Question 1

Answer the question on the basis of the following demand and cost data for a specific firm.  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 $11.50.
B)  fall to $8.
C)  increase by $15.
D)  decline to zero.

Question 2

Which of the following statements is not true for a monopolistically competitive industry?

Accepted Answer

A)  Firms tend to operate with excess capacity.
B)  Each firm faces a downward-sloping demand curve.
C)  These firms earn zero economic profits in the long run.
D)  Firms operate at the lowest point of their ATC curves in the long run.

Question 3

Which industry would be best characterized as monopolistically competitive?

Accepted Answer

A)  smartphone manufacturing
B)  Internet-search sites
C)  web design consulting
D)  business cloud-computing services

Question 4

In short-run equilibrium, the monopolistically competitive firm shown will set its price

Accepted Answer

A)  below ATC.
B)  above ATC.
C)  below MC.
D)  below MR.

Question 5

A monopolistically competitive firm is operating at a short-run level of output where price is $30, average total cost is $27, marginal cost is $20, and marginal revenue is $25. In the short run this firm should

Accepted Answer

A)  increase product price.
B)  decrease the level of output.
C)  not change the level of output.
D)  increase the level of output.

Question 6

If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry sales) , you are calculating the

Accepted Answer

A)  four-firm concentration ratio.
B)  Herfindahl index.
C)  degree of collusion.
D)  Lerner index.

Question 7

The four-firm concentration ratio cannot have a value above 1.0, or 100 percent.

Accepted Answer

A) True 
 B)False

Question 8

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below.  What price will this monopolistically competitive firm charge to maximize profits?

Accepted Answer

A)  $18
B)  $16
C)  $12
D)  $10

Question 9

Nonprice competition refers to

Accepted Answer

A)  competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.
B)  price increases by a firm that are ignored by its rivals.
C)  advertising, product promotion, and changes in the real or perceived characteristics of a product.
D)  reductions in production costs that are not reflected in price reductions.

Question 10

Suppose the Herfindahl indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that

Accepted Answer

A)  market power is greatest in industry A.
B)  market power is greatest in industry B.
C)  market power is greatest in industry C.
D)  industry A is more monopolistic than industry C.

Question 11

Firms in an industry will not earn long-run economic profits if

Accepted Answer

A)  fixed costs are zero.
B)  the number of firms in the industry is fixed.
C)  there is free entry and exit of firms in the industry.
D)  production costs for a given level of output are minimized.

Question 12

Refer to the data. The four-firm concentration ratio for this industry is

Accepted Answer

A)  90 percent.
B)  95 percent.
C)  100 percent.
D)  indeterminate because we don't know which four firms are included.

Question 13

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 14

In the long run, the economic profits for a monopolistically competitive firm will be

Accepted Answer

A)  the same as the profits for a monopolist.
B)  slightly less than the profits of a monopolist.
C)  the same as the profits for a purely competitive firm.
D)  slightly more than the profits of a purely competitive firm.

Question 15

We would expect the four-firm concentration ratio of the restaurant industry in a large metropolitan area to be about 0.80, or 80 percent, and higher.

Accepted Answer

A) True 
 B)False

Question 16

Refer to the diagrams, which pertain to monopolistically competitive firms. Long-run equilibrium is shown by

Accepted Answer

A)  diagram a only.
B)  diagram b only.
C)  diagram c only.
D)  none of these diagrams.

Question 17

Answer the question on the basis of the following demand and cost data for a specific firm.  If columns (1) and (3) of the demand data shown are this firm's demand schedule, economic profit will be

Accepted Answer

A)  $72.
B)  $24.
C)  $23.
D)  $21.1.

Question 18

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.

Question 19

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)  in both industries barriers to entry are either weak or nonexistent.

Question 20

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.

Exam 13: Monopolistic Competition

Refer to the data. The four-firm concentration ratio for this industry is

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Answer the question on the basis of the following demand and cost data for a specific firm. 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

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Firms in an industry will not earn long-run economic profits if

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Which industry would be best characterized as monopolistically competitive?

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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:

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In the long run, the economic profits for a monopolistically competitive firm will be

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Suppose the Herfindahl indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that

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A monopolistically competitive firm is operating at a short-run level of output where price is $30, average total cost is $27, marginal cost is $20, and marginal revenue is $25. In the short run this firm should

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Monopolistic competition resembles pure competition because

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Monopolistically competitive firms

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Nonprice competition refers to

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Refer to the diagrams, which pertain to monopolistically competitive firms. Long-run equilibrium is shown by

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Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. What price will this monopolistically competitive firm charge to maximize profits?

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Which of the following statements is not true for a monopolistically competitive industry?

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We would expect the four-firm concentration ratio of the restaurant industry in a large metropolitan area to be about 0.80, or 80 percent, and higher.

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The four-firm concentration ratio cannot have a value above 1.0, or 100 percent.

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In short-run equilibrium, the monopolistically competitive firm shown will set its price

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Answer the question on the basis of the following demand and cost data for a specific firm. If columns (1) and (3) of the demand data shown are this firm's demand schedule, economic profit will be

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If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry sales) , you are calculating the

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Concentration ratios measure the

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