Question 1

Which of the following assumptions is part of the model of monopolistic competition?

Accepted Answer

A)  Firms make identical or homogeneous products.
B)  There is no mutual interdependence among firms.
C)  There are significant barriers to entry into the market.
D)  Firms have no control over their products' prices.

Question 2

Define nonprice competition.

Accepted Answer

Competition based on distingui...

Question 3

What is the Herfindahl index, and how is it calculated?

Accepted Answer

The Herfindahl index is a measure of the...

Question 4

Refer to the data. The Herfindahl index for the industry is

Accepted Answer

A)  3,805.
B)  2,500.
C)  3,810.
D)  97.

Question 5

List and explain the different ways firms can differentiate their product.

Accepted Answer

Product differentiation may entail physi...

Question 6

For which market model can we not assume a homogeneous product?

Accepted Answer

A)  pure competition
B)  pure monopoly
C)  monopolistic competition
D)  oligopoly

Question 7

Refer to the data. If all the firms in the industry merged into a single firm, the Herfindahl index would become

Accepted Answer

A)  100.
B)  1,000.
C)  10,000.
D)  100,000.

Question 8

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 9

The monopolistically competitive firm shown in the figure

Accepted Answer

A)  is in long-run equilibrium.
B)  might realize an economic profit or a loss, depending on its choice of output level.
C)  cannot operate profitably in the short run.
D)  can realize an economic profit.

Question 10

Explain why the economic analysis of monopolistic competition is so complex.

Accepted Answer

The monopolistically competitive firm ju...

Question 11

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 12

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 13

Industries X and Y both have four-firm concentration ratios of 16 percent, but the Herfindahl index for X is 102, while that for Y is 95. These data suggest

Accepted Answer

A)  greater market power in Y than in X.
B)  greater market power in X than in Y.
C)  both industries are strongly oligopolistic.
D)  that price competition is stronger in X than in Y.

Question 14

Refer to the diagrams, which pertain to monopolistically competitive firms. Short-run equilibrium entailing economic loss is shown by

Accepted Answer

A)  diagram a only.
B)  diagram b only.
C)  diagram c only.
D)  both diagrams a and c.

Question 15

Which statement concerning monopolistic competition is false?

Accepted Answer

A)  Long-run equilibrium under monopolistic competition and pure competition both entail zero economic profits for firms.
B)  Monopolistic competition is likely to result in a greater variety of product brands than pure competition.
C)  The monopolistically competitive demand curve is more elastic than the demand curve facing a monopoly.
D)  Long-run equilibrium in monopolistic competition does not entail any economic inefficiency because of easy entry and exit.

Question 16

In the long run, a profit-maximizing monopolistically competitive firm sets it price

Accepted Answer

A)  above marginal cost.
B)  below marginal cost.
C)  equal to marginal revenue.
D)  equal to marginal cost.

Question 17

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.

Question 18

Discuss how an increase in the minimum wage affects a chain restaurant differently than a small, mom-and-pop restaurant.

Accepted Answer

Economists have recently discovered that...

Question 19

Excess capacity implies

Accepted Answer

A)  productive inefficiency.
B)  allocative inefficiency.
C)  productive efficiency.
D)  allocative efficiency.

Question 20

Monopolistically competitive firms will achieve the most efficient allocation of society's resources because there are no significant barriers to entry into the industry.

Accepted Answer

A) True 
 B)False

Exam 13: Monopolistic Competition

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

Correct AnswerverifiedShow Answer

Refer to the data. If all the firms in the industry merged into a single firm, the Herfindahl index would become

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

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

Refer to the data. The Herfindahl index for the industry is

Correct AnswerverifiedShow Answer

What is the Herfindahl index, and how is it calculated?

Correct AnswerverifiedThe Herfindahl index is a measure of the...View AnswerShow Answer

Which of the following assumptions is part of the model of monopolistic competition?

Correct AnswerverifiedShow Answer

In the long run, a profit-maximizing monopolistically competitive firm sets it price

Correct AnswerverifiedShow Answer

Monopolistically competitive firms will achieve the most efficient allocation of society's resources because there are no significant barriers to entry into the industry.

Correct AnswerverifiedShow Answer

Discuss how an increase in the minimum wage affects a chain restaurant differently than a small, mom-and-pop restaurant.

Correct AnswerverifiedEconomists have recently discovered that...View AnswerShow Answer

For which market model can we not assume a homogeneous product?

Correct AnswerverifiedShow Answer

Which statement concerning monopolistic competition is false?

Correct AnswerverifiedShow Answer

Refer to the diagrams, which pertain to monopolistically competitive firms. Short-run equilibrium entailing economic loss is shown by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The monopolistically competitive firm shown in the figure

Correct AnswerverifiedShow Answer

List and explain the different ways firms can differentiate their product.

Correct AnswerverifiedProduct differentiation may entail physi...View AnswerShow Answer

Explain why the economic analysis of monopolistic competition is so complex.

Correct AnswerverifiedThe monopolistically competitive firm ju...View AnswerShow Answer

Excess capacity implies

Correct AnswerverifiedShow Answer

Industries X and Y both have four-firm concentration ratios of 16 percent, but the Herfindahl index for X is 102, while that for Y is 95. These data suggest

Correct AnswerverifiedShow Answer

Define nonprice competition.

Correct AnswerverifiedCompetition based on distingui...View AnswerShow Answer

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The Herfindahl index is a measure of the...
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Economists have recently discovered that...
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Product differentiation may entail physi...
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The monopolistically competitive firm ju...
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Competition based on distingui...
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