Question 1

Product differentiation:

Accepted Answer

A)  refers to the attempt of firms to make their products look like those of the other firms in the industry. 
B)  refers to the attempt of firms to make real or apparent differences in essentially substitutable products look different in the minds of the consumers. 
C)  refers to the advantage big firms have in research and development. 
D)  is a common characteristic of a perfectly competitive market structure. 
E)  is only employed in a monopoly market structure. 
A)  refers to the attempt of firms to make their products look like those of the other firms in the industry. 
B)  refers to the attempt of firms to make real or apparent differences in essentially substitutable products look different in the minds of the consumers. 
C)  refers to the advantage big firms have in research and development. 
D)  is a common characteristic of a perfectly competitive market structure. 
E)  is only employed in a monopoly market structure.

Question 2

In an oligopoly industry, price:

Accepted Answer

A)  will be lower than the competitive price, due to cost savings. 
B)  will exceed the monopoly price, due to the destructiveness of competitive forces. 
C)  cannot be predicted exactly, because it is likely to lie between the competitive and monopoly prices. 
D)  none of the above. 
A)  will be lower than the competitive price, due to cost savings. 
B)  will exceed the monopoly price, due to the destructiveness of competitive forces. 
C)  cannot be predicted exactly, because it is likely to lie between the competitive and monopoly prices. 
D)  none of the above.

Question 3

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 4

A characteristic of an oligopoly is:

Accepted Answer

A)  mutual interdependence in pricing decisions. 
B)  independent pricing decisions. 
C)  lack of control over prices. 
D)  none of the above. 
A)  mutual interdependence in pricing decisions. 
B)  independent pricing decisions. 
C)  lack of control over prices. 
D)  none of the above.

Question 5

In order to make oil profits as large as possible, OPEC meets to set oil production quotas for its members. OPEC is best classified as a:

Accepted Answer

A)  monopoly. 
B)  cartel. 
C)  kinked demand industry. 
D)  price-leadership industry. 
A)  monopoly. 
B)  cartel. 
C)  kinked demand industry. 
D)  price-leadership industry.

Question 6

Exhibit 9-1  A monopolistic competitive firm   In the long run, which of the following is true for the firm shown in Exhibit 9-1?

Accepted Answer

A)  The firm's demand curve shifts leftward. 
B)  The firm's average total cost curve shifts upward. 
C)  Neither a nor b are possible. 
D)  Both a and b are possible. 
A)  The firm's demand curve shifts leftward. 
B)  The firm's average total cost curve shifts upward. 
C)  Neither a nor b are possible. 
D)  Both a and b are possible.

Question 7

A common characteristic of oligopolies is:

Accepted Answer

A)  interdependence in pricing decisions. 
B)  independent pricing decisions. 
C)  low industry concentration. 
D)  few or no plant-level economies of scale. 
A)  interdependence in pricing decisions. 
B)  independent pricing decisions. 
C)  low industry concentration. 
D)  few or no plant-level economies of scale.

Question 8

What is the key feature shared by all oligopoly markets?

Accepted Answer

A)  A large number of sellers. 
B)  Mutual interdependence. 
C)  Product differentiation. 
D)  Easy entry and exit. 
A)  A large number of sellers. 
B)  Mutual interdependence. 
C)  Product differentiation. 
D)  Easy entry and exit.

Question 9

In which of the following market structures must the price and output decisions of an individual firm include the possible price and output reactions of the firm's rivals?

Accepted Answer

A)  Monopoly. 
B)  Oligopoly. 
C)  Perfect competition. 
D)  Cartel. 
A)  Monopoly. 
B)  Oligopoly. 
C)  Perfect competition. 
D)  Cartel.

Question 10

Product differentiation makes the demand for a monopolistically competitive firm's product:

Accepted Answer

A)  perfectly elastic. 
B)  more elastic than for a monopoly. 
C)  more inelastic than for a monopoly. 
D)  perfectly inelastic. 
A)  perfectly elastic. 
B)  more elastic than for a monopoly. 
C)  more inelastic than for a monopoly. 
D)  perfectly inelastic.

Question 11

Compared to the perfectly competitive outcome, monopolistically competitive markets will result in:

Accepted Answer

A)  a wider variety of products and higher prices. 
B)  less product variety and higher prices. 
C)  a wider variety of products and lower prices. 
D)  less product variety and lower prices. 
A)  a wider variety of products and higher prices. 
B)  less product variety and higher prices. 
C)  a wider variety of products and lower prices. 
D)  less product variety and lower prices.

Question 12

Excluding foreign competition, which of the following is an oligopoly in the United States?

Accepted Answer

A)  The computer industry. 
B)  The automobile industry. 
C)  The steel industry. 
D)  All of the above are oligopolies. 
A)  The computer industry. 
B)  The automobile industry. 
C)  The steel industry. 
D)  All of the above are oligopolies.

Question 13

A cartel is an agreement among firms to divide output of a product among members.

Accepted Answer

A) True 
 B)False

Question 14

Some economists argue that monopolistically competitive markets are inefficient because:

Accepted Answer

A)  the firms earn economic profits in the long run. 
B)  the firms' marginal costs and marginal revenues are not always equal. 
C)  firms do not produce the output rate that would minimize their average total cost. 
D)  barriers to entry are high. 
A)  the firms earn economic profits in the long run. 
B)  the firms' marginal costs and marginal revenues are not always equal. 
C)  firms do not produce the output rate that would minimize their average total cost. 
D)  barriers to entry are high.

Question 15

In the long run, a monopolistically competitive firm will set price:

Accepted Answer

A)  at the intersection of the marginal cost and demand curves. 
B)  at the intersection of the average total cost and demand curves. 
C)  higher than the competitive level, but lower than the monopoly price. 
D)  higher than the marginal cost, but lower than average total cost. 
A)  at the intersection of the marginal cost and demand curves. 
B)  at the intersection of the average total cost and demand curves. 
C)  higher than the competitive level, but lower than the monopoly price. 
D)  higher than the marginal cost, but lower than average total cost.

Question 16

We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms':

Accepted Answer

A)  demand curves downward. 
B)  demand curves upward. 
C)  demand curves more inelastic. 
D)  cost curves upward. 
E)  cost curves downward. 
A)  demand curves downward. 
B)  demand curves upward. 
C)  demand curves more inelastic. 
D)  cost curves upward. 
E)  cost curves downward.

Question 17

When oligopolists take into account their competitors' behavior, this situation is called:

Accepted Answer

A)  mutual interdependence. 
B)  monopolistic competition. 
C)  independent. 
D)  price discrimination. 
E)  loss minimization. 
A)  mutual interdependence. 
B)  monopolistic competition. 
C)  independent. 
D)  price discrimination. 
E)  loss minimization.

Question 18

In the long run, marginal cost must equal marginal revenue for a monopolistic competitive firm, but not at the minimum point of the long-run average cost curve.

Accepted Answer

A) True 
 B)False

Question 19

Examples of nonprice competition include advertising and product differentiation.

Accepted Answer

A) True 
 B)False

Question 20

A monopolistic competitive firm in the long run sets price equal to the minimum point on the long-run average cost curve.

Accepted Answer

A) True 
 B)False

Exam 9: Monopolistic Competition and Oligopoly

Product differentiation:

In an oligopoly industry, price:

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

A characteristic of an oligopoly is:

In order to make oil profits as large as possible, OPEC meets to set oil production quotas for its members. OPEC is best classified as a:

Exhibit 9-1 A monopolistic competitive firm In the long run, which of the following is true for the firm shown in Exhibit 9-1?

A common characteristic of oligopolies is:

What is the key feature shared by all oligopoly markets?

In which of the following market structures must the price and output decisions of an individual firm include the possible price and output reactions of the firm's rivals?

Product differentiation makes the demand for a monopolistically competitive firm's product:

Compared to the perfectly competitive outcome, monopolistically competitive markets will result in:

Excluding foreign competition, which of the following is an oligopoly in the United States?

A cartel is an agreement among firms to divide output of a product among members.

Some economists argue that monopolistically competitive markets are inefficient because:

In the long run, a monopolistically competitive firm will set price:

We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms':

When oligopolists take into account their competitors' behavior, this situation is called:

In the long run, marginal cost must equal marginal revenue for a monopolistic competitive firm, but not at the minimum point of the long-run average cost curve.

Examples of nonprice competition include advertising and product differentiation.

A monopolistic competitive firm in the long run sets price equal to the minimum point on the long-run average cost curve.

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

Filters