Question 1

In a monopolistically competitive market like restaurants, large capital-intensive firms like McDonaldâ€™s may co-exist with more labor-intensive mom-and-pop shops.In this case, higher labor costs would tend to favor the survival of

Accepted Answer

A)  large-scale capital-intensive firms more than the small firms.
B)  small firms more than the large-scale capital-intensive firms.
C)  foreign firms more than the large-scale capital-intensive firms.
D)  domestic restaurant firms more than the foreign firms.

Question 2

In the long run, economic theory predicts that a monopolistically competitive firm will

Accepted Answer

A)  earn an economic profit.
B)  realize all economies of scale.
C)  equate price and marginal cost.
D)  have excess production capacity.

Question 3

In monopolistic competition, a firm has a limited degree of "price-making" ability.This means that the profit-maximizing firm will

Accepted Answer

A)  always earn an economic profit.
B)  set price equal to marginal cost.
C)  set price above marginal cost.
D)  produce at minimum average total cost.

Question 4

"Excess capacity" exists in monopolistic competition but not in pure competition.

Accepted Answer

A) True 
 B)False

Question 5

An industry having a four-firm concentration ratio of 30 percent

Accepted Answer

A)  approximates pure competition.
B)  is an oligopoly.
C)  is a pure monopoly.
D)  is monopolistically competitive.

Question 6

Which is not a common form of nonprice competition in monopolistic competition?

Accepted Answer

A)  customer services such as liberal guarantee and repair policies
B)  advertisements featuring brand names
C)  cash rebates and discount coupons
D)  annual design and model changes

Question 7

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 8

The monopolistically competitive seller's demand curve will become more elastic the

Accepted Answer

A)  larger the number of competitors.
B)  greater the degree of product differentiation.
C)  more significant the barriers to entry.
D)  smaller the number of competitors.

Question 9

The restaurant, legal assistance, and clothing industries are each illustrations of

Accepted Answer

A)  countervailing power.
B)  homogeneous oligopoly.
C)  monopolistic competition.
D)  pure monopoly.

Question 10

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

Accepted Answer

A) True 
 B)False  False

Question 11

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 12

Monopolistically competitive sellers realize economic profits in the long run because entry barriers are significant.

Accepted Answer

A) True 
 B)False

Question 13

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will

Accepted Answer

A)  increase.
B)  become less elastic.
C)  not be affected.
D)  decrease.

Question 14

Monopolistic competitive firms are productively inefficient because production occurs where

Accepted Answer

A)  price is greater than marginal revenue.
B)  marginal cost is less than price.
C)  marginal cost is not at its lowest.
D)  average total cost is not at its lowest.

Question 15

The highest possible value of the Herfindahl index is 1,000.

Accepted Answer

A) True 
 B)False

Question 16

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. B

Question 17

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

Accepted Answer

A)  each firm has to take the market price as given.
B)  product differentiation allows each firm some degree of monopoly power.
C)  there are a few large firms in the industry and they each act as a monopolist.
D)  mutual interdependence among all firms in the industry leads to collusion.

Question 18

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.

Question 19

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.

Question 20

Monopolistically competitive industries are inefficient because

Accepted Answer

A)  they realize diseconomies of scale.
B)  advertising costs retard technological advance and product development.
C)  they are overpopulated with firms whose plants are underutilized.
D)  monopolistically competitive sellers engage in misleading advertising. C

Exam 13: Monopolistic Competition

In a monopolistically competitive market like restaurants, large capital-intensive firms like McDonaldâ€™s may co-exist with more labor-intensive mom-and-pop shops.In this case, higher labor costs would tend to favor the survival of

Correct AnswerverifiedShow Answer

In the long run, economic theory predicts that a monopolistically competitive firm will

Correct AnswerverifiedShow Answer

In monopolistic competition, a firm has a limited degree of "price-making" ability.This means that the profit-maximizing firm will

Correct AnswerverifiedShow Answer

"Excess capacity" exists in monopolistic competition but not in pure competition.

Correct AnswerverifiedShow Answer

An industry having a four-firm concentration ratio of 30 percent

Correct AnswerverifiedShow Answer

Which is not a common form of nonprice competition in monopolistic competition?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The monopolistically competitive seller's demand curve will become more elastic the

Correct AnswerverifiedShow Answer

The restaurant, legal assistance, and clothing industries are each illustrations of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedFalse

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.

Correct AnswerverifiedShow Answer

Monopolistically competitive sellers realize economic profits in the long run because entry barriers are significant.

Correct AnswerverifiedShow Answer

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will

Correct AnswerverifiedShow Answer

Monopolistic competitive firms are productively inefficient because production occurs where

Correct AnswerverifiedShow Answer

The highest possible value of the Herfindahl index is 1,000.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

Correct AnswerverifiedShow Answer

In monopolistically competitive markets, resources are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Monopolistically competitive industries are inefficient because

Correct AnswerverifiedC

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False

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B

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C