question
Which of the following is a characteristic of monopolistic competition?
a) ownership of a key resource by a single firm
b) free entry
c) identical product
d) patents
a) ownership of a key resource by a single firm
b) free entry
c) identical product
d) patents
answer
b) free entry
question
What is true about a monopolistically competitive firm?
answer
it can earn economic profit in the short run, but not the long run
question
Which of the following goods is most likely to be associated with monopolistic competition?
a) gasoline
b) milk
c) cookies
d) wheat
a) gasoline
b) milk
c) cookies
d) wheat
answer
c) cookies
question
What are the two types of imperfectly competitive firms?
answer
Monopolistic competition and oligopoly
question
How is monopolistic competition similar to an oligopoly?
answer
Both market structures are characterized by barriers to entry
question
A monopolistically competitive industry is characterized by
answer
many firms selling products that are similar but not identical
question
Monopolistic competition differs from perfect competition because in monopolistically competitive markets
answer
each of the sellers offers a somewhat different product
question
Monopolistically competitive markets differ from perfectly competitive markets due to
i) the number of sellers
ii) the barriers to entry
iii) the product differentiation among sellers
i) the number of sellers
ii) the barriers to entry
iii) the product differentiation among sellers
answer
(iii) only
question
In which of the following market structures can a firm earn an economic profit in the short run?
a) perfect competition
b) monopolistic competition
c) monopoly
d) all of the above
a) perfect competition
b) monopolistic competition
c) monopoly
d) all of the above
answer
d) all of the above
question
What would we expect is a monopolistically competitive firm encounters a decrease in average variable cost at all output levels?
answer
the price to fall and output to rise
question
What is a commonly-cited benefit of advertising?
answer
advertising can be a signal of the quality of the product
question
Defenders of advertising contend that
answer
firms use advertising to provide useful information to consumers
question
Which of the following conditions does NOT describe a firm in a monopolistically competitive market?
a) it sells a product different from its competitors
b) it takes its price as given by market conditions
c) it maximizes profit both in the short and long run
d) it has the freedom to enter or exit in the long run
a) it sells a product different from its competitors
b) it takes its price as given by market conditions
c) it maximizes profit both in the short and long run
d) it has the freedom to enter or exit in the long run
answer
b) it takes its price as given by market conditions
question
Which of the following markets best fits the definition of monopolistic competition?
a) wheat
b) tap water
c) crude oil
d) haircuts
a) wheat
b) tap water
c) crude oil
d) haircuts
answer
d) haircuts
question
A monopolistically competitive firm will increase its production if
answer
marginal revenue is greater than marginal cost
question
New firms will enter a monopolistically competitive market if
answer
price is greater than average total cost
question
What is true of a monopolistically competitive market in long-run equilibrium?
answer
price is greater than marginal cost
question
If advertising makes consumers more loyal to particular brands, it could ________ the elasticity of demand and _________ the markup of price over marginal cost
answer
decrease, increase
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