Question 1

The entry of more firms into a monopolistically competitive market tends to increase the excess capacity of firms in the industry in the long run.

Accepted Answer

A) True 
 B)False

Question 2

At long-run equilibrium in monopolistic competition, there is

Accepted Answer

A)  allocative efficiency but not productive efficiency. 
B)  productive efficiency but not allocative efficiency. 
C)  both allocative and productive efficiency. 
D)  neither allocative nor productive efficiency. 
A)  allocative efficiency but not productive efficiency. 
B)  productive efficiency but not allocative efficiency. 
C)  both allocative and productive efficiency. 
D)  neither allocative nor productive efficiency.

Question 3

Product differentiation is what allows monopolistically competitive firms to have some market power.

Accepted Answer

A) True 
 B)False

Question 4

Answer the question on the basis of the following demand and cost data for a specific firm. $ \quad$$ \quad$$ \quad$$ \quad$$\text { Demand Data }$ $ \quad$$ \quad$$ \quad$ $\text { Cost Data }$
$\begin{array}{|c|c|c|c|c|}
\hline(1) &(2)&(3)&&\text { Total }  \
\text { Price }&\text { Price }&\text { Quanti }&\text { Outpu }&\text { Cost } \
&&\text { ty }& \text { t }\
\hline 11.0 & \$ 10.0 & 6 & 6 & \$ 61 \
\hline 9.99 & 8.85 & 7 & 7 & 62 \
\hline 9.00 & 8.00 & 8 & 8 & 64 \
\hline 8.00 & 7.00 & 9 & 9 & 67 \
\hline 7.10 & 6.10 & 10 & 10 & 72 \
\hline 6.00 & 5.00 & 11 & 11 & 79 \
\hline 5.15 & 4.15 & 12 & 12 & 86 \
\hline
\end{array}$ Suppose that entry into the industry changes this firm's demand schedule from columns (1) and (3) to columns (2) and (3). Economic profit will

Accepted Answer

A)  fall by $10. 
B)  fall to $6. 
C)  increase by $10. 
D)  decline to zero. 
A)  fall by $10. 
B)  fall to $6. 
C)  increase by $10. 
D)  decline to zero.

Question 5

The market situation of a monopolistic competitor is made more complex than our simple revenue-and-costs graphs would suggest, because the firm in reality juggles three decisions:

Accepted Answer

A)  price, output quantity, and revenues. 
B)  revenue, costs, and profits. 
C)  advertising, resources, and product. 
D)  price, product, and advertising. 
A)  price, output quantity, and revenues. 
B)  revenue, costs, and profits. 
C)  advertising, resources, and product. 
D)  price, product, and advertising.

Question 6

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should

Accepted Answer

A)  decrease the level of output. 
B)  increase the level of output. 
C)  make no change in the level of output. 
D)  increase product price. 
A)  decrease the level of output. 
B)  increase the level of output. 
C)  make no change in the level of output. 
D)  increase product price.

Question 7

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

Accepted Answer

A)  former does not seek to maximize profits. 
B)  latter recognizes that price must be reduced to sell more output. 
C)  former sells similar, although not identical, products. 
D)  former's demand curve is perfectly inelastic. 
A)  former does not seek to maximize profits. 
B)  latter recognizes that price must be reduced to sell more output. 
C)  former sells similar, although not identical, products. 
D)  former's demand curve is perfectly inelastic.

Question 8

Which of the following is correct for a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

A)  MC = ATC. 
B)  MC exceeds MR. 
C)  P exceeds minimum ATC. 
D)  P = MC. 
A)  MC = ATC. 
B)  MC exceeds MR. 
C)  P exceeds minimum ATC. 
D)  P = MC.

Question 9

In the long run, a typical firm in a monopolistically competitive market earns positive economic profits.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

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

Question 11

Keely says that heâ€™s glad that his morning coffee is sold in a monopolistically competitive market rather than a purely competitive market. If this is true for most things Keely buys, it suggests that he

Accepted Answer

A)  is most concerned about paying the lowest price possible. 
B)  cares most about allocative efficiency. 
C)  is willing to pay extra for product variety. 
D)  is a creature of habit who always buys the same type of a particular good. 
A)  is most concerned about paying the lowest price possible. 
B)  cares most about allocative efficiency. 
C)  is willing to pay extra for product variety. 
D)  is a creature of habit who always buys the same type of a particular good.

Question 12

Monopolistic competition means

Accepted Answer

A)  a market situation where competition is based entirely on product differentiation and advertising. 
B)  a large number of firms producing a standardized or homogeneous product. 
C)  many firms producing differentiated products. 
D)  a few firms producing a standardized or homogeneous product. 
A)  a market situation where competition is based entirely on product differentiation and advertising. 
B)  a large number of firms producing a standardized or homogeneous product. 
C)  many firms producing differentiated products. 
D)  a few firms producing a standardized or homogeneous product.

Question 13

In monopolistically competitive markets, resources are

Accepted Answer

A)  overallocated because long-run equilibrium occurs where price exceeds marginal cost. 
B)  underallocated because long-run equilibrium occurs where price exceeds marginal cost. 
C)  overallocated because long-run equilibrium occurs where marginal cost exceeds price. 
D)  underallocated because long-run equilibrium occurs where marginal cost exceeds price. 
A)  overallocated because long-run equilibrium occurs where price exceeds marginal cost. 
B)  underallocated because long-run equilibrium occurs where price exceeds marginal cost. 
C)  overallocated because long-run equilibrium occurs where marginal cost exceeds price. 
D)  underallocated because long-run equilibrium occurs where marginal cost exceeds price.

Question 14

The variety of products and features that consumers may choose from in monopolistically competitive industries

Accepted Answer

A)  at least partially offsets the economic inefficiencies of this market structure. 
B)  leads to an optimal allocation of resources in the market structure. 
C)  guarantees that firms produce at full-capacity output levels. 
D)  makes the demand curves facing firms in these industries perfectly elastic. 
A)  at least partially offsets the economic inefficiencies of this market structure. 
B)  leads to an optimal allocation of resources in the market structure. 
C)  guarantees that firms produce at full-capacity output levels. 
D)  makes the demand curves facing firms in these industries perfectly elastic.

Question 15

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating

Accepted Answer

A)  with positive profits. 
B)  with a loss. 
C)  at the break-even point. 
D)  at a nonoptimal level of output. 
A)  with positive profits. 
B)  with a loss. 
C)  at the break-even point. 
D)  at a nonoptimal level of output.

Question 16

A monopolistically competitive industry combines elements of both competition and monopoly. The competition element results from

Accepted Answer

A)  the likelihood of collusion. 
B)  product differentiation. 
C)  low entry barriers. 
D)  mutual interdependence in decision making. 
A)  the likelihood of collusion. 
B)  product differentiation. 
C)  low entry barriers. 
D)  mutual interdependence in decision making.

Question 17

Assume the top six firms comprising an industry have market shares of 10, 8, 8, 5, 5, and 4 percent. The remaining 20 firms each have market shares of 2 percent. The Herfindahl index for this industry is

Accepted Answer

A)  294. 
B)  31. 
C)  374. 
D)  253. 
A)  294. 
B)  31. 
C)  374. 
D)  253.

Question 18

If an industry evolves from oligopoly to monopolistic competition, we would expect

Accepted Answer

A)  the four-firm concentration ratio to increase. 
B)  the four-firm concentration ratio to decrease. 
C)  the four-firm concentration ratio to remain the same. 
D)  barriers to entry to strengthen. 
A)  the four-firm concentration ratio to increase. 
B)  the four-firm concentration ratio to decrease. 
C)  the four-firm concentration ratio to remain the same. 
D)  barriers to entry to strengthen.

Question 19

The economic profits earned by monopolistically competitive sellers are zero in the long run.

Accepted Answer

A) True 
 B)False

Question 20

The four-firm sales concentration ratio for an industry measures the

Accepted Answer

A)  geographic concentration of firms. 
B)  extent to which the four largest firms dominate the production of a good. 
C)  percentage of the industry's capital facilities owned by the four largest firms. 
D)  degree of X-inefficiency in the industry. 
A)  geographic concentration of firms. 
B)  extent to which the four largest firms dominate the production of a good. 
C)  percentage of the industry's capital facilities owned by the four largest firms. 
D)  degree of X-inefficiency in the industry.

Exam 13: Monopolistic Competition

The entry of more firms into a monopolistically competitive market tends to increase the excess capacity of firms in the industry in the long run.

At long-run equilibrium in monopolistic competition, there is

Product differentiation is what allows monopolistically competitive firms to have some market power.

The market situation of a monopolistic competitor is made more complex than our simple revenue-and-costs graphs would suggest, because the firm in reality juggles three decisions:

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

Which of the following is correct for a monopolistically competitive firm in long-run equilibrium?

In the long run, a typical firm in a monopolistically competitive market earns positive economic profits.

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

Keely says that heâ€™s glad that his morning coffee is sold in a monopolistically competitive market rather than a purely competitive market. If this is true for most things Keely buys, it suggests that he

Monopolistic competition means

In monopolistically competitive markets, resources are

The variety of products and features that consumers may choose from in monopolistically competitive industries

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating

A monopolistically competitive industry combines elements of both competition and monopoly. The competition element results from

Assume the top six firms comprising an industry have market shares of 10, 8, 8, 5, 5, and 4 percent. The remaining 20 firms each have market shares of 2 percent. The Herfindahl index for this industry is

If an industry evolves from oligopoly to monopolistic competition, we would expect

The economic profits earned by monopolistically competitive sellers are zero in the long run.

The four-firm sales concentration ratio for an industry measures the

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters