Question 1

When firms exit a monopolistically competitive market:

Accepted Answer

A)  product variety diminishes. 
B)  prices fall. 
C)  profits decrease (losses increase). 
D)  the demand curves of established firms shift to the right. 
A)  product variety diminishes. 
B)  prices fall. 
C)  profits decrease (losses increase). 
D)  the demand curves of established firms shift to the right. D

Question 2

Which of the following statements is incorrect?

Accepted Answer

A)  Advertising can lower the costs to consumers of acquiring information. 
B)  Advertising tends to increase competition in imperfectly competitive industries. 
C)  Even though advertising increases total production costs, it may indeed provide a useful service to consumers. 
D)  Advertising is only useful as a way to manipulate consumer tastes. 
A)  Advertising can lower the costs to consumers of acquiring information. 
B)  Advertising tends to increase competition in imperfectly competitive industries. 
C)  Even though advertising increases total production costs, it may indeed provide a useful service to consumers. 
D)  Advertising is only useful as a way to manipulate consumer tastes. D

Question 3

When many sellers are involved in selling their products in a market,the market structure may be which of the following?
i.perfect competition
ii.monopolistic competition
iii.monopoly

Accepted Answer

A)  (i) only 
B)  either (i) or (ii) 
C)  (ii) only 
D)  (i), (ii), or (iii) 
A)  (i) only 
B)  either (i) or (ii) 
C)  (ii) only 
D)  (i), (ii), or (iii) B

Question 4

Monopolistic competition is characterized by which of the following attributes:
i.Many sellers
ii.Product differentiation
iii.Significant barriers to entry

Accepted Answer

A)  (i) and (iii) only 
B)  (i) and (ii) only 
C)  (ii) and (iii) only 
D)  (i), (ii), and (iii) 
A)  (i) and (iii) only 
B)  (i) and (ii) only 
C)  (ii) and (iii) only 
D)  (i), (ii), and (iii)

Question 5

Monopolistic competition is characterized by:

Accepted Answer

A)  homogeneous products. 
B)  barriers to entry 
C)  firms earning economic profits in the long run. 
D)  differentiated products. 
A)  homogeneous products. 
B)  barriers to entry 
C)  firms earning economic profits in the long run. 
D)  differentiated products.

Question 6

Which of the following industries would most likely represent monopolistic competition?

Accepted Answer

A)  clothing 
B)  wheat 
C)  water utilities 
D)  soft drinks 
A)  clothing 
B)  wheat 
C)  water utilities 
D)  soft drinks

Question 7

In a monopolistically competitive scenario,the demand curve for an existing firm ____ when firms exit the industry.

Accepted Answer

A)  becomes more inelastic 
B)  becomes vertical 
C)  becomes horizontal 
D)  becomes more elastic 
A)  becomes more inelastic 
B)  becomes vertical 
C)  becomes horizontal 
D)  becomes more elastic

Question 8

When new firms enter a monopolistically competitive industry:

Accepted Answer

A)  the average total cost curves of established firms will shift downward. 
B)  the demand curve of an established firm is reduced at each level of output. 
C)  the established firms will each increase production. 
D)  the average revenue received by an established firm will increase at each level of output. 
A)  the average total cost curves of established firms will shift downward. 
B)  the demand curve of an established firm is reduced at each level of output. 
C)  the established firms will each increase production. 
D)  the average revenue received by an established firm will increase at each level of output.

Question 9

Which of the following is a correct listing of industry models ordered from most competitive to least competitive?

Accepted Answer

A)  perfect competition - monopolistic competition - monopoly 
B)  perfect competition - monopoly - monopolistic competition 
C)  monopolistic competition - perfect competition - monopoly 
D)  monopolistic competition - monopoly - perfect competition 
A)  perfect competition - monopolistic competition - monopoly 
B)  perfect competition - monopoly - monopolistic competition 
C)  monopolistic competition - perfect competition - monopoly 
D)  monopolistic competition - monopoly - perfect competition

Question 10

To maximize its profit,a monopolistically competitive firm produces the output level at which ____.

Accepted Answer

A)  its price elasticity of demand equals one 
B)  MR = MC 
C)  ATC is minimized 
D)  MR = AVC 
A)  its price elasticity of demand equals one 
B)  MR = MC 
C)  ATC is minimized 
D)  MR = AVC

Question 11

By differentiating their products and promoting brand name loyalty,monopolistically competitive firms can raise prices without losing all their customers.

Accepted Answer

A) True 
 B)False

Question 12

Billy is running a fast-food burger stand in his small community.If he is like other monopolistic competitors in short-run equilibrium which of the following would be true?

Accepted Answer

A)  His demand curve would be downward sloping. 
B)  His marginal revenue curve would lie below his demand curve. 
C)  He would be maximizing profits where his MC = MR. 
D)  All of the above would be characteristics of Billy's burger stand. 
A)  His demand curve would be downward sloping. 
B)  His marginal revenue curve would lie below his demand curve. 
C)  He would be maximizing profits where his MC = MR. 
D)  All of the above would be characteristics of Billy's burger stand.

Question 13

Monopolistic competitors in long-run equilibrium will generally find that they are earning economic profits.

Accepted Answer

A) True 
 B)False

Question 14

Monopolistic competition is characterized by:

Accepted Answer

A)  one firm selling several products. 
B)  many firms selling the same product. 
C)  many firms selling slightly different products. 
D)  one firm selling one product. 
A)  one firm selling several products. 
B)  many firms selling the same product. 
C)  many firms selling slightly different products. 
D)  one firm selling one product.

Question 15

A monopolistic competitor's demand curve tends to be more elastic than a monopolist's demand curve.

Accepted Answer

A) True 
 B)False

Question 16

The demand curve for a monopolistic competitor slopes downward because:

Accepted Answer

A)  quantity demanded drops to zero after a slight price increase. 
B)  there are close, but not perfect, substitutes for the product. 
C)  customers have no loyalty to the product. 
D)  the product is not differentiated in any way from those offered by other sellers. 
A)  quantity demanded drops to zero after a slight price increase. 
B)  there are close, but not perfect, substitutes for the product. 
C)  customers have no loyalty to the product. 
D)  the product is not differentiated in any way from those offered by other sellers.

Question 17

If monopolistically competitive firms are earning economic profits,then in the transition to the long-run equilibrium:

Accepted Answer

A)  more firms will enter the industry. 
B)  prices will tend to fall. 
C)  each firm will produce a smaller quantity of output. 
D)  all of the above will occur. 
A)  more firms will enter the industry. 
B)  prices will tend to fall. 
C)  each firm will produce a smaller quantity of output. 
D)  all of the above will occur.

Question 18

If the eyeglass industry is monopolistically competitive,then in the long-run:

Accepted Answer

A)  the price of eyeglasses will equal marginal revenue. 
B)  the price of eyeglasses will exceed marginal cost. 
C)  firms can earn economic profits. 
D)  firms are price takers. 
A)  the price of eyeglasses will equal marginal revenue. 
B)  the price of eyeglasses will exceed marginal cost. 
C)  firms can earn economic profits. 
D)  firms are price takers.

Question 19

If the firm in the graph below represents the typical firm in a monopolistically competitive industry,what would be most likely to occur?

Accepted Answer

A)  New firms would be likely to enter this industry. 
B)  Existing firms would be likely to exit this industry. 
C)  Firms would neither enter nor exit this industry. 
D)  New firms would like to enter but since there are substantial barriers to entry they cannot do so. 
A)  New firms would be likely to enter this industry. 
B)  Existing firms would be likely to exit this industry. 
C)  Firms would neither enter nor exit this industry. 
D)  New firms would like to enter but since there are substantial barriers to entry they cannot do so.

Question 20

Which of the following is not a characteristic of monopolistic competition?

Accepted Answer

A)  a downward-sloping demand curve 
B)  differentiated products 
C)  standardized products 
D)  excess capacity 
A)  a downward-sloping demand curve 
B)  differentiated products 
C)  standardized products 
D)  excess capacity

Exam 14: Monopolistic Competition and Product Differentiation

When firms exit a monopolistically competitive market:

Which of the following statements is incorrect?

When many sellers are involved in selling their products in a market,the market structure may be which of the following? i.perfect competition ii.monopolistic competition iii.monopoly

Monopolistic competition is characterized by which of the following attributes: i.Many sellers ii.Product differentiation iii.Significant barriers to entry

Monopolistic competition is characterized by:

Which of the following industries would most likely represent monopolistic competition?

In a monopolistically competitive scenario,the demand curve for an existing firm ____ when firms exit the industry.

When new firms enter a monopolistically competitive industry:

Which of the following is a correct listing of industry models ordered from most competitive to least competitive?

To maximize its profit,a monopolistically competitive firm produces the output level at which ____.

By differentiating their products and promoting brand name loyalty,monopolistically competitive firms can raise prices without losing all their customers.

Billy is running a fast-food burger stand in his small community.If he is like other monopolistic competitors in short-run equilibrium which of the following would be true?

Monopolistic competitors in long-run equilibrium will generally find that they are earning economic profits.

Monopolistic competition is characterized by:

A monopolistic competitor's demand curve tends to be more elastic than a monopolist's demand curve.

The demand curve for a monopolistic competitor slopes downward because:

If monopolistically competitive firms are earning economic profits,then in the transition to the long-run equilibrium:

If the eyeglass industry is monopolistically competitive,then in the long-run:

If the firm in the graph below represents the typical firm in a monopolistically competitive industry,what would be most likely to occur?

Which of the following is not a characteristic of monopolistic competition?

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

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