Question 1

Which set of characteristics below best describes the basic features of monopolistic competition?

Accepted Answer

A)   easy entry, many firms, and standardized products
B)   barriers to entry, few firms, and differentiated products
C)   easy entry, many firms, and differentiated products
D)   easy entry, few firms, and standardized products

Question 2

An important similarity between a monopolistically competitive firm and a purely competitive firm is that

Accepted Answer

A)   both face perfectly elastic demand schedules.
B)   economic profit tends toward zero for both.
C)   both realize productive efficiency.
D)   both realize allocative efficiency.

Question 3

The downward-sloping demand curve of a monopolistic competitor

Accepted Answer

A)   reflects some level of control over its own price.
B)   becomes eventually horizontal in the long run.
C)   indicates collusion among the members of the product group.
D)   ensures that the firm will produce at minimum average cost in the long run.

Question 4

As new firms enter a monopolistically competitive market, the demand curves facing existing firms will tend to shift left.

Accepted Answer

A) True 
 B)False

Question 5

For a monopolistically competitive firm in long-run equilibrium,

Accepted Answer

A)   price will equal marginal cost.
B)   price will equal average total cost.
C)   marginal revenue will exceed marginal cost.
D)   price will equal the minimum average total cost.

Question 6

In the long run, the price charged by a monopolistically competitive firm seeking to maximize profit will

Accepted Answer

A)   be less than both MC and ATC.
B)   exceed ATC but equal MC.
C)   exceed MC but equal ATC.
D)   exceed both MC and ATC.

Question 7

Monopolistically competitive sellers produce efficiently because they obtain only normal profits in the long run.

Accepted Answer

A) True 
 B)False

Question 8

If we believe that "variety is the spice of life," then we should be more concerned about the excess capacity in monopolistic competition and do our best to eliminate it.

Accepted Answer

A) True 
 B)False

Question 9

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor?

Accepted Answer

A)   Subway Sandwiches
B)   Pittsburgh Plate Glass
C)   Ford Motor Company
D)   Microsoft

Question 10

Pure competition results in a lower price but identical output level compared to those in monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 11

In the long run, the representative firm in monopolistic competition tends to have

Accepted Answer

A)   excess capacity.
B)   economic profits.
C)   no product differentiation.
D)   a perfectly elastic demand curve.

Question 12

The economic inefficiencies of monopolistic competition may be offset by the fact that

Accepted Answer

A)   advertising expenditures shift the average cost curve upward.
B)   available capacity is fully utilized.
C)   resources are optimally allocated to the production of the product.
D)   consumers have increased product variety.

Question 13

In long-run equilibrium, a monopolistically competitive producer achieves

Accepted Answer

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

Question 14

Monopolistic competition is characterized by firms

Accepted Answer

A)   producing differentiated products.
B)   making economic profits in the long run.
C)   producing at optimal productive efficiency.
D)   producing where price equals marginal cost.

Question 15

Which statement concerning monopolistic competition is false?

Accepted Answer

A)   In the long run P = ATC > MC.
B)   Firms may experience losses in the short run.
C)   Firms differentiate their products, but the products are relatively substitutable.
D)   Firms may experience positive economic profits in the long run.

Question 16

Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.

Accepted Answer

A) True 
 B)False

Question 17

Monopolistically competitive firms

Accepted Answer

A)   realize normal profits in the short run but losses in the long run.
B)   incur persistent losses in both the short run and long run.
C)   may realize either profits or losses in the short run but realize normal profits in the long run.
D)   persistently realize economic profits in both the short run and long run.

Question 18

In monopolistic competition, short-run positive economic profits of firms in the market will cause the market demand to expand.

Accepted Answer

A) True 
 B)False

Question 19

The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are

Accepted Answer

A)   constant.
B)   increasing.
C)   decreasing.
D)   at their minimum point.

Question 20

Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to

Accepted Answer

A)   shift to the left.
B)   shift to the right.
C)   become less elastic.
D)   remain the same since entering firms serve other customers in the market.

Exam 13: Monopolistic Competition

Which set of characteristics below best describes the basic features of monopolistic competition?

Correct AnswerverifiedShow Answer

If we believe that "variety is the spice of life," then we should be more concerned about the excess capacity in monopolistic competition and do our best to eliminate it.

Correct AnswerverifiedShow Answer

Pure competition results in a lower price but identical output level compared to those in monopolistic competition.

Correct AnswerverifiedShow Answer

The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are

Correct AnswerverifiedShow Answer

The downward-sloping demand curve of a monopolistic competitor

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As new firms enter a monopolistically competitive market, the demand curves facing existing firms will tend to shift left.

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Monopolistic competition is characterized by firms

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Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to

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In the long run, the representative firm in monopolistic competition tends to have

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Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.

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Monopolistically competitive sellers produce efficiently because they obtain only normal profits in the long run.

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For a monopolistically competitive firm in long-run equilibrium,

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Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor?

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In monopolistic competition, short-run positive economic profits of firms in the market will cause the market demand to expand.

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In long-run equilibrium, a monopolistically competitive producer achieves

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The economic inefficiencies of monopolistic competition may be offset by the fact that

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Which statement concerning monopolistic competition is false?

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In the long run, the price charged by a monopolistically competitive firm seeking to maximize profit will

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Monopolistically competitive firms

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An important similarity between a monopolistically competitive firm and a purely competitive firm is that

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