Question 1

Monopolistic competition is characterized by a

Accepted Answer

A)  few dominant firms and low entry barriers. 
B)  large number of firms and substantial entry barriers. 
C)  large number of firms and low entry barriers. 
D)  few dominant firms and substantial entry barriers. 
A)  few dominant firms and low entry barriers. 
B)  large number of firms and substantial entry barriers. 
C)  large number of firms and low entry barriers. 
D)  few dominant firms and substantial entry barriers.

Question 2

Excess capacity implies

Accepted Answer

A)  productive inefficiency. 
B)  allocative inefficiency. 
C)  productive efficiency. 
D)  allocative efficiency. 
A)  productive inefficiency. 
B)  allocative inefficiency. 
C)  productive efficiency. 
D)  allocative efficiency.

Question 3

The Herfindahl index for a pure monopolist is

Accepted Answer

A)  100. 
B)  10,000. 
C)  100,000. 
D)  10. 
A)  100. 
B)  10,000. 
C)  100,000. 
D)  10.

Question 4

If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will

Accepted Answer

A)  be unaffected. 
B)  shift to the left. 
C)  become more elastic. 
D)  shift to the right. 
A)  be unaffected. 
B)  shift to the left. 
C)  become more elastic. 
D)  shift to the right.

Question 5

When a monopolistically competitive firm is in long-run equilibrium,

Accepted Answer

A)  production takes place where ATC is minimized. 
B)  marginal revenue equals marginal cost and price equals average total cost. 
C)  normal profit is zero and price equals marginal cost. 
D)  economic profit is zero and price equals marginal cost. 
A)  production takes place where ATC is minimized. 
B)  marginal revenue equals marginal cost and price equals average total cost. 
C)  normal profit is zero and price equals marginal cost. 
D)  economic profit is zero and price equals marginal cost.

Question 6

Concentration ratios measure the

Accepted Answer

A)  geographic location of the largest corporations in each industry. 
B)  degree to which product price exceeds marginal cost in various industries. 
C)  percentage of total industry sales accounted for by the largest firms in the industry. 
D)  number of firms in an industry. 
A)  geographic location of the largest corporations in each industry. 
B)  degree to which product price exceeds marginal cost in various industries. 
C)  percentage of total industry sales accounted for by the largest firms in the industry. 
D)  number of firms in an industry.

Question 7

Which of the following is correct?

Accepted Answer

A)  The excess capacity problem diminishes as the monopolistically competitive firm's demand curve becomes less elastic. 
B)  The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve. 
C)  The greater the degree of product variation, the lesser is the excess capacity problem. 
D)  The greater the degree of product variation, the greater is the excess capacity problem. 
A)  The excess capacity problem diminishes as the monopolistically competitive firm's demand curve becomes less elastic. 
B)  The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve. 
C)  The greater the degree of product variation, the lesser is the excess capacity problem. 
D)  The greater the degree of product variation, the greater is the excess capacity problem.

Question 8

If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is

Accepted Answer

A)  10,000. 
B)  2,500. 
C)  3,750. 
D)  1,000. 
A)  10,000. 
B)  2,500. 
C)  3,750. 
D)  1,000.

Question 9

Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. $ \quad$$ \quad$$ \quad$$ \quad$   $\text { Cost Data }$    $ \quad$$ \quad$$ \quad$  $\text { Demand Data }$ 
$\begin{array}{|c|c|c|c}
\begin{array}{c}
\text { Total } \
\text { Output }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Cost }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { Demanded }
\end{array} & \text { Price } \
\hline 0 & \$ 25 & 0 & \$ 60 \
\hline 1 & 40 & 1 & 55 \
\hline 2 & 45 & 2 & 50 \
\hline 3 & 55 & 3 & 45 \
\hline 4 & 70 & 4 & 40 \
\hline 5 & 90 & 5 & 35 \
\hline 6 & 115 & 6 & 30 \
\hline
\end{array}$ If the firm sells 3 units of output, marginal revenue will be

Accepted Answer

A)  -$5. 
B)  $35. 
C)  $135. 
D)  $165. 
A)  -$5. 
B)  $35. 
C)  $135. 
D)  $165.

Question 10

In which industry is monopolistic competition most likely to be found?

Accepted Answer

A)  utilities 
B)  agriculture 
C)  retail trade 
D)  mining 
A)  utilities 
B)  agriculture 
C)  retail trade 
D)  mining

Question 11

The graph depicts a monopolistically competitive firm.   At the profit-maximizing level of short-run output, this monopolistically competitive firm will be making a profit of

Accepted Answer

A)  $275. 
B)  $350. 
C)  $500. 
D)  $525. 
A)  $275. 
B)  $350. 
C)  $500. 
D)  $525.

Question 12

Product differentiation in monopolistic competition involves a trade-off between

Accepted Answer

A)  productive efficiency and allocative efficiency. 
B)  monopoly power and ease of entry. 
C)  consumer choice and productive efficiency. 
D)  short-run profits and long-run efficiency. 
A)  productive efficiency and allocative efficiency. 
B)  monopoly power and ease of entry. 
C)  consumer choice and productive efficiency. 
D)  short-run profits and long-run efficiency.

Question 13

Monopolistic competition resembles pure competition because

Accepted Answer

A)  both industries emphasize nonprice competition. 
B)  in both instances firms will operate at the minimum point on their long-run average total cost curves. 
C)  both industries entail the production of differentiated products. 
D)  barriers to entry are either weak or nonexistent. 
A)  both industries emphasize nonprice competition. 
B)  in both instances firms will operate at the minimum point on their long-run average total cost curves. 
C)  both industries entail the production of differentiated products. 
D)  barriers to entry are either weak or nonexistent.

Question 14

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

Accepted Answer

A)  greater its excess capacity. 
B)  higher its price relative to that of a pure competitor having the same cost curves. 
C)  lower its long-run economic profit. 
D)  lower its average total cost at its profit-maximizing level of output. 
A)  greater its excess capacity. 
B)  higher its price relative to that of a pure competitor having the same cost curves. 
C)  lower its long-run economic profit. 
D)  lower its average total cost at its profit-maximizing level of output.

Question 15

The larger the number of firms and the less the degree of product differentiation, the greater will be the elasticity of a monopolistically competitive seller's demand curve.

Accepted Answer

A) True 
 B)False

Question 16

Under monopolistic competition, entry to the industry is

Accepted Answer

A)  completely free of barriers. 
B)  more difficult than under pure competition but not nearly as difficult as under pure monopoly. 
C)  more difficult than under pure monopoly. 
D)  blocked. 
A)  completely free of barriers. 
B)  more difficult than under pure competition but not nearly as difficult as under pure monopoly. 
C)  more difficult than under pure monopoly. 
D)  blocked.

Question 17

The demand curve of a monopolistically competitive producer is

Accepted Answer

A)  less elastic than that of either a pure monopolist or a pure competitor. 
B)  less elastic than that of a pure monopolist, but more elastic than that of a pure competitor. 
C)  more elastic than that of a pure monopolist, but less elastic than that of a pure competitor. 
D)  more elastic than that of either a pure monopolist or a pure competitor. 
A)  less elastic than that of either a pure monopolist or a pure competitor. 
B)  less elastic than that of a pure monopolist, but more elastic than that of a pure competitor. 
C)  more elastic than that of a pure monopolist, but less elastic than that of a pure competitor. 
D)  more elastic than that of either a pure monopolist or a pure competitor.

Question 18

The monopolistic competition model assumes that

Accepted Answer

A)  allocative efficiency will be achieved. 
B)  productive efficiency will be achieved. 
C)  firms will engage in nonprice competition. 
D)  firms will realize economic profits in the long run. 
A)  allocative efficiency will be achieved. 
B)  productive efficiency will be achieved. 
C)  firms will engage in nonprice competition. 
D)  firms will realize economic profits in the long run.

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

The Herfindahl index

Accepted Answer

A)  tells us the degree to which monopolistically competitive firms are differentiating their products. 
B)  is another name for the four-firm concentration ratio. 
C)  tells us whether oligopolistic firms are engaging in collusion. 
D)  gives much greater weight to larger firms than to smaller firms in an industry. 
A)  tells us the degree to which monopolistically competitive firms are differentiating their products. 
B)  is another name for the four-firm concentration ratio. 
C)  tells us whether oligopolistic firms are engaging in collusion. 
D)  gives much greater weight to larger firms than to smaller firms in an industry.

Exam 13: Monopolistic Competition

Monopolistic competition is characterized by a

Excess capacity implies

The Herfindahl index for a pure monopolist is

If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will

When a monopolistically competitive firm is in long-run equilibrium,

Concentration ratios measure the

Which of the following is correct?

If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is

In which industry is monopolistic competition most likely to be found?

The graph depicts a monopolistically competitive firm. At the profit-maximizing level of short-run output, this monopolistically competitive firm will be making a profit of

Product differentiation in monopolistic competition involves a trade-off between

Monopolistic competition resembles pure competition because

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

The larger the number of firms and the less the degree of product differentiation, the greater will be the elasticity of a monopolistically competitive seller's demand curve.

Under monopolistic competition, entry to the industry is

The demand curve of a monopolistically competitive producer is

The monopolistic competition model assumes that

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

The Herfindahl index

Limits, Alternatives, and Choices

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