Econ Chapter 11 Practice Questions

Which of the following characterizes monopolistic competition? A. Many interdependent firms sell a homogeneous product. B. A few firms produce a particular type of product. C. Many firms produce a particular type of product, but each maintains some independent control over its own price. D. A few firms produce all of the market supply of a good.

Monopolistically competitive industries are characterized by all of the following except: A. Homogenous products. B. Low entry barriers. C. Low concentration ratios. D. Independent production decisions.

In monopolistic competition, a firm: A. Has no market power. B. Captures significant economies of scale. C. Has a downward-sloping demand curve. D. Has a standardized product that all firms produce.

If there are many firms in an industry producing goods that are similar but slightly different, this is an example of: A. Perfect competition. B. Monopolistic competition. C. Oligopoly. D. Monopoly.

Which of the following is not characteristic of monopolistic competition? A. Many firms in an industry B. Low concentration ratios C. Some market power D. Price takers

A concentration ratio measures the: A. Proportion of industry output produced by all firms. B. Proportion of industry output produced by the largest firms. C. Dollar value of total industry output produced by all firms. D. Dollar value of total industry output produced b y the largest firms.

The combined market share of the top four firms in a monopolistically competitive industry will typically be in the range of: A. Zero to 2 percent. B. Zero to 5 percent. C. 20 to 40 percent. D. 70 to 100 percent.

A monopolistically competitive industry is characterized by ________ concentration ratios and ________ entry barriers. A. High; high B. High; low C. Low; high D. Low; low

A major difference between oligopoly and monopolistic competition is that monopolistically competitive firms _______, and oligopolies do not. A. Have high concentration ratios B. Have many competitors C. Have high barriers to entry D. Confront a downward-sloping demand curve

Each producer in monopolistic competition has: A. Complete market power. B. Substantial market power. C. Some market power. D. No market power.

The demand curve faced by a monopolistically competitive firm is: A. Downward sloping. B. Flat. C. Kinked. D. Upward sloping.

Which of the following is similar for oligopoly and monopolistic competition? A. Both have many firms B. Both have low concentration ratios C. Both have market power D. Both make independent production decisions

One of the main differences between an oligopoly and a monopolistically competitive firm is that a monopolistically competitive firm: A. Faces a horizontal demand curve; an oligopoly does not. B. Is relatively independent; an oligopoly is interdependent. C. Has no market power; an oligopoly has some market power. D. Has high barriers to entry; an oligopoly does not.

If a monopolistically competitive firm raises its price it will: A. Not lose any of its customers. B. Lose most of its customers. C. Lose some of its customers, but nowhere close to all its customers. D. Lose all of its customers.

The kinked oligopoly demand curve does not describe the demand curve for monopolistic competition, because in monopolistically competitive markets: A. Firms are not as interdependent as oligopolistic firms. B. Firms have no market power. C. There is not as much product differentiation as in oligopoly. D. There is no nonprice competition.

A major difference between monopoly and monopolistic competition is: A. One maximizes profits by setting MR equal to MC, and the other does not. B. The number of firms in the market. C. One type of firm has market power, and the other does not. D. One has a downward-sloping demand curve, and the other does not.

Entry into a market characterized by monopolistic competition is generally: A. Entirely blocked by existing firms. B. Very easy because few barriers exist. C. As difficult as in oligopoly. D. More difficult than entry into monopolized markets.

The monopoly dimension of monopolistic competition is that the firm: A. Will earn an economic profit. B. Must worry about how its rivals respond to changes in its behavior. C. Has no competitors. D. Will keep most of its customers if it raises its price.

The competitive dimension of monopolistic competition is that: A. High barriers to entry tend to push economic profits toward zero. B. Consumers view each firm's products as interchangeable. C. Low barriers to entry tend to push economic profits toward zero. D. Each firm in the industry will lose all of its customers if it raises its price.

Which of the following characterizes monopolistic competition? A. Price leadership B. Product differentiation C. Price discrimination D. Economies of scale

Product differentiation refers to: A. Features that make one product appear different from competing products in the same market. B. Different prices for the same product in a certain market. C. The selling of identical products in different markets. D. The charging of different prices for the same product in different markets.

Product differentiation occurs when: A. A completely new process is used to produce a familiar product. B. One firm produces many varieties of a product. C. Buyers, though not necessarily sellers, perceive differences in the products of several companies. D. Sellers, though not necessarily buyers, perceive differences in the products of several companies.

Which of the following is an example of product differentiation? A. Two shampoos differ only in their label, but consumers pay $0.20 more for the label they recognize. B. Sugar can be made from sugar beets or sugar cane and consumers cannot tell the difference. C. Consumers substitute SUVs in place of cars because SUVs accommodate more passengers. D. Mills produce softwood and hardwood, but the two are used for different purposes.

Large cities typically have many drug stores, which offer different levels of service and product selection. The drug store market in big cities can best be classified as: A. A competitive market. B. Monopolistic competition. C. Oligopoly. D. Monopoly.

Perfect competition and monopolistic competition are best distinguished by: A. The degree of product differentiation. B. The long-run economic profits that are expected. C. The number of firms in the market. D. The ease of entry and exit.

A monopolistically competitive firm can raise its price somewhat without fear of great change in unit sales because: A. The demand for its product is typically very price-elastic. B. Its demand curve is horizontal. C. Of product differentiation and brand loyalty. D. Of the gap in its marginal revenue curve.

A monopolistically competitive firm can raise its price somewhat without fear of great change in unit sales because of: A. Brand loyalty. B. Economies of scale. C. Inelastic demand. D. Large market shares of firms in the market.

Brand loyalty usually makes the demand curve for a product: A. More price elastic. B. Less price elastic. C. Unitary elastic. D. More income elastic.

Brand loyalty implies that consumers will: A. Always buy substitute goods when they are cheaper. B. Always buy substitute goods even when they are more expensive. C. Shun substitute goods even when they are cheaper. D. Shun substitute goods because they are not as high in quality.

Brand loyalty: A. Makes the demand curve facing the firm more price elastic. B. Leads to one price for all brands. C. Exists even when products are virtually identical. D. Is only possible when there are a few firms in the market.

When a monopolistically competitive firm advertises, it is attempting to increase: A. The demand and decrease the price elasticity of demand for its product. B. The demand and increase the price elasticity of demand for its product. C. Long-run profits. D. Market demand.

Firms in a monopolistically competitive market will: A. Produce efficiently. B. Make economic profits in the long run. C. Use the profit-maximizing rule MC = MR. D. Produce at the minimum of ATC.

A monopolistically competitive firm maximizes profits or minimizes losses in the short run by: A. Using marginal cost pricing. B. Producing output at the level where ATC is minimized. C. Producing output at the level where price equals ATC. D. Producing output at the level where MC = MR.

A monopolistically competitive firm maximizes profits or minimizes losses in the short run by: A. Setting price equal to marginal cost. B. Producing at the output level where ATC is minimized. C. Producing at the output level where MR equals MC. D. Producing at the output level where MC equals ATC.

If a monopolistically competitor is maximizing profit, he is producing at a point where marginal cost: A. Is less than price. B. Equals price. C. Is greater than price. D. Equals average total cost.

Entry into a market characterized by monopolistic competition: A. Is rare because firms have market power. B. Is frequent because barriers to entry are low. C. Occurs when a firm's demand is everywhere below its long-run average cost curve. D. Results from economies of scale.

In monopolistic competition, a firm's demand curve is tangent to the ATC curve in the long run because: A. Barriers to entry are very high. B. Entry eliminates economic profit, and exit eliminates losses. C. Advertising is ineffective in differentiating the product. D. Producers are price takers.

In a monopolistically competitive market with negative economic profits: A. Firms will enter until accounting profits are zero. B. Firms will enter until economic profits are zero. C. Firms will exit until economic profits are zero. D. No entry or exit will occur.

If economic profits are earned in a monopolistically competitive market: A. More firms will enter the market. B. The market supply curve will shift to the left. C. Price will rise. D. The market demand curve will shift to the right.

In monopolistic competition, if economic profits are being earned, which of the following will not happen? A. New firms will enter B. Entry will cause the market supply curve to shift to the right C. Entry will cause the firm's demand curve to shift to the left D. Entry will cause the market price to rise

In monopolistic competition, the entry of new firms will cause all of the following to happen except: A. Long-run economic profits to be zero. B. The industry cost curves to shift to the left. C. The firm's demand curve to shift to the left. D. The market supply curve to shift to the right.

When new firms enter a monopolistically competitive industry, the market: A. Supply curve shifts to the left. B. Supply curve shifts to the right. C. Demand curve shifts to the left. D. Demand curve shifts to the right.

When new firms enter a monopolistically competitive industry, ceteris paribus, the: A. Market price decreases. B. Market price increases. C. Market price remains unchanged. D. Change in market price cannot be determined based on the information given.

If new firms enter a monopolistically competitive market, the demand curves for the existing firms will shift to the: A. Left and become more price inelastic. B. Left and there will be no change in price elasticity. C. Left and become more price elastic. D. Right and there will be no change in price elasticity.

If new firms enter a monopolistically competitive market, the demand curves for the existing firms will: A. Shift to the left. B. Shift to the right. C. Remain unchanged. D. Remain unchanged, but the market demand curve shifts to the right.

Which of the following characterizes monopolistic competition? A. Price leadership B. Zero long-run profit C. Retaliation D. Marginal cost pricing

Which of the following is not true about a monopolistic competitor? A. It maximizes profit at the point where MC = MR B. It produces less output than a perfectly competitive firm, ceteris paribus C. It charges a higher price than a perfectly competitive firm, ceteris paribus D. It can earn economic profits in the long run

Both perfect competition and monopolistic competition: A. Experience product differentiation. B. Earn zero economic profit in the long run. C. Find prices pushed to the minimum of long run ATC by entry. D. Use marginal cost pricing.

Which of the following characterizes the difference between oligopoly and monopolistic competition? A. Oligopolists are independent of each other; monopolistically competitive firms are interdependent. B. Monopolistically competitive firms experience zero long-run economic profit; oligopolists may experience positive long-run economic profit. C. There are many oligopolists but only a few monopolistically competitive firms. D.Monopolistically competitive firms face horizontal demand curves; oligopolists face downward-sloping demand curves.

One of the main similarities between perfect competition and monopolistic competition is: A. The level of product differentiation. B. The point on the long-run ATC curve where firms maximize profits. C. Long run production where price equals ATC and where MR equals MC. D. The level of market power.

For which of the following market structures will the firm's demand curve be tangent to the ATC curve in the long run? A. Duopoly B. Monopolistic competition C. Oligopoly D. Monopoly

In the short run, a monopolistically competitive firm: A. May make economic profits, but it fails to make economic profits in the long run because of the entry of new firms. B. May make profits just as it does in the long run, because firms can enter easily. C.Produces at a rate at which long-run average cost equals price, but not at which long-run marginal cost equals marginal revenue. D. Makes profits just as it does in the long run because entry is blocked.

Which of the following is true about a monopolistically competitive firm in the long run? A. It is as efficient as a purely competitive firm B. It tends to realize only a normal profit C. It produces at the level where costs are minimized D. It will practice marginal cost pricing

Which of the following market structures will have only normal profit in the long run? A. Monopoly B. Duopoly C. Monopolistic competition D. Oligopoly

Which of the following market structures will have higher prices in the long run than perfect competition, ceteris paribus? A. Monopolistic competition and monopoly, but not oligopoly B. Oligopoly and monopoly, but not monopolistic competition C. Monopoly, but not oligopoly or monopolistic competition D. Monopolistic competition, monopoly, and oligopoly

Which of the following market structures will have lower prices in the long run than monopoly, ceteris paribus? A. Perfect competition, oligopoly, and monopolistic competition B. Perfect competition, but not oligopoly or monopolistic competition C. Perfect competition and oligopoly, but not monopolistic competition D. Oligopoly and monopolistic competition, but not perfect competition

Which of the following market structures will have lower output in the long run than perfect competition, ceteris paribus? A. Monopolistic competition, but not oligopoly or monopoly B. Monopolistic competition, oligopoly, and monopoly C. Monopolistic competition and oligopoly, but not monopoly D. Oligopoly and monopoly, but not monopolistic competition

Which of the following market structures will have higher output in the long run than monopolistic competition, ceteris paribus? A. Perfect competition B. Monopoly C. Duopoly D. Oligopoly

Which of the following is true about a monopolistically competitive industry? A. Marginal cost pricing occurs B. There is excess capacity C. Resources are allocated efficiently D. It produces at the minimum of ATC

Monopolistic competition results in: A. Allocative efficiency. B. Production efficiency. C. The wrong mix of output. D. Marginal cost pricing.

A monopolistically competitive industry: A. Produces the optimal mix of output. B. Uses marginal cost pricing. C. Has excess capacity. D. Achieves allocative efficiency.

Which of the following real-world situations is the result of excess capacity in a monopolistically competitive market? A. A factory producing women's clothing produces more than it can sell during a season. B. Gas stations with infrequently used pumps are located at all four corners of an intersection. C. A retail auto tire store orders too much inventory. D. Monopolistically competitive firms do not exist in the real world.

Monopolistically competitive firms are productively inefficient because long-run equilibrium occurs at an output rate where: A. MC is greater than MR. B. Price is greater than MC. C. ATC is greater than minimum ATC. D. Diseconomies of scale exist.

Compared to the outcome under a marginal cost pricing strategy, a monopolistically competitive firm will produce a: A. Lower output and charge a higher price. B. Greater output and charge a higher price. C. Lower output and charge a lower price. D. Greater output and charge a lower price.

Marginal cost pricing means that: A. Goods are offered for sale at prices equal average total cost. B. Firms produce where marginal cost equals marginal revenue. C. Firms produce where marginal cost equals zero. D. Goods are offered for sale at prices equal to marginal cost.

Suppose that an economy wants to eliminate the resource waste associated with excess capacity in monopolistically competitive markets. Which of the following would achieve this goal? A. Firms are allowed to establish significant barriers to entry B. Firms are encouraged to produce less output C. Firms are required to set price equal to marginal cost D. Firms are required to charge the same price

Monopolistic competition results in allocative: A. Inefficiency and productive efficiency. B. Inefficiency and productive inefficiency. C. Efficiency and productive efficiency. D. Efficiency and productive inefficiency.

In monopolistic competition there is allocative inefficiency because: A. Price is greater than the minimum ATC. B. Production is not at the minimum ATC. C. Of excess capacity. D. Price is greater than MC.

Which type of firm engages in non-price competition? A. Imperfectly competitive firms B. Perfectly competitive firms C. Firms with low market share D. Extremely efficient firms

In monopolistic competition, a firm: A. Uses marginal cost pricing. B. Uses nonprice competition. C. Faces a horizontal demand curve. D. Has no market power.

All of the following are examples of nonprice competition except: A. Better service. B. Advertising. C. Improved quality. D. Zero economic profit.

Which of the following is true about advertising? A. It is an efficient form of competition B. It is less important than price competition in oligopolistic and monopolistic competition C. It is a form of nonprice competition D. It is a major component of competition in perfectly competitive markets

Which of the following is not true about advertising? A. It creates brand loyalty B. It is a form of nonprice competition C. It results in efficient allocation of resources D. It raises the price of goods and services

Which of the following is not an example of nonprice competition in the airline market? A. A low concentration ratio B. Advertising on the radio C. More on-time flights D. Increased frequency of flights

Non-price competition results in: A. Resource misallocation. B. Low entry barriers. C. Marginal cost pricing. D. Production efficiency.