question
1) A monopolistically competitive industry has all of the following characteristics EXCEPT:
A) there are no barriers to entry.
B) strategic behavior.
C) product differentiation.
D) a large number of firms.
A) there are no barriers to entry.
B) strategic behavior.
C) product differentiation.
D) a large number of firms.
answer
B) strategic behavior.
question
2) There is easy entry into the ________ and ________ industries.
A) perfectly competitive; monopolistically competitive
B) monopolistically competitive; oligopolistic
C) oligopolistic; monopolistic
D) monopolistic; perfectly competitive
A) perfectly competitive; monopolistically competitive
B) monopolistically competitive; oligopolistic
C) oligopolistic; monopolistic
D) monopolistic; perfectly competitive
answer
A) perfectly competitive; monopolistically competitive
question
3) Monopolistic competition differs from perfect competition primarily because in
A) monopolistic competition, firms can differentiate their products.
B) perfect competition, firms can differentiate their products.
C) monopolistic competition, entry into the industry is blocked.
D) monopolistic competition, there are relatively few barriers to entry.
A) monopolistic competition, firms can differentiate their products.
B) perfect competition, firms can differentiate their products.
C) monopolistic competition, entry into the industry is blocked.
D) monopolistic competition, there are relatively few barriers to entry.
answer
A) monopolistic competition, firms can differentiate their products.
question
4) Which of the following features distinguishes monopolistically competitive firms from monopolies and oligopolies?
A) Monopolistically competitive firms cannot influence market price by virtue of their size alone while monopolies and oligopolies can.
B) Monopolistically competitive firms are not constrained by market demand while monopolies and oligopolies are.
C) Monopolistically competitive firms are price takers while monopolies and oligopolies are not.
D) Monopolistically competitive firms sell a homogeneous product while monopolies and oligopolies sell a differentiated product.
A) Monopolistically competitive firms cannot influence market price by virtue of their size alone while monopolies and oligopolies can.
B) Monopolistically competitive firms are not constrained by market demand while monopolies and oligopolies are.
C) Monopolistically competitive firms are price takers while monopolies and oligopolies are not.
D) Monopolistically competitive firms sell a homogeneous product while monopolies and oligopolies sell a differentiated product.
answer
A) Monopolistically competitive firms cannot influence market price by virtue of their size alone while monopolies and oligopolies can.
question
5) In monopolistic competition, firms can have some market power
A) by virtue of size alone.
B) by producing differentiated products.
C) because of barriers to entry into the industry.
D) because of barriers to exit from the industry.
A) by virtue of size alone.
B) by producing differentiated products.
C) because of barriers to entry into the industry.
D) because of barriers to exit from the industry.
answer
B) by producing differentiated products.
question
6) Firms gain control over price in monopolistic competition by
A) blocking entry of other firms into the industry.
B) producing a product for which there are no close substitutes.
C) differentiating their products.
D) colluding with other firms to set prices.
A) blocking entry of other firms into the industry.
B) producing a product for which there are no close substitutes.
C) differentiating their products.
D) colluding with other firms to set prices.
answer
C) differentiating their products.
question
7) In order to achieve market power, monopolistically competitive firms use ________.
A) their size
B) product differentiation
C) strategic behavior
D) predatory pricing
A) their size
B) product differentiation
C) strategic behavior
D) predatory pricing
answer
B) product differentiation
question
8) In well functioning markets, all of the following reflect the degree of product variety EXCEPT:
A) differences in consumers' tastes.
B) cost economies from standardization.
C) gains from network externalities.
D) gains from coordination.
A) differences in consumers' tastes.
B) cost economies from standardization.
C) gains from network externalities.
D) gains from coordination.
answer
C) gains from network externalities.
question
9) Product differentiation that makes the product better for some consumers and worse for others is
A) always welfare decreasing.
B) vertical differentiation.
C) horizontal differentiation.
D) never undertaken by firms.
A) always welfare decreasing.
B) vertical differentiation.
C) horizontal differentiation.
D) never undertaken by firms.
answer
C) horizontal differentiation.
question
10) Product differentiation that makes the product better than a rival's product from everyone's perspective
A) always increases welfare.
B) is known as vertical differentiation.
C) is known as horizontal differentiation.
D) makes the rival's product obsolete.
A) always increases welfare.
B) is known as vertical differentiation.
C) is known as horizontal differentiation.
D) makes the rival's product obsolete.
answer
B) is known as vertical differentiation.
question
11) Behavioral economics
A) blends insights from sociology and economics.
B) suggests that too much variety may be welfare enhancing.
C) has contributed to microeconomics but not to macroeconomics.
D) suggests that consumers purchase health club memberships instead of paying per visit in an attempt to commit themselves to an exercise regime.
A) blends insights from sociology and economics.
B) suggests that too much variety may be welfare enhancing.
C) has contributed to microeconomics but not to macroeconomics.
D) suggests that consumers purchase health club memberships instead of paying per visit in an attempt to commit themselves to an exercise regime.
answer
D) suggests that consumers purchase health club memberships instead of paying per visit in an attempt to commit themselves to an exercise regime
question
12) The case for product differentiation does NOT include the fact that
A) products that satisfy a real demand survive.
B) standards of living rise with product innovation.
C) new products satisfy people with different preferences.
D) it wastes society's scarce resources.
A) products that satisfy a real demand survive.
B) standards of living rise with product innovation.
C) new products satisfy people with different preferences.
D) it wastes society's scarce resources.
answer
D) it wastes society's scarce resources.
question
13) Critics of advertising contend all of the following EXCEPT:
A) the information content of advertising is minimal at best and deliberately deceptive at worst.
B) advertising is intended to change peoplesʹpreferences and to create wants that otherwise would not have existed.
C) advertising may reduce competition by creating a barrier to entry of new firms into an industry.
D) advertising can easily turn into productive competition that increases welfare.
A) the information content of advertising is minimal at best and deliberately deceptive at worst.
B) advertising is intended to change peoplesʹpreferences and to create wants that otherwise would not have existed.
C) advertising may reduce competition by creating a barrier to entry of new firms into an industry.
D) advertising can easily turn into productive competition that increases welfare.
answer
D) advertising can easily turn into productive competition that increases welfare.
question
14) Compared to a perfectly competitive firm, the demand schedule of a monopolistically competitive firm faces is
A) more price elastic.
B) less price elastic.
C) perfectly price elastic.
D) perfectly price inelastic.
A) more price elastic.
B) less price elastic.
C) perfectly price elastic.
D) perfectly price inelastic.
answer
B) less price elastic.
question
15) The demand facing a monopolistically competitive firm is ________ a monopolistic firm and ________ a perfectly competitive firm.
A) as elastic as; less elastic than
B) less elastic than; more elastic than
C) more elastic than; less elastic than
D) more elastic than; as elastic as
A) as elastic as; less elastic than
B) less elastic than; more elastic than
C) more elastic than; less elastic than
D) more elastic than; as elastic as
answer
C) more elastic than; less elastic than
question
16) A monopolistically competitive firm produces where
A) marginal revenue equals price.
B) its marginal revenue curve lies above its demand curve.
C) its marginal revenue curve intersects the quantity axis.
D) marginal revenue equals marginal cost.
A) marginal revenue equals price.
B) its marginal revenue curve lies above its demand curve.
C) its marginal revenue curve intersects the quantity axis.
D) marginal revenue equals marginal cost.
answer
D) marginal revenue equals marginal cost.
question
17) A monopolistically competitive firm maximizes profit where
A) MR > MC.
B) MC > MR.
C) MR = MC.
D) P = MC.
A) MR > MC.
B) MC > MR.
C) MR = MC.
D) P = MC.
answer
C) MR = MC.
question
18) If P > ATC, then a profit maximizing, monopolistically competitive firm earns ________ economic profits.
A) positive
B) negative
C) zero
D) either positive or negative
A) positive
B) negative
C) zero
D) either positive or negative
answer
A) positive
question
19) A monopolistically competitive firm that is incurring a loss will produce in the short run as long as the revenue the firm receives is sufficient to cover
A) fixed costs.
B) marginal costs.
C) advertising costs.
D) variable costs.
A) fixed costs.
B) marginal costs.
C) advertising costs.
D) variable costs.
answer
D) variable costs.
question
20) A monopolistically competitive firm
A) can sell an infinite amount of output at the market-determined price.
B) must lower price to sell more output.
C) must raise price to sell more output.
D) sells a fixed amount of output regardless of price.
A) can sell an infinite amount of output at the market-determined price.
B) must lower price to sell more output.
C) must raise price to sell more output.
D) sells a fixed amount of output regardless of price.
answer
B) must lower price to sell more output.
question
21) If firms in a monopolistically competitive industry are incurring losses, in the long run
A) investment in this industry will increase to reduce production costs.
B) firms will leave this industry until the remaining firms are earning a normal profit.
C) firms will leave this industry until the firms that remain are earning a positive economic profit.
D) the government will subsidize the losses incurred by these firms so as to maintain competition in the industry.
A) investment in this industry will increase to reduce production costs.
B) firms will leave this industry until the remaining firms are earning a normal profit.
C) firms will leave this industry until the firms that remain are earning a positive economic profit.
D) the government will subsidize the losses incurred by these firms so as to maintain competition in the industry.
answer
B) firms will leave this industry until the remaining firms are earning a normal profit.
question
22) As new firms enter a monopolistically competitive industry, the demand curve facing each existing firm will
A) shift to the left and become more elastic because there are now more substitutes for its product.
B) shift to the left and become less elastic because there are now more substitutes for its product.
C) not be affected because the new firms do not produce a perfect substitute for its product.
D) shift to the left, but the elasticity of demand will not be affected.
A) shift to the left and become more elastic because there are now more substitutes for its product.
B) shift to the left and become less elastic because there are now more substitutes for its product.
C) not be affected because the new firms do not produce a perfect substitute for its product.
D) shift to the left, but the elasticity of demand will not be affected.
answer
A) shift to the left and become more elastic because there are now more substitutes for its product.
question
23) If firms in a monopolistically competitive industry are earning economic profits, then in the long run
A) these firms can continue earning economic profits because entry into the industry is blocked.
B) new firms producing close substitutes will enter the industry and this entry will continue until economic profits are eliminated.
C) new firms producing the exact same product will enter the industry and this entry will continue until economic profits are eliminated.
D) the government will most likely regulate firms in this industry to reduce these economic profits.
A) these firms can continue earning economic profits because entry into the industry is blocked.
B) new firms producing close substitutes will enter the industry and this entry will continue until economic profits are eliminated.
C) new firms producing the exact same product will enter the industry and this entry will continue until economic profits are eliminated.
D) the government will most likely regulate firms in this industry to reduce these economic profits.
answer
B) new firms producing close substitutes will enter the industry and this entry will continue until economic profits are eliminated.
question
24) In long run monopolistic competition equilibrium, there can be
A) economic profits, but not losses.
B) economic profits or losses.
C) no economic profits, but losses.
D) neither economic profits nor losses.
A) economic profits, but not losses.
B) economic profits or losses.
C) no economic profits, but losses.
D) neither economic profits nor losses.
answer
D) neither economic profits nor losses.
question
25) Firms will ________ a monopolistically competitive market until ________ are eliminated.
A) enter; losses
B) enter; profits
C) exit; short run profits
D) exit; long run profits
A) enter; losses
B) enter; profits
C) exit; short run profits
D) exit; long run profits
answer
B) enter; profits
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