 
B)  is producing at an output corresponding to the condition that marginal cost equals price. 
C)  is not maximizing its profit. 
D)  produces an output where average total cost is not minimum. 
A)  earns positive economic profit in the long run. 
B)  is producing at an output corresponding to the condition that marginal cost equals price. 
C)  is not maximizing its profit. 
D)  produces an output where average total cost is not minimum.

Question 5

Exhibit 9-4  Two-Firm Payoff Matrix   Suppose costs are identical for the two firms in Exhibit 9-4. If both firms assume the other will compete and charge a lower price, equilibrium will be established by:

Accepted Answer

A)  Beta Co. charging $1,000 and Alpha Co. charging $1,000. 
B)  Beta Co. charging $1,000 and Alpha Co. charging $500. 
C)  Beta Co. charging $500 and Alpha Co. charging $500. 
D)  Beta Co. charging $500 and Alpha Co. charging $1,000. 
A)  Beta Co. charging $1,000 and Alpha Co. charging $1,000. 
B)  Beta Co. charging $1,000 and Alpha Co. charging $500. 
C)  Beta Co. charging $500 and Alpha Co. charging $500. 
D)  Beta Co. charging $500 and Alpha Co. charging $1,000.

Question 6

Exhibit 9-1  A monopolistic competitive firm   As represented in Exhibit 9-1, 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 7

A monopolistically competitive firm, like a perfectly competitive firm, is a price taker.

Accepted Answer

A) True 
 B)False

Question 8

When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:

Accepted Answer

A)  mutual interdependence. 
B)  price leadership. 
C)  collusion. 
D)  monopolistic competition. 
A)  mutual interdependence. 
B)  price leadership. 
C)  collusion. 
D)  monopolistic competition.

Question 9

What are the characteristics of an oligopoly?

Accepted Answer

An oligopoly market is characterized by

Question 10

The demand curve in monopolistic competition slopes downward because of:

Accepted Answer

A)  strong barriers to entry. 
B)  product differentiation. 
C)  the small number of firms. 
D)  government regulation. 
E)  the similarities of the businesses. 
A)  strong barriers to entry. 
B)  product differentiation. 
C)  the small number of firms. 
D)  government regulation. 
E)  the similarities of the businesses.

Question 11

The theory of oligopolistic interdependence means that the outcome is uncertain because price and output decisions depend on responses of rivals.

Accepted Answer

A) True 
 B)False

Question 12

Exhibit 9-4  Two-Firm Payoff Matrix   Assume costs are identical for the two firms in Exhibit 9-4. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:

Accepted Answer

A)  Beta Co. charging $1,000 and Alpha Co. charging $1,000. 
B)  Beta Co. charging $1,000 and Alpha Co. charging $500. 
C)  Beta Co. charging $500 and Alpha Co. charging $500. 
D)  Beta Co. charging $500 and Alpha Co. charging $1,000. 
A)  Beta Co. charging $1,000 and Alpha Co. charging $1,000. 
B)  Beta Co. charging $1,000 and Alpha Co. charging $500. 
C)  Beta Co. charging $500 and Alpha Co. charging $500. 
D)  Beta Co. charging $500 and Alpha Co. charging $1,000.

Question 13

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

Accepted Answer

A)  new tombstone firms will want to enter. 
B)  this producer is losing $2,000 a week. 
C)  this producer is making an economic profit of $400. 
D)  this producer is setting MR = MC. 
E)  this producer should increase production. 
A)  new tombstone firms will want to enter. 
B)  this producer is losing $2,000 a week. 
C)  this producer is making an economic profit of $400. 
D)  this producer is setting MR = MC. 
E)  this producer should increase production.

Question 14

Which of the following is the best example of a monopolistically competitive market?

Accepted Answer

A)  Wheat. 
B)  Automobiles. 
C)  Diamonds. 
D)  Retail sales. 
A)  Wheat. 
B)  Automobiles. 
C)  Diamonds. 
D)  Retail sales.

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)  All of the above. 
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)  All of the above.

Question 16

In the short run both the monopolistically competitive firm and the perfectly competitive firm will charge a price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 17

As new firms enter a monopolistic competitive industry, it can be expected that:

Accepted Answer

A)  market price will increase. 
B)  the output of existing firms will increase. 
C)  profits of existing firms will increase. 
D)  market demand should decrease. 
E)  profits of existing firms will decrease. 
A)  market price will increase. 
B)  the output of existing firms will increase. 
C)  profits of existing firms will increase. 
D)  market demand should decrease. 
E)  profits of existing firms will decrease.

Question 18

A market situation where a small number of sellers dominate the entire industry is called:

Accepted Answer

A)  monopolistic competition. 
B)  monopsony. 
C)  monopoly. 
D)  oligopoly. 
A)  monopolistic competition. 
B)  monopsony. 
C)  monopoly. 
D)  oligopoly.

Question 19

One key characteristic that is distinctive of an oligopoly market is that:

Accepted Answer

A)  the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve. 
B)  the decisions of one seller often influences the price of products, the output, and the profits of rival firms. 
C)  there is only one firm that produces a product for which there are no good substitutes. 
D)  there are many sellers in the market and each is small relative to the total market. 
A)  the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve. 
B)  the decisions of one seller often influences the price of products, the output, and the profits of rival firms. 
C)  there is only one firm that produces a product for which there are no good substitutes. 
D)  there are many sellers in the market and each is small relative to the total market.

Question 20

Which of the following is always associated with monopolistic competition?

Accepted Answer

A)  Identical products 
B)  Economic profits in the short run 
C)  MR lies above the demand curve 
D)  Demand curves become more inelastic as new entry occurs 
E)  Product differentiation 
A)  Identical products 
B)  Economic profits in the short run 
C)  MR lies above the demand curve 
D)  Demand curves become more inelastic as new entry occurs 
E)  Product differentiation

Exam 9: Monopolistic Competition and Oligopoly

Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

Exhibit 9-2 A monopolistic competitive firm As represented in Exhibit 9-2, the maximum long-run economic profit earned by this monopolistic competitive firm is:

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

A monopolistic competitive firm is inefficient because the firm:

Exhibit 9-4 Two-Firm Payoff Matrix Suppose costs are identical for the two firms in Exhibit 9-4. If both firms assume the other will compete and charge a lower price, equilibrium will be established by:

Exhibit 9-1 A monopolistic competitive firm As represented in Exhibit 9-1, the maximum long-run economic profit earned by this monopolistic competitive firm is:

A monopolistically competitive firm, like a perfectly competitive firm, is a price taker.

When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:

What are the characteristics of an oligopoly?

The demand curve in monopolistic competition slopes downward because of:

The theory of oligopolistic interdependence means that the outcome is uncertain because price and output decisions depend on responses of rivals.

Exhibit 9-4 Two-Firm Payoff Matrix Assume costs are identical for the two firms in Exhibit 9-4. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

Which of the following is the best example of a monopolistically competitive market?

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

In the short run both the monopolistically competitive firm and the perfectly competitive firm will charge a price equal to marginal cost.

As new firms enter a monopolistic competitive industry, it can be expected that:

A market situation where a small number of sellers dominate the entire industry is called:

One key characteristic that is distinctive of an oligopoly market is that:

Which of the following is always associated with monopolistic competition?

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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