ECON 213 Quiz 11 Monopolistic Competition solutions complete answers

ECON 213 Quiz 11 Monopolistic Competition solutions complete answers 

 

Question 1 Market power is best described as when the firm’s demand curve is:

Question 2 In a monopolistically competitive industry, price:

Question 3 Why would perfectly competitive industries advertise even though individual firms do not?

Question 4 Which of the following is a characteristic of a monopolistically competitive firm?

Question 5 Advertising is designed to:

Question 6 Both perfectly competitive and monopolistically competitive industries have many firms, in fact so many that, in the long run:

Question 7 Profit­maximizing, monopolistically competitive firms:

Question 8 Which of the following is the best description of monopolistic competition?

Question 9 The theory of monopolistic competition predicts that, in long­run equilibrium, a monopolistically competitive firm will:

Question 10 The correct level of output for a profit­maximizing, monopolistically competitive firm always matches the point where:

Question 11 Which of the following is the best example of a firm operating in a monopolistically competitive market?

Question 12 As new firms enter a monopolistically competitive industry, it can be expected that:

Question 13 If barriers to entry are high and products are somewhat differentiated:

Question 14 Refer to the following graph to answer the questions that follow.

 

In the long run, the demand curve for the monopolistically competitive firm would:

Question 15 The shape and/or slope of the marginal revenue curve under monopolistic competition is:

Question 16 A convenience store is generally able to charge and obtain a higher price for its candy bars than is Wal­Mart because the convenience store:

Question 17 We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms’:

Question 18 An increase in marginal cost causes a profit­maximizing, monopolistically competitive firm to:

Question 19 Which of the following is evidence of market power?

Question 20 If all monopolistically competitive firms had identical cost curves:

 

Question 1 Because of successful advertising:

Question 2 Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

Question 3 The marginal revenue of a monopolistically competitive firm will always be:

Question 4 Monopolistic competition is like monopoly in that:

Question 5 If monopolistically competitive firms are incurring losses, existing firms would:

Question 6 One critical characteristic of monopolistic competition is:

Question 7 Sarah’s Ice Cream distinguishes itself from other firms through great service by attractive servers. Sarah’s Ice Cream faces competition from firms that produce similar but not identical products. Based on the this information Sarah’s Ice Cream:

Question 8 Markup would not exist in:

Question 9 In the long run, surviving firms in monopolistic competition earn:

Question 10 The demand curve for a monopolistically competitive firm is downward sloping because of:

Question 11 Market power is best described as when the firm’s demand curve is:

Question 12 You shop at the local drugstore because it is convenient. This situation is best described as:

Question 13 In the long run, in monopolistic competition:

Question 14 If the price that determined where marginal revenue equaled marginal cost were below the bottom of the average variable cost curve, then the profit­maximizing, monopolistically competitive firm would:

Question 15 In the long run, the positive economic profits of Wings and Things, a monopolistic competitor, are:

Question 16 A monopolistically competitive firm usually charges less than a monopoly firm because:

Question 17 There is a discussion of Kevin Trudeau in your textbook. Which answer below best describes him?

Question 18 Caskets are produced in a monopolistic competitive market. One producer, Final Boxes, sells 20 caskets a week at a price of $550 each. Its average total cost is $600. From this information, we know that:

Question 19 The greeting card industry is:

Question 20 Refer to the accompanying graph. Profit­maximizing output for the monopolistically competitive firm is:

 

 

Question 1

Refer to the accompanying graph. The shortrun Profitmaximizing output for the monopolistic competitive firm is:

Question 2

A monopolistically competitive firm usually charges less than a monopoly firm because:

Question 3

One could argue correctly that:

Question 4

Refer to the accompanying graph. If all firms in a monopolistically competitive industry have demand and cost curves like those shown, we would expect that, in the long run

Question 5

Which of the following is a characteristic of a monopolistically competitive firm?

Question 6

One drawback to advertising might be that it could easily:

Question 7

At one time, Heinz made its own brand of soups. The company also produced those same soups to be sold as store brands. The Heinz soups and storebrand soups were differentiated only by their label. If Harris Pilton bought Heinz soup because she said, “Everyone knows the storebrand soup is nasty,” this indicates:

Question 8

Firms in a monopolistically competitive industry produce:

Question 9

Successful advertising:

Question 10

A monopolistically competitive market is characterized by:

Question 11

Monopolistically competitive firms that are earning zero economic profit would most likely:

Question 12

If monopolistically competitive firms are making zero economic profit, then these firms would:

Question 13

A generic product would be best described as one that is:

Question 14

The fastfood, bottled water, and cereal markets are all examples of:

Question 15

Refer to the accompanying graph. If all firms in the industry are the same as the monopolistically competitive firm shown, the long run will reflect:

Question 16

The demand curve for a monopolistically competitive firm is downward sloping because of:

Question 17

Caskets are produced in a monopolistic competitive market. One producer, Final Boxes, sells 20 caskets a week at a price of $550 each. Its average total cost is $600. From this information, we know that:

Question 18

A monopolistically competitive firm usually charges more than a perfectly competitive firm because:

Question 19

Both competitive and monopolistically competitive firms:

Question 20

Successful advertising would be most effective in the __________ industry.

 

Question 1 Perfect competition and monopolistic competition are similar because, under both market structures:

Question 2 If all monopolistically competitive firms had identical cost curves:

Question 3 You shop at the local drugstore because it is convenient. This situation is best described as:

Question 4 Which of the following is the best example of a firm operating in a monopolistically competitive market?

Question 5 Refer to the accompanying graph. Profit­maximizing output for the monopolistically competitive firm is:

Question 6 Profit­maximizing, monopolistically competitive firms:

Question 7 Fast­food restaurants are a good illustration of:

Question 8 Refer to the following graph to answer the questions that follow. In the long run, which of the following is true for the profit­maximizing firm?

Question 9 If the marginal revenue curve lies above the demand curve for a firm:

Question 10 The correct level of output for a profit­maximizing, monopolistically competitive firm always matches the point where:

Question 11 If we are to discuss why the term “monopolistic competition” is used, the best description would be that the industry is “monopolistic” because it:

Question 12 One thing that makes monopolistic competition similar to perfect competition is that, in the:

Question 13 Refer to the following graph to answer the questions that follow. The maximum long­run economic profit earned by this monopolistic competitive firm is:

Question 14 Sarah’s Ice Cream distinguishes itself from other firms through great service by attractive servers. Sarah’s Ice Cream faces competition from firms that produce similar but not identical products. Based on the this information Sarah’s Ice Cream:

Question 15 The shape and/or slope of the marginal revenue curve under monopolistic competition is:

Question 16 Markup would generally be highest under:

Question 17 In a monopolistically competitive industry, price:

Question 18 The best description of industries below is that:

Question 19 Caskets are produced in a monopolistic competitive market. One producer, Final Boxes, sells 20 caskets a week at a price of $550 each. Its average total cost is $600. From this information, we know that:

Question 20 The demand curve for a monopolistically competitive firm is downward sloping because of:

 

Question 1 Why would perfectly competitive industries advertise even though individual firms do not?

Question 2 We could state correctly that the minimum characteristic necessary to distinguish among price­making firms is:

Question 3 Which of the following is true in long­run equilibrium for both a competitive market and monopolistic competition?

Question 4 In the long run, monopolistically competitive firms like Hardee’s and Carl’s Jr. operate at a price that:

Question 5 Which of the following is the best example of a firm operating in a monopolistically competitive market?

Question 6 Markup would generally be highest under:

Question 7 In the long run, the positive economic profits of Wings and Things, a monopolistic competitor, are:

Question 8 A franchise might be worth $1 million or more because:

Question 9 The fast­food, bottled water, and cereal markets are all examples of:

Question 10 An increase in marginal cost causes a profit­maximizing, monopolistically competitive firm to:

Question 11 Refer to the accompanying graph. To maximize profit, the monopolistically competitive firm shown will charge a price per unit of:

Question 12 Sart Bimpson, an economics student, believes that a beer sold by one particular shack on the beach is completely different from an identical beer produced by the same factory and sold by the luxury hotel adjacent to the shack. The response that would best describe Sart’s belief is:

Question 13 Which of the following is evidence of market power?

Question 14 Both perfectly competitive and monopolistically competitive industries have many firms, in fact so many that, in the long run:

Question 15 If the marginal revenue curve lies above the demand curve for a firm:

Question 16 Which of the following is always associated with monopolistic competition?

Question 17 You shop at the local drugstore because it is convenient. This situation is best described as:

Question 18 A generic product would be best described as one that is:

Question 19 Which of the following statements best describes firms under monopolistic competition?

Question 20 The short­run equilibrium for a monopolistically competitive firm is at price = $29, average total cost = $22, and marginal cost = marginal revenue = $18. Which of the following is true?

 

Question 1 A monopolistically competitive firm usually charges more than a perfectly competitive firm because:

Question 2 If barriers to entry are high and products are somewhat differentiated:

Question 3 Excess capacity best describes the fact that:

Question 4 Monopolistically competitive firms:

Question 5 Which of the following market structures describes an industry in which all firms produce differentiated output and there are few barriers to entry?

Question 6 Refer to the accompanying graph. The maximum long­run economic profit earned by this monopolistically competitive firm is:

Question 7 If positive economic profit exists in monopolistic competition, there is:

Question 8 The theory of monopolistic competition predicts that, in long­run equilibrium, a monopolistically competitive firm will:

Question 9 The shape and/or slope of the marginal revenue curve under monopolistic competition is:

Question 10 Perfect competition and monopolistic competition are similar because, under both market structures:

Question 11 The greeting card industry is:

Question 12 The best description of industries below is that:

Question 13 Product differentiation makes the demand for a monopolistically competitive firm’s product:

Question 14 Profit­maximizing, monopolistically competitive firms:

Question 15 If a monopoly firm suddenly lost its barriers to entry and faced new competition, yet consumers thought that the former monopoly’s products were somewhat different than its new competitors, then:

Question 16 A generic product would be best described as one that is:

Question 17 Profit­maximizing, monopolistically competitive firms:

Question 18 Refer to the accompanying graph. If all firms in the industry are the same as the monopolistically competitive firm shown, the long run will reflect:

Question 19 You shop at the local drugstore because it is convenient. This situation is best described as:

Question 20 A competitive firm would have:

 

One could argue correctly that

A convenience store is generally able to charge and obtain a higher price for its candy bars than is Wal-Mart because the convenience store

Refer to the accompanying graph. The maximum short-run economic profit earned by this monopolistic competitive firm is

Which of the following is true in long-run equilibrium for both a competitive market and monopolistic competition

A monopolistically competitive firm usually charges more than a perfectly competitive firm because

At one time, Heinz made its own brand of soups. The company also produced those same soups to be sold as store brands. The Heinz soups and storebrand soups were differentiated only by their label. If Harris Pilton bought Heinz soup because she said, “Everyone knows the store-brand soup is nasty,” this indicates

Which of the following is the best description of monopolistic competition

Monopolistic competition

Markup would generally be lowest under

Which of the following is the best example of a monopolistic competitor

Which of the following market structures describes an industry in which all firms produce differentiated output and there are few barriers to entry

If a monopolistically competitive firm wants to maximize profits, it will increase production until

In the long run, in monopolistic competition

Excess capacity best describes the fact that

The movie You’ve Got Mail features a successful small bookstore competing with a new book superstore around the block. The big superstore offers deep discounts, while the small independent bookstore has better service and more knowledgeable staff. The movie best illustrates which of the following

If we are to discuss why the term “monopolistic competition” is used, the best description would be that the industry is “monopolistic” because it

Which of the following is the best example of a monopolistically competitive market

Which of the following is the best example of a firm operating in a monopolistically competitive market

Monopolistic competition means

The difference between price and marginal cost is

 

     1.   Monopolistic competition means:

a.
firms are in a monopoly but they compete.
b.
firms are in perfect competition but they collude similar to monopolies.
c.
firms differentiate their output, which makes them price-makers, but barriers to entry are low or non-existent.
d.
oligopoly firms collude until they become monopolies.
e.
firms have downward-sloping demand.
 

     2.   If we are to discuss why the term “monopolistic competition” is used, the best description would be that the industry is “monopolistic” because it: 

a.
has high barriers to entry but is “competitive” because it has many firms.
b.
has low barriers to entry but is “competitive” because it has few firms.
c.
has product differentiation but is “competitive” because it has many firms.
d.
has a monopoly but is “competitive” because there are low barriers to entry, meaning it has potential rivals.
e.
holds patents but is “competitive” because other firms might invent similar patentable products.
 

     3.   Which of the following industry structures is best associated with low barriers to entry?

a.
monopoly
b.
a cartel
c.
oligopoly
d.
monopolistic competition
e.
a collusive industry
 

     4.   One critical characteristic of monopolistic competition is:

a.
one firm dominates the industry.
b.
a few firms collude with each other by agreeing on price.
c.
a few firms compete without agreeing on price.
d.
there are many small firms in the industry.
e.
there is one large firm in the industry but it has no control over the price.
 

     5.   A monopolistically competitive market is characterized by:

a.
many small sellers selling a differentiated product.
b.
a single seller of a unique product that has few or no substitutes.
c.
very high barriers to entry.
d.
many small sellers selling an identical product.
e.
a few firms producing either differentiated or identical products.
 

     6.   Which of the following is the best description of monopolistic competition?

a.
easy entry, low markup
b.
barriers to entry, high markup
c.
horizontal demand curve for the firm
d.
firm has no control over price
e.
barriers to entry, low markup
 

     7.   Which of the following most closely approximates the conditions of monopolistic competition?

a.
The market for Grade A sorghum (milo), which is characterized by many firms producing a homogeneous product
b.
The restaurant industry, which is characterized by many firms producing differentiated products in an industry with free entry and exit
c.
A cable television service, where a licensed supplier competes with firms offering satellite service
d.
The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm
e.
The tobacco market, which is characterized by a few firms producing a differentiated product with difficult entry
 

     8.   Which of the following is the best example of a monopolistically competitive market?

a.
corn
b.
automobiles
c.
electric utilities
d.
retail clothing stores
e.
wheat
 

     9.   Which of the following is the best example of a firm operating in a monopolistically competitive market?

a.
a Nebraska corn farmer
b.
Applebee’s, a casual dining restaurant
c.
the U.S. Postal Service
d.
Ford, an automotive manufacturer
e.
electric companies prior to deregulation
 

   10.   Firms in a monopolistically competitive industry produce:

a.
homogeneous goods and services.
b.
differentiated products.
c.
monopolistic goods only.
d.
only industrial products—and no consumer products.
e.
only consumer products—and no industrial products.
 

   11.   Which of the following is the best example of a monopolistic competitor?

a.
corn farmers
b.
diet centers
c.
the U.S. Postal Service
d.
Ford Motor Company
e.
localized cement companies
 

   12.   If all monopolistically competitive firms had identical cost curves:

a.
the industry would remain monopolistically competitive because of product differentiation.
b.
long-run profit for each firm would be positive.
c.
short-run profit for each firm would be negative.
d.
excessive brand proliferation would result.
e.
the industry would become perfectly competitive.
 

   13.   We could state correctly that the minimum characteristic necessary to distinguish among price-making firms is:

a.
product differentiation.
b.
price discrimination.
c.
the level of the concentration ratio.
d.
the number of firms in the industry.
e.
whether they produce industrial or consumer products.
 

   14.   If a monopoly firm suddenly lost its barriers to entry and faced new competition, yet consumers thought that the former monopoly’s products were somewhat different than its new competitors, then:

a.
the industry has probably become perfectly competitive.
b.
long-run profit for this firm will likely exist.
c.
the industry has probably become a monopolistically competitive industry.
d.
the industry is probably cooperating to maximize joint profits.
e.
the industry has probably become a monopoly.
 

   15.   Which of the following statements best describes firms under monopolistic competition?

a.
There is little price or quality competition.
b.
The firms compete using quality, location, and style.
c.
Firms do not compete using advertising.
d.
There is little competition between firms.
e.
There are a few firms that collude to set the highest price.
 

   16.   Product differentiation:

a.
refers to firms’ attempts to make their products look the same as other products in the industry.
b.
refers to firms’ attempts to make real or apparent differences in essentially substitutable products look different in the minds of consumers.
c.
refers to the advantage big firms have in research and development.
d.
is a common characteristic of a perfectly competitive market structure.
e.
is employed only in a monopoly market structure.
 

   17.   Which of the following is always associated with monopolistic competition?

a.
identical products
b.
economic profits in the short run
c.
demand curve that lies below the marginal revenue curve
d.
demand curves that become more inelastic as new entry occurs
e.
product differentiation
 

   18.   The movie You’ve Got Mail features a successful small bookstore competing with a new book superstore around the block. The big superstore offers deep discounts, while the small independent bookstore has better service and more knowledgeable staff. The movie best illustrates which of the following?

a.
For monopolistically competitive firms, profits will be positive in the long run.
b.
Homogeneous products are produced by both firms because consumers perceive books from either store as the same.
c.
Product differentiation occurs because consumers perceive the bookstores as different.
d.
Monopoly production occurs because the movie is copyrighted.
e.
Perfect competition occurs because many movie theaters are showing identical movies.
 

   19.   The movie You’ve Got Mail features a successful small bookstore competing with a new book superstore around the block. The big superstore offers deep discounts, while the small independent bookstore has better service and more knowledgeable staff. The movie best illustrates which of the following?

a.
Small producers can’t compete based on costs.
b.
Large producers offer differentiated products and compete most effectively through product differentiation.
c.
Small producers offer differentiated products and compete most effectively through product differentiation.
d.
The Meg Ryan character’s bookstore best illustrates a perfectly competitive firm.
e.
The Tom Hanks character’s bookstore best illustrates a monopoly firm.
 

   20.   Shopping at the clothing store Abercrombie & Fitch instead of Ann Taylor best illustrates which of the following?

a.
differentiation by style or type
b.
differentiation by location
c.
differentiation by quality
d.
homogeneous products
e.
high barriers to entry
 

   21.   You shop at the local drugstore because it is convenient. This situation is best described as:

a.
differentiation by style or type.
b.
differentiation by a cartel.
c.
monopolistic competition with differentiation by location.
d.
a market with horizontal demand.
e.
perfect competition because there are so many drugstores in the area.
 

   22.   A convenience store is generally able to charge and obtain a higher price for its candy bars than is Wal-Mart because the convenience store:

a.
differentiates based on style.
b.
differentiates based on location.
c.
differentiates based on quality.
d.
advertises that its candy bars are identical to those sold at Wal-Mart.
e.
differentiates based on high barriers to entry, such as patents.
 

   23.   At one time, Heinz made its own brand of soups. The company also produced those same soups to be sold as store brands. The Heinz soups and storebrand soups were differentiated only by their label. If Harris Pilton bought Heinz soup because she said, “Everyone knows the store-brand soup is nasty,” this indicates:

a.
consumer cooperation.
b.
product homogeneity.
c.
product differentiation.
d.
a cartel exists.
e.
monopolization by Heinz.
 

   24.   Which of the following best describes DiGiorno’s incentive for quality control versus that of the generic brands of pizza?

a.
Their incentives are identical.
b.
Generic brands have more incentive for high quality and high-quality control.
c.
DiGiorno has more incentive for high quality and high-quality control.
d.
Generic brands purposefully have lower quality because they charge a lower price and need to maintain consumer perception that they should expect lower quality at the lower price.
e.
DiGiorno tries to match the same quality as the generic brands.
 

   25.   Sarah’s Ice Cream distinguishes itself from other firms through great service by attractive servers. Sarah’s Ice Cream faces competition from firms that produce similar but not identical products. Based on the this information Sarah’s Ice Cream:

a.
is probably in a perfectly competitive industry.
b.
probably has a horizontal demand curve.
c.
is probably in a monopolistically competitive industry.
d.
is probably in an oligopoly industry.
e.
has a monopoly.
 

   26.   Monopolistic competition:

a.
is the same as monopoly.
b.
is more similar to perfect competition than to monopoly.
c.
is just like monopoly but with more market power.
d.
is a combination of oligopoly and monopoly.
e.
cannot legally exist in the United States because of antitrust laws.
 

   27.   If barriers to entry are high and products are somewhat differentiated:

a.
the industry is probably perfectly competitive.
b.
the industry is probably monopolistically competitive.
c.
the industry is probably a differentiated monopsony.
d.
economic profit might be sustainable.
e.
the situation cannot exist.
 

   28.   Which of the following market structures describes an industry in which all firms produce differentiated output and there are few barriers to entry?

a.
perfect competition
b.
monopoly
c.
oligopoly
d.
a cartel
e.
monopolistic competition
   29.   The best description of industries below is that:

a.
a monopolistically competitive industry is more competitive than any other industry form.
b.
monopolies are more competitive than monopolistically competitive firms.
c.
monopolistically competitive firms are located between monopoly and perfect competition.
d.
all firms can make a long-run economic profit, but only perfect competitors can make a shortrun profit.
e.
all firms engage in short-run loss minimization by selecting the point where marginal revenue = price.
 

   30.   If a firm has substantial market power, it must be operating in an industry that would be classified as:

a.
a monopoly.
b.
perfectly competitive.
c.
monopolistically competitive.
d.
perfectly competitive or monopolistically competitive.
e.
perfectly competitive or monopolistic.
 

   31.   If the marginal revenue curve lies above the demand curve for a firm:

a.
this is not a firm that exists in any traditional industries.
b.
both curves are upward-sloping.
c.
both curves are parallel.
d.
this must be a monopolistically competitive firm.
e.
both curves are downward-sloping.
 

   32.   A monopolistically competitive firm usually charges less than a monopoly firm because:

a.
it is part of a group of firms that has formally agreed to control the price and the output of a product.
b.
its primary goal is to reap monopoly profits by replacing competition with cooperation.
c.
producing homogenous output is more expensive than producing differentiated output.
d.
it faces some degree of competition due to low barriers to entry.
e.
it has a monopoly, but potential entrants exist in the form of contestable markets.
 

   33.   Monopolistic competition is like monopoly in that:

a.
price changes are dictated by changes in supply.
b.
both industries represent price-taking firms.
c.
both industries represent price-making firms.
d.
both industries have high barriers to entry.
e.
neither industry has high barriers to entry.
 

   34.   The shape and/or slope of the marginal revenue curve under monopolistic competition is:

a.
U-shaped.
b.
horizontal.
c.
vertical.
d.
upward-sloping.
e.
downward-sloping and twice as steep as the demand curve.
 

   35.   Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?

a.
Price will equal marginal cost at the profit-maximizing level of output, and profits will be positive in the long run.
b.
Price will always equal average variable cost in the short run, and either profits or losses may result in the long run.
c.
Marginal revenue will equal marginal cost in the short run at a profit-maximizing level of output; in the long run, economic profit will be zero.
d.
Marginal revenue will equal average total cost in the short run, and long-run economic profits are generally positive but could be zero.
e.
Output is equal to the amount for which marginal revenue equals price.
 

   36.   The descriptor “monopolistic” in the term “monopolistic competition” best describes:

a.
high barriers to entry.
b.
product differentiation resulting in a downward-sloping demand curve for the firm’s product.
c.
production of a unique product.
d.
a single producer.
e.
a few small firms.
 

   37.   Refer to the accompanying graph. The short-run profit-maximizing output for the monopolistic competitive firm is:

 

 

a.
0 (zero) units per day.
b.
200 units per day.
c.
400 units per day.
d.
600 units per day.
e.
800 units per day.
 

   38.   Refer to the accompanying graph. The short-run profit-maximizing output for the monopolistic competitive firm is:

 

 

a.
0 (zero) units per week.
b.
50 units per week.
c.
60 units per week.
d.
85 units per week.
e.
90 units per week.
 

   39.   Refer to the accompanying graph. The maximum short-run economic profit earned by this monopolistic competitive firm is:

 

 

a.
$20
b.
$66
c.
$272.
d.
none; this firm must shut down or lose all of its fixed cost.
e.
inconclusive; the maximum short-run profit can’t be determined from the information given.
 

   40.   The short-run equilibrium for a monopolistically competitive firm is at price = $29, average total cost = $22, and marginal cost = marginal revenue = $18. Which of the following is true?

a.
Per-unit profit is $11.
b.
More firms will be attracted into the industry.
c.
The firm could increase the price and increase profits.
d.
The firm could decrease the price and increase profits.
e.
The firm is operating in the upward-sloping portion of average total cost (ATC).
 

   41.   Which of the following is true in long-run equilibrium for both a competitive market and monopolistic competition?

a.
Accounting profit is zero.
b.
Price equals marginal revenue.
c.
Long-run average cost is minimized.
d.
Economic profit is zero.
e.
Productive efficiency is achieved.
 

   42.   In the long run, both monopolistic competition and competitive markets result in:

a.
a wide variety of brand-name choices for consumers.
b.
an inefficient allocation of resources.
c.
zero economic profit for firms.
d.
excess capacity.
e.
insufficient capacity.
 

   43.   In the long run, surviving firms in monopolistic competition earn:

a.
higher than normal economic profit.
b.
zero economic profit.
c.
less than normal profits.
d.
significant economic losses.
e.
praise from the government for achieving allocative efficiency.
 

   44.   If monopolistically competitive firms are incurring losses, existing firms would:

a.
reduce their costs.
b.
charge higher prices.
c.
make demand more inelastic.
d.
leave the industry.
e.
begin to collude illegally.
 

   45.   If monopolistically competitive firms are making zero economic profit, then these firms would:

a.
leave the industry.
b.
charge higher prices.
c.
make demand more inelastic.
d.
remain in the industry.
e.
begin to collude illegally.
 

   46.   Monopolistically competitive firms that are earning zero economic profit would most likely:

a.
reduce their costs.
b.
charge higher prices.
c.
make demand more inelastic.
d.
leave the industry.
e.
remain in the industry.
 

   47.   In the long run, in monopolistic competition:

a.
the demand curve is tangent to the marginal cost curve.
b.
price = marginal cost.
c.
price = minimum average total cost.
d.
firms have an incentive to leave.
e.
economic profits are zero.
 

   48.   Monopolistically competitive firms:

a.
eventually become perfectly competitive.
b.
follow the price leader.
c.
earn long-run economic profits.
d.
necessarily earn short-run economic profits.
e.
“compete away” economic profit to zero.
 

Refer to the following graph to answer the questions that follow.

 

   49.   The maximum long-run economic profit earned by this monopolistic competitive firm is:

a.
0 (zero).
b.
$600 per day.
c.
$1,200 per day.
d.
$1,800 per day.
e.
$20 per hour.
 

   50.   In the long run, the demand curve for the monopolistically competitive firm would:

a.
shift leftward.
b.
remain the same, causing the entry of new firms to be impossible.
c.
shift rightward.
d.
move closer to the marginal revenue curve, but the marginal revenue curve would be held constant.
e.
shift rightward, causing the entry of new firms into the industry.
 

   51.   In the long run, which of the following is true for the profit-maximizing firm?

a.
The firm’s demand curve shifts leftward.
b.
The firm’s average total cost curve shifts upward.
c.
Profit is $1,200 per day.
d.
Profit is $1,500 per day.
e.
The firm’s average total cost curve shifts downward, while the marginal cost curve shifts upward.
 

   52.   In the long run, the positive economic profits of Wings and Things, a monopolistic competitor, are:

a.
not driven out because competition is not perfect.
b.
not driven out because the demand curve slopes downward.
c.
eliminated due to the entry of firms into the industry.
d.
eliminated due to the departure of firms from the industry.
e.
not driven out because firms cannot enter the industry.
 

   53.   Refer to the accompanying graph. The maximum long-run economic profit earned by this monopolistically competitive firm is:

 

a.
0 (zero).
b.
represented by the rectangle abcd.
c.
represented by the rectangle enclosed by the points 50, 0, c, and d.
d.
represented by the area below the demand curve and above marginal cost.
e.
greater than 0 but can’t be shown in the diagram because it is an indefinable area.
 

   54.   Refer to the accompanying graph. If there are exactly 20 firms in the monopolistically competitive industry that are identical to the firm shown, we would expect that, in the long run:

 

a.
total industry economic profit would be exactly equal to 20 times the profit of each individual firm.
b.
total industry economic profit would be greater than 20 times the profit of each individual firm.
c.
industry costs would rise.
d.
new firms would desire to enter the industry but would not be able to due to high entry barriers.
e.
total industry economic profit would be zero.
 

   55.   The theory of monopolistic competition predicts that, in long-run equilibrium, a monopolistically competitive firm will:

a.
produce the output level at which price equals long-run average cost.
b.
produce the output at which short-run average total cost equals marginal cost.
c.
produce the output level at which price equals long-run marginal cost.
d.
operate at minimum long-run average cost.
e.
operate where price equals long-run average fixed cost.
 

   56.   Which of the following is a characteristic of a monopolistically competitive firm?

a.
The firm faces a downward-sloping demand curve and a marginal revenue curve that is twice as steep.
b.
The firm faces a vertical demand curve and identical marginal revenue curve.
c.
The firm produces a product that is undifferentiated by style, location, or quality.
d.
The firm faces an upward-sloping demand curve.
e.
The firm faces a downward-sloping demand and a horizontal marginal revenue curve.
 

   57.   Profit-maximizing, monopolistically competitive firms:

a.
are guaranteed an economic profit in the short run.
b.
never lose money.
c.
produce only those goods for which they can acquire a barrier to entry, such as a patent (hence the term “monopolistically”).
d.
necessarily earn long-run economic profits.
e.
cannot be guaranteed an economic profit in any period and might incur losses.
 

   58.   The fast-food, bottled water, and cereal markets are all examples of:

a.
perfectly competitive markets.
b.
monopolies.
c.
monopolistically competitive markets.
d.
oligopolies.
e.
homogeneously competitive markets.
 

   59.   If a monopolistically competitive firm is incurring losses, then at the profit-maximizing output amount:

a.
price is above the average total cost curve.
b.
price is below the average total cost curve.
c.
price is equal to marginal revenue.
d.
price is less than marginal revenue.
e.
average total costs equals marginal cost.
 

 

   60.   Fast-food restaurants are a good illustration of:

a.
oligopolistic competition.
b.
perfect competition.
c.
monopoly.
d.
monopolistic competition.
e.
oligopoly.
 

   61.   Caskets are produced in a monopolistic competitive market. One producer, Final Boxes, sells 20 caskets a week at a price of $550 each. Its average total cost is $600. From this information, we know that:

a.
new casket firms will want to enter.
b.
this producer is losing $1,000 a week.
c.
this producer is making an economic profit of $500.
d.
this producer is setting marginal revenue = marginal cost.
e.
this producer should increase production.
 

   62.   The greeting card industry is:

a.
most likely a competitive market and has low markups.
b.
most likely a monopoly and has high markups.
c.
most likely monopolistically competitive and has low markups.
d.
most likely an oligopoly with low markups.
e.
characterized by firms that advertise and are mutually interdependent.
 

   63.   Refer to the accompanying graph. Profit-maximizing output for the monopolistically competitive firm is:

 

 

a.
0 (zero) units.
b.
20 units.
c.
25 units.
d.
30 units.
e.
35 units.
 

   64.   Both competitive and monopolistically competitive firms:

a.
can maximize profit by raising price.
b.
cannot control or set their own price.
c.
can maximize profit by producing to the point where marginal cost = marginal revenue.
d.
can enforce price arrangements vigorously in court.
e.
sell products that are identical.
 

   65.   The marginal revenue of a monopolistically competitive firm will always be:

a.
less than the price.
b.
more than the price.
c.
the same as the price.
d.
identical to the marginal cost curve.
e.
identical to the average total cost curve.
 

   66.   Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

a.
price equals average total cost.
b.
marginal cost equals average variable cost.
c.
average revenue equals marginal revenue.
d.
marginal revenue equals marginal cost.
e.
total revenue equals total cost.
 

   67.   The correct level of output for a profit-maximizing, monopolistically competitive firm always matches the point where:

a.
total revenue equals total cost.
b.
marginal revenue equals marginal cost.
c.
price equals average total cost.
d.
price equals marginal cost.
e.
average revenue equals marginal revenue.
 

   68.   Which of the following best describes the relationship between price and marginal revenue for monopolistic competitors?

a.
They are always equal.
b.
They are equal only when there are relatively few firms in the industry.
c.
Price is below marginal revenue, as a general rule, regardless of the number of firms in the monopolistically competitive industry.
d.
Price is above marginal revenue, as a general rule, regardless of the number of firms in the monopolistically competitive industry.
e.
At low levels of output, price is above marginal revenue. At high levels of output, price is below marginal revenue as long as the number of firms is not too many because, if it is too large, the monopolistically competitive industry will become perfectly competitive.
 

   69.   Costume jewelry is produced in a monopolistically competitive market. A profit-maximizing producer finds that marginal revenue = marginal cost = $4.50 when output is 700 rings. An economist studying this information can conclude that:

a.
the producer is charging a price of $4.50.
b.
economic profit is $3,150.
c.
the producer charges a price greater than $4.50.
d.
new firms will want to enter.
e.
this producer should produce more than 700 rings.
 

   70.   Refer to the accompanying graph. To maximize profit, the monopolistically competitive firm shown will charge a price per unit of:

 

a.
0 (zero).
b.
$20.17.
c.
$18.17.
d.
$16.87
e.
$15.87
 

   71.   Which of the following is true for a profit-maximizing firm operating in a competitive market, monopolistic competition, and monopoly?

a.
Firms earn positive economic profits in the long run.
b.
Firms earn zero economic profits in the long run.
c.
Profits are maximized when marginal cost equals marginal revenue.
d.
Price equals marginal revenue.
e.
Entry into the industry is impossible.
 

   72.   If the price that determined where marginal revenue equaled marginal cost were below the bottom of the average variable cost curve, then the profit-maximizing, monopolistically competitive firm would:

a.
produce an output amount where marginal cost = marginal revenue and make a small profit.
b.
produce an output amount that corresponded to the place where marginal cost = marginal revenue and break even.
c.
produce an output amount that corresponded to the place where marginal cost = marginal revenue but make a small loss.
d.
shut down because it would cost more to produce and sell output than it would to shut down and lose all fixed costs.
e.
produce an output amount that corresponded to the place where average total cost = average variable cost and incur a small loss.
 

   73.   An increase in marginal cost causes a profit-maximizing, monopolistically competitive firm to:

a.
keep price and output the same.
b.
raise price and decrease output.
c.
lower price and increase output.
d.
raise price and raise output.
e.
lower price and lower output.
 

   74.   Profit-maximizing, monopolistically competitive firms:

a.
consider the actions of their competitors when determining price.
b.
do not consider the actions of their competitors when determining price.
c.
consider only marginal cost and marginal revenue, which determine the level of output—and the level of output determines price.
d.
consider only average total cost and average variable cost, which determine the level of output—and the level of output determines price.
e.
take their price from the industry price, as do perfectly competitive firms.
 

   75.   If positive economic profit exists in monopolistic competition, there is:

a.
incentive for new firms to enter.
b.
a motive for existing firms to increase prices.
c.
proof that advertising works.
d.
a motive for existing firms to decrease prices.
e.
product differentiation.
 

   76.   If monopolistically competitive firms are making positive economic profits, then new firms would:

a.
reduce their costs.
b.
charge higher prices.
c.
make demand more inelastic.
d.
leave the industry.
e.
begin to enter the industry.
   77.   As new firms enter a monopolistically competitive industry, it can be expected that:

a.
market price will rise.
b.
the output of existing firms will rise.
c.
profits of existing firms will fall.
d.
market demand will rise.
e.
the profits of existing firms will rise.
 

   78.   Entry of new firms will continue in a monopolistically competitive industry until:

a.
marginal cost = 0 (zero).
b.
marginal revenue = 0 (zero).
c.
marginal revenue = marginal cost.
d.
economic profit equals zero.
e.
economic profit is negative.
 

   79.   We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms’:

a.
demand curves downward.
b.
demand curves upward.
c.
marginal revenue curves upward.
d.
cost curves upward.
e.
cost curves downward.
 

   80.   The entry of new firms into a monopolistically competitive industry causes the:

a.
market demand curve to shift right.
b.
market demand curve to shift left.
c.
existing firm’s demand curve to shift right.
d.
existing firm’s demand curve to shift left.
e.
market supply curve to shift left.
   81.   Refer to the accompanying graph. If all firms in a monopolistically competitive industry have demand and cost curves like those shown, we would expect that, in the long run,

 

a.
all firms will leave the industry.
b.
a certain percentage of existing firms will exit the industry.
c.
firms in the industry earn negative economic profits.
d.
new firms will enter the industry.
e.
enough new firms will enter the industry that it will become perfectly competitive.
 

   82.   Refer to the accompanying graph. If all firms in the industry are the same as the monopolistically competitive firm shown, the long run will reflect:

 

 

a.
firms leaving the industry.
b.
all firms earning positive economic profits.
c.
some firms earning positive economic profit and others experiencing economic loss.
d.
competition from new firms that enter the industry.
e.
all firms earning economic profit of exactly $300 per day.
 

   83.   You operate a monopolistically competitive firm and you notice that your company is making an economic profit. Which of the following is most likely to happen?

a.
Other firms in your industry will raise their prices.
b.
Other firms will enter your industry and your demand curve will shift left.
c.
Other firms will enter your industry and your demand curve will shift right.
d.
Your firm will be forced to exit the industry.
e.
Government regulators will investigate your firm for “excessive economic profit.”
 

   84.   The demand curve for a monopolistically competitive firm is downward sloping because of:

a.
high barriers to entry.
b.
product differentiation.
c.
the lack of firms in the industry.
d.
government regulation.
e.
identical cost curves for each firm.
 

   85.   Market power is best described as when the firm’s demand curve is:

a.
positively sloped.
b.
a horizontal line.
c.
a vertical line.
d.
downward-sloping.
e.
above the industry demand curve.
 

   86.   One could argue correctly that:

a.
all firms in any industry can earn short-run but not necessarily long-run positive economic profit.
b.
all firms in any industry can earn long-run but not necessarily short-run positive economic profit.
c.
all firms in any industry can earn both short-run and long-run positive economic profit.
d.
no firm in any industry can earn long-run positive economic profit because all price changes made by any firm will be followed by all of the other firms.
e.
all firms in any industry can earn short-run positive profit if economies of scale exist.
 

   87.   The difference between price and marginal cost is:

a.
marginal revenue.
b.
per-unit profit.
c.
average total revenue.
d.
markup.
e.
nothing in the long run; they must be the same.
 

   88.   A monopolistically competitive firm usually charges more than a perfectly competitive firm because:

a.
it is part of a group of firms that has formally agreed to control the price and the output of a product.
b.
its primary goal is to reap monopoly profits by replacing competition with cooperation.
c.
producing homogenous output is more expensive than producing differentiated output.
d.
producing differentiated output is more expensive than producing homogenous output.
e.
it has a monopoly, but potential entrants exist in the form of contestable markets.
 

   89.   Both perfectly competitive and monopolistically competitive industries have many firms, in fact so many that, in the long run:

a.
only one firm can survive in the industry, leading to monopoly.
b.
costs must increase due to diseconomies of scale.
c.
costs must decrease due to economies of scale.
d.
economic profit is “competed away.”
e.
economic profit can continue.
 

   90.   In a monopolistically competitive industry, price:

a.
will be lower than the competitive price due to cost savings.
b.
will exceed the monopoly price due to the destructiveness of competitive forces.
c.
cannot be predicted exactly because it is likely to lie between the competitive and monopoly prices.
d.
is contingent on the behavior of other firms because they are mutually interdependent.
e.
is most likely a bit higher than the competitive market price because of the cost of variety.
 

   91.   Perfect competition and monopolistic competition are similar because, under both market structures:

a.
there are zero economic profits in the long run.
b.
production takes place at minimum average total cost.
c.
there are just a few firms.
d.
the concentration ratio is relatively high.
e.
differentiated products are produced.
 

   92.   A generic product would be best described as one that is:

a.
perfectly differentiated.
b.
completely undifferentiated.
c.
heavily advertised.
d.
sold in a monopoly market.
e.
produced only in a perfectly competitive industry.
 

   93.   One thing that makes monopolistic competition similar to perfect competition is that, in the:

a.
long run, both are guaranteed positive economic profit.
b.
short run, both are guaranteed positive economic profit.
c.
short run, neither can earn positive economic profit.
d.
long run, both will earn zero economic profit.
e.
long run, both could earn positive economic profit, but monopolistic competitors will earn more than perfect competitors will.
 

   94.   A competitive firm would have:

a.
more elastic demand than a monopolistically competitive firm.
b.
more inelastic demand than a monopolistically competitive firm.
c.
an upward-sloping demand curve.
d.
a horizontal demand curve.
e.
bowed-in or bowed-out demand.
   95.   Which of the following is evidence of market power?

a.
Output changes as costs change.
b.
Output is fixed despite cost changes.
c.
The demand curve for the firm is horizontal.
d.
The firm has no control over price.
e.
Optimal output is less than industry output.
 

   96.   In the long run, monopolistically competitive firms like Hardee’s and Carl’s Jr. operate at a price that:

a.
allows them to make a small economic profit.
b.
drives economic profit to zero.
c.
equals marginal cost.
d.
equals average variable cost.
e.
equals minimum average total cost.
 

   97.   Excess capacity best describes the fact that:

a.
monopolistically competitive firms produce less than the cost-minimizing level of output.
b.
monopolistically competitive firms produce more than the cost-minimizing level of output.
c.
monopolistically competitive firms produce exactly the cost-minimizing level of output, but the monopolistically competitive industry produces more than that amount.
d.
monopolistically competitive firms could produce less if they wanted to, so they produce over the optimal capacity.
e.
perfectly competitive firms produce less than the cost-minimizing level of output, so they have excess capacity but monopolistically competitive firms do not.
 

   98.   Monopolistic competition is inefficient because:

a.
firms earn positive economic profits.
b.
the firms’ marginal costs and marginal revenues are not equal.
c.
price is not equal to the minimum average total cost.
d.
entry is difficult.
e.
the price is equal to the minimum average total cost.
 

   99.   A monopolistically competitive firm is inefficient because the firm:

a.
earns positive economic profit in the long run.
b.
is producing at an output amount that corresponds to marginal cost equal to price.
c.
is not maximizing its profit.
d.
produces an output where average total cost is not minimum.
e.
produces where price is equal to minimum average total cost.
 

 100.   One source of economic inefficiency from monopolistic competition is:

a.
markup.
b.
less variety for consumers.
c.
more variety for consumers.
d.
higher costs because firms can enter the

industry.
e.
lower marginal costs but higher average costs

than with perfect competition.
 

 101.   The concept of markup under monopolistic competition would best be described as the:

a.
attempt of firms to make their products look like those of other firms in the industry, thus “marking them up” in a similar style.
b.
attempt of firms to mark up their prices above those of their rivals.
c.
difference between total revenue and total cost of the monopolistic competitor.
d.
difference between the average total cost and the price of the monopolistic competitor.
e.
difference between the marginal cost and the price of the monopolistic competitor.
 

 102.   Markup would not exist in:

a.
a monopoly.
b.
a cartel.
c.
an oligopoly.
d.
monopolistic competition.
e.
a competitive market.
 103.   Markup would generally be lowest under:

a.
a monopoly.
b.
a cartel.
c.
an oligopoly.
d.
monopolistic competition.
e.
a collusive industry.
 

 104.   Markup would generally be highest under:

a.
a monopoly.
b.
a cartel.
c.
an oligopoly.
d.
monopolistic competition.
e.
a competitive market.
 

 105.   Which of the following is evidence of market power?

a.
markup
b.
Output is fixed despite cost changes.
c.
The demand curve for the firm is horizontal.
d.
The firm has perfect control over price.
e.
Optimal output is less than industry output.
 

 106.   When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit:

a.
the industry is in equilibrium; no firms will want to enter or exit.
b.
those firms who don’t differentiate their product sufficiently will want to leave the market.
c.
those firms who wish to differentiate their product more will want to enter the market.
d.
market demand shifts to the right.
e.
the price of the output will rise in the long run.
 

 107.   If a monopolistically competitive firm wants to maximize profits, it will increase production until:

a.
marginal revenue   average variable cost.
b.
marginal revenue = average total cost.
c.
marginal cost   marginal revenue.
d.
marginal revenue = average revenue.
e.
marginal revenue = marginal cost.
 

 108.   Product differentiation makes the demand for a monopolistically competitive firm’s product:

a.
perfectly elastic.
b.
less elastic than in a competitive market.
c.
more elastic than in a competitive market.
d.
perfectly inelastic.
e.
less elastic than that of a monopoly.
 

 109.   Advertising is designed to:

a.
increase the price elasticity of demand for the firm and shift the firm’s demand curve rightward.
b.
decrease the price elasticity of demand for the firm and shift the firm’s demand curve rightward.
c.
increase the price elasticity of demand for the industry and shift the firm’s demand curve rightward.
d.
decrease the price elasticity of demand for the industry but have no effect on the firm’s demand.
e.
cause the income elasticity of consumers to become zero.
 

 110.   An industry (such as California cheese) might advertise so that cheese:

a.
is no longer viewed as homogeneous.
b.
will now be viewed as homogeneous for all producers.
c.
may be characterized by a horizontal demand curve.
d.
will now have a price elasticity of demand that is more elastic.
e.
will be sold in perfectly competitive markets.
 

 111.   Bob watches advertising that makes him want to consume Bugles, a corn snack, after he hears that, for Bugles, “more is better.” Most people consider that all corn snack foods are not the same and that Doritos and other corn snacks are not perfect substitutes for Bugles. Based on this information, we would most accurately say that advertising probably caused:

a.
Bob’s demand to be more elastic, and the corn-snack industry is likely to be a monopolistically competitive industry.
b.
Bob’s demand to be less elastic, and the corn-snack industry is likely to be a monopoly industry.
c.
the corn-snack industry demand to be less elastic, and Bob’s demand was unaffected.
d.
the corn-snack industry to become a monopoly, whereas prior to advertising, it was probably perfectly competitive.
e.
Bob’s demand to be less elastic, and the corn-snack industry is likely to be a monopolistically competitive industry.
 

 112.   Successful advertising:

a.
generally causes a firm’s costs to fall.
b.
generally causes industry costs to fall.
c.
normally causes demand for the firm to shift right.
d.
normally causes industry demand to shift left.
e.
normally causes consumers to buy things for which they have no use.
 

 113.   Because of successful advertising:

a.
the demand curve facing each firm shifts right, while the cost curves shift downward.
b.
the decisions of one seller often influences the price of products, the output, and the profits of rival firms.
c.
there is only one firm that produces a product for which there are no good substitutes.
d.
there are many sellers in the market and each is small relative to the total market.
e.
the demand curve facing each firm shifts right, while the cost curves shift upward.
 

 114.   Successful advertising under monopolistic competition might:

a.
make the demand for a firm’s product more elastic.
b.
create a high barrier to entry.
c.
promote lower-quality products.
d.
reduce the price elasticity of demand for that firm’s output.
e.
help consumers understand why products in the industry are homogeneous.
 

 115.   When would advertising be least effective?

a.
in a perfectly competitive industry
b.
in a monopolistically competitive industry
c.
in an oligopolistic industry
d.
in a monopoly industry
e.
Advertising is equally effective in all industries.
 

 116.   Successful advertising would be most effective in the __________ industry.

a.
electric power transmission and distribution
b.
wheat production
c.
corn production
d.
wholesale coal
e.
restaurant
 

 117.   Sart Bimpson, an economics student, believes that a beer sold by one particular shack on the beach is completely different from an identical beer produced by the same factory and sold by the luxury hotel adjacent to the shack. The response that would best describe Sart’s belief is:

a.
the luxury hotel and the shack are in a perfectly competitive industry.
b.
Sart thinks the luxury hotel is a monopoly seller of the beer.
c.
the luxury hotel and the shack are in a monopolistically competitive industry.
d.
Sart thinks the shack is in a perfectly competitive industry but the luxury hotel is in an oligopoly industry.
e.
Sart would say that, while beer is homogeneous, he perceives that the product is differentiated among the sellers.
 

 118.   Why would perfectly competitive industries advertise even though individual firms do not?

a.
Even though the output of an individual firm would be considered homogeneous to other firms, the industry output would be differentiated (for example, Florida orange juice versus imports).
b.
Individual perfectly competitive firms don’t need to advertise because they already have market power, but the industry would need to advertise.
c.
Government price supports exist for most perfectly competitive producers so they don’t need to advertise, but industry price supports don’t generally exist.
d.
Industries advertise because they pay for commercials and it allows consumers to watch TV and listen to the radio for “free.”
e.
Individual firms produce perfectly differentiated output but the industry produces homogeneous output that needs to be differentiated.
 

 119.   False advertising is generally regulated by:

a.
the Securities and Exchange Commission (SEC).
b.
the Federal Trade Commission (FTC).
c.
the antitrust division of the Department of Justice.
d.
state and local governments.
e.
the Nuclear Regulatory Commission (NRC).
 

 120.   There is a discussion of Kevin Trudeau in your textbook. Which answer below best describes him?

a.
He is the head of the Securities and Exchange Commission (SEC).
b.
He was sued by the Federal Trade Commission (FTC) for false advertising in 1998.
c.
He is the former CEO of Enron.
d.
He is the former prime minister of Canada.
e.
He is the former head of the FTC.
 

 121.   A franchise might be worth $1 million or more because:

a.
it guarantees the owner a long-run economic profit.
b.
it guarantees the owner positive economic profit.
c.
product differentiation results in brand loyalty, which can be very profitable.
d.
it gives the owner a pure monopoly.
e.
it allows the franchisee to sell a homogeneous product.
 

 122.   One drawback to advertising might be that it could easily:

a.
raise costs but not increase demand.
b.
raise revenue but not increase demand.
c.
decrease revenue and raise demand.
d.
decrease costs and decrease demand.
e.
cause a monopolistically competitive firm to become a monopoly.
 

 123.   If a firm engages in false advertising, it might be:

a.
shut down by the Securities and Exchange Commission (SEC).
b.
investigated by the Federal Trade Commission (FTC) and have its products removed from the market.
c.
shut down by the Department of Justice.
d.
investigated by the Stock Market Investigation Bureau (SMIB).
e.
subject to “penalty by collusion.”

 
 

       1.    Which of the following most closely approximates the conditions of a monopolistically competitive market?

a.
The market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product.
b.
The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers.
c.
Local cable television service, where a licensed supplier competes with firms offering satellite service.
d.
The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm.
 

       2.    Which of the following is the best example of a firm operating in a monopolistically competitive market?

a.
A Kansas wheat farmer.
b.
TGI Fridays, a family restaurant.
c.
U.S. Postal Service.
d.
Boeing, an aircraft manufacturer
 

       3.    Which of the following is characteristic of a monopolistically competitive firm?

a.
The firm faces an upward-sloping demand curve.
b.
The firm faces an inelastic demand curve.
c.
The firm faces a horizontal demand curve.
d.
The firm produces a differentiated product.
 

       4.    The marginal revenue curve of a monopolistically competitive firm will always lie:

a.
below the firm's demand curve.
b.
parallel to the firm's demand curve.
c.
parallel to the firm's quantity axis.
d.
above the firm's demand curve.
 

       5.    A profit-maximizing monopolistically competitive firm will expand output to the point where:

a.
total revenue equals total cost.
b.
marginal revenue equals marginal cost.
c.
price equals average total cost.
d.
price equals marginal cost.
 

       6.    The monopolistic competition market structure is characterized by:

a.
few firms and similar products.
b.
many firms and differentiated products.
c.
many firms and a homogeneous product.
d.
few firms and a homogeneous product.
 

       7.    Video rental stores in cities are an illustration of:

a.
perfect competition.
b.
monopoly.
c.
monopolistic competition.
d.
oligopoly.
 

       8.    Which of the following is the best example of a monopolistic competitor?

a.
Wheat farmers.
b.
Diet centers.
c.
American Telephone and Telegraph.
d.
General Motors.
 

       9.    Firms in a monopolistically competitive industry produce:

a.
homogeneous goods and services.
b.
differentiated products.
c.
competitive goods only.
d.
consumption goods only.
 

    10.    Which of the following is the best example of a monopolistically competitive market?

a.
Wheat.
b.
Automobiles.
c.
Diamonds.
d.
Retail sales.
 

     11.    Which of the following is a characteristic of the monopolistic competition market structure?

a.
Many firms and a homogeneous product.
b.
Few firms and differentiated products.
c.
Few firms and similar products.
d.
Few firms and a homogeneous product.
e.
Many firms and differentiated products.
 

    12.    In the long run, both monopolistic competition and perfect competition result in:

a.
a wide variety of brand-name choices for consumers.
b.
an efficient allocation of resources.
c.
zero economic profit for firms.
d.
excess capacity.
 

    13.    Product differentiation makes the demand for a monopolistically competitive firm's product:

a.
perfectly elastic.
b.
more elastic than for a monopoly.
c.
more inelastic than for a monopoly.
d.
perfectly inelastic.
 

    14.    In the long run, monopolistically competitive firms have:

a.
excess capacity.
b.
positive profits.
c.
minimal average costs.
d.
homogeneous production.
 

    15.    A monopolistically competitive market is characterized by:

a.
many small sellers selling a differentiated product.
b.
a single seller of a product that has few suitable substitutes.
c.
very strong barriers to entry.
d.
mutual interdependence in pricing decisions.
 

    16.    A monopolistically competitive firm will:

a.
maximize profits by producing where MR = MC.
b.
not likely earn an economic profit in the long run.
c.
shut down if price is less than average variable cost.
d.
all of these.
 

    17.    The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

a.
produce the output level at which price equals long-run marginal cost.
b.
operate at minimum long-run average cost.
c.
overutilize its insufficient capacity.
d.
produce the output level at which price equals long-run average cost.
 

    18.    A monopolistic competitive firm is inefficient because the firm:

a.
earns positive economic profit in the long run.
b.
is producing at an output corresponding to the condition that marginal cost equals price.
c.
is not maximizing its profit.
d.
produces an output where average total cost is not minimum.
 

    19.    Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

a.
price equals average total cost.
b.
marginal cost equals average total cost.
c.
marginal cost equals price.
d.
marginal revenue equals marginal cost.
 

    20.    Which of the following statements best describes firms under monopolistic competition?

a.
There is little price or quality competition.
b.
The firms compete, using quality, location, advertising, and price.
c.
Firms do not compete using advertising.
d.
There is little competition between firms.
 

    21.    Monopolistic competitive firms in the long run earn:

a.
positive economic profits.
b.
zero pure economic profits.
c.
negative economic profits.
d.
none of these.
 

    22.    In the long-run, surviving firms in monopolistic competition earn:

a.
higher pure economic profits.
b.
zero pure economic profits.
c.
below-normal profits.
d.
substantial economic losses.
 

    23.    The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

a.
produce at the level in which price equals long-run average cost.
b.
operate at minimum long-run average cost.
c.
overutilize its insufficient capacity.
d.
none of these.
 

    24.    Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?

a.
Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run.
b.
Price will always equal average variable cost in the short run and either profits or losses may result in the long run.
c.
Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.
d.
Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero.
 

    25.    In the long run, a monopolistic competitive firm will operate at a price which:

a.
is higher than minimum long-run average cost.
b.
equals minimum long-run average cost.
c.
equals marginal cost.
d.
none of these.
 

    26.    Which of the following statements best describes firms under monopolistic competition?

a.
Profits will be positive in the long run.
b.
Price always equals average variable cost.
c.
In the long run, positive economic profit will be eliminated.
d.
Marginal revenue equals minimum average total cost in the short run.
 

    27.    A monopolistic competitive firm is inefficient because the firm:

a.
is not maximizing its profit.
b.
is producing at an output where average total cost is not minimum.
c.
earns positive economic profit in the long run.
d.
none of these.
 

    28.    Monopolistic competition is inefficient because:

a.
firms earn positive economic profits.
b.
the firms' marginal costs and marginal revenues are not equal.
c.
firms have excess capacity in the long run.
d.
entry is difficult.
 

    29.    Which of the following is true in long-run equilibrium for both perfect competition and monopolistic competition?

a.
Accounting profit is zero.
b.
Marginal cost equals price.
c.
Long-run average cost is at a minimum.
d.
Economic profit is zero.
 

    30.    Which of the following is true for a firm operating under perfect competition, monopolistic competition, and monopoly?

a.
Firms earn positive economic profits in the long run.
b.
Firms earn zero economic profits in the long run.
c.
Profits are maximized when marginal cost equals marginal revenue.
d.
Price equals marginal cost.
 

    31.    In monopolistic competition if there is profit, there is:

a.
a signal for new firms to enter.
b.
a motive for existing firms to increase prices.
c.
proof that advertising works.
d.
a motive for existing firms to decrease prices.
e.
product differentiation.
 

    32.    Which of the following is always associated with monopolistic competition?

a.
Identical products
b.
Economic profits in the short run
c.
MR lies above the demand curve
d.
Demand curves become more inelastic as new entry occurs
e.
Product differentiation
 

    33.    We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms':

a.
demand curves downward.
b.
demand curves upward.
c.
demand curves more inelastic.
d.
cost curves upward.
e.
cost curves downward.
 

    34.    Compared to monopoly, the market results with monopolistic competition are usually expected to be:

a.
worse because consumers get fewer choices.
b.
worse because consumers pay a higher price.
c.
the same.
d.
better because consumers get less output.
e.
better because consumers pay a lower price.
 

    35.    A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

a.
this firm is making a normal profit.
b.
other picture frame companies will want to exit the market.
c.
there are no other picture frame companies in the area.
d.
economic profits are $1,500.
e.
total profits are being maximized.
 

    36.    Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

a.
new tombstone firms will want to enter.
b.
this producer is losing $2,000 a week.
c.
this producer is making an economic profit of $400.
d.
this producer is setting MR = MC.
e.
this producer should increase production.
 

    37.    Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

a.
the producer is charging a price of $3.
b.
economic profit is $2,100.
c.
the producer charges a price greater than $3.
d.
new firms will want to enter.
e.
this producer should produce more than 700 necklaces.
 

    38.    In the long run in monopolistic competition,

a.
economic profits are zero.
b.
P = MC.
c.
P = minimum ATC.
d.
firms have an incentive to leave.
e.
the demand curve is tangent to the MC curve.
 

    39.    When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit,

a.
no firms will want to enter or exit.
b.
some firms will want to leave.
c.
some firms will want to enter.
d.
market demand shifts to the left.
e.
the price of the output will rise in the long run.
 

    40.    The demand curve in monopolistic competition slopes downward because of:

a.
strong barriers to entry.
b.
product differentiation.
c.
the small number of firms.
d.
government regulation.
e.
the similarities of the businesses.
 

    41.    The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13, and MC = MR = $17.47. Which of the following is true?

a.
Per-unit profit is $11.
b.
Additional firms will be attracted into the industry.
c.
The firm could raise price and increase profits.
d.
The firm could lower price and increase profits.
e.
Average cost must be rising.
 

    42.    Perfect competition and monopolistic competition are similar because under both market structures,

a.
there are zero economic profits in the long run.
b.
production takes place at the least-cost combination.
c.
there are few firms.
d.
entry is difficult.
e.
differentiated products are produced.
 

    43.    If a monopolistically competitive firm can earn a profit, it will increase production until:

a.
MR > AVC.
b.
MR = ATC.
c.
MC > MR.
d.
MR = AR.
e.
MR = MC.
 

    44.    In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are:

a.
not eliminated, because competition is not perfect.
b.
not eliminated, because the demand curve slopes downward.
c.
eliminated due to firms entering the industry.
d.
eliminated due to firms leaving the industry.
e.
not eliminated, because firms cannot enter the industry.
 

    45.    For both a monopolist and a monopolistically competitive firm:

a.
price equals average total cost.
b.
price is above marginal revenue.
c.
marginal revenue equals zero.
d.
marginal cost equals zero.
 

    46.    The entry of new firms into a monopolistic competitive industry will shift the:

a.
market demand curve to the right.
b.
market demand curve to the left.
c.
existing firm's demand curve to the right.
d.
existing firm's demand curve to the left.
e.
market supply curve to the left.
 

    47.    As new firms enter a monopolistic competitive industry, it can be expected that:

a.
market price will increase.
b.
the output of existing firms will increase.
c.
profits of existing firms will increase.
d.
market demand should decrease.
e.
profits of existing firms will decrease.
 

    48.    Entry of new firms will occur in a monopolistic competitive industry until:

a.
marginal cost equals zero.
b.
marginal revenue equals zero.
c.
marginal revenue equals marginal cost.
d.
economic profit equals zero.
e.
economic profit is negative.
 

    49.    In the long run in a monopolistic competitive industry,

a.
economic profits will be positive.
b.
price will be driven to zero.
c.
the firm will not operate where MR = MC.
d.
economic profit will be zero.
e.
price will exceed average cost.
 

    50.    Supporters of advertising claim that it:

a.
increases the variety of products.
b.
attacks established brand loyalties.
c.
allows new firms to compete.
d.
all of these.
 

    51.    Defenders of advertising argue that it:

a.
informs buyers and broadens the market for goods.
b.
enhances economic efficiency by lowering prices.
c.
enables small firms to compete more effectively with large ones.
d.
all of these.
 

    52.    Critics of advertising argue that it:

a.
lowers price by increasing competition.
b.
results in more variety of products.
c.
establishes brand loyalty, which promotes competition.
d.
serves as a barrier to entry for new firms.
 

    53.    Supporters of advertising claim that it:

a.
makes demand for a firm's product more elastic.
b.
is a barrier to entry.
c.
promotes better quality products.
d.
all of these.
 

    54.    Which of the following is true about advertising by a firm?

a.
It is not always successful in increasing demand for a firm's product.
b.
It attempts to increase demand and to make demand more inelastic.
c.
It may reduce per unit costs of production when economies of scale are experienced.
d.
All of these.
 

    55.    Product differentiation:

a.
refers to the attempt of firms to make their products look like those of the other firms in the industry.
b.
refers to the attempt of firms to make real or apparent differences in essentially substitutable products look different in the minds of the consumers.
c.
refers to the advantage big firms have in research and development.
d.
is a common characteristic of a perfectly competitive market structure.
e.
is only employed in a monopoly market structure.
 

Exhibit 10-1 A monopolistic competitive firm

 

    56.    As presented in Exhibit 10-1, the short-run profit-maximizing output for the monopolistic competitive firm is:

a.
zero units per day.
b.
200 units per day.
c.
400 units per day.
d.
600 units per day.
e.
800 units per day.
 

    57.    As presented in Exhibit 10-1, the short-run profit per unit of output for the monopolistic competitive firm is:

a.
zero.
b.
$5.
c.
$10.
d.
$15.
e.
$20.
 

    58.    As represented in Exhibit 10-1, the maximum long-run economic profit earned by this monopolistic competitive firm is:

a.
zero.
b.
$200 per day.
c.
$1,000 per day.
d.
$20,000 per day.
 

    59.    If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 10-1, firms in the long run will:

a.
leave the industry.
b.
earn positive economic profits.
c.
experience less competition because firms will exit the industry.
d.
experience competition from new firms that enter the industry.
 

    60.    In the long run, the demand curve for the monopolistic competitive firm shown in Exhibit 10-1:

a.
shifts leftward.
b.
remains the same.
c.
shifts rightward.
d.
none of these.
 

    61.    In the long run, which of the following is true for the firm shown in Exhibit 10-1?

a.
The firm's demand curve shifts leftward.
b.
The firm's average total cost curve shifts upward.
c.
Neither a nor b are possible.
d.
Both a and b are possible.
 

Exhibit 10-2 A monopolistic competitive firm

 

    62.    As presented in Exhibit 10-2, the long-run profit-maximizing output for the monopolistic competitive firm is:

a.
zero units per week.
b.
100 units per week.
c.
200 units per week.
d.
300 units per week.
e.
400 units per week.
 

    63.    To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 10-2 will charge a price per unit of:

a.
zero.
b.
$5.
c.
$10.
d.
$15.
e.
$20.
 

    64.    As represented in Exhibit 10-2, the maximum long-run economic profit earned by this monopolistic competitive firm is:

a.
zero.
b.
$200 per week.
c.
$1,000 per week.
d.
$20,000 per week.
 

    65.    If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 10-2, we would expect that in the long run:

a.
all firms will leave the industry.
b.
some firms will leave the industry.
c.
firms in the industry earn zero economic profits.
d.
a number of new firms will enter the industry.
 

Exhibit 10-3 A monopolistic competitive firm in the long run

 

    66.    As presented in Exhibit 10-3, the long-run profit-maximizing output for the monopolistic competitive firm is:

a.
zero units per week.
b.
200 units per week.
c.
400 units per week.
d.
600 units per week.
e.
800 units per week.
 

    67.    To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 10-3 will charge a price per unit of:

a.
zero.
b.
$10
c.
$20.
d.
$30.
e.
$40.
 

    68.    As represented in Exhibit 10-3, the maximum long-run economic profit earned by this monopolistic competitive firm is:

a.
zero.
b.
$10 per week.
c.
$4,000 per week.
d.
$40,000 per week.
 

    69.    If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 10-3, we would expect that in the long run:

a.
a number of new firms will enter the industry.
b.
some firms will leave the industry.
c.
firms in the industry earn zero economic profits.
d.
all firms will leave the industry.
 

    70.    A market situation where a small number of sellers dominate the entire industry is called:

a.
monopolistic competition.
b.
monopsony.
c.
monopoly.
d.
oligopoly.
 

    71.    One key characteristic that is distinctive of an oligopoly market is that:

a.
the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve.
b.
the decisions of one seller often influences the price of products, the output, and the profits of rival firms.
c.
there is only one firm that produces a product for which there are no good substitutes.
d.
there are many sellers in the market and each is small relative to the total market.
 

    72.    The industry that most closely approximates the conditions of the oligopoly model is:

a.
Restaurant.
b.
Retail clothing.
c.
Home construction.
d.
Airlines.
 

    73.    An oligopoly is a market structure in which:

a.
one firm has 100 percent of a market.
b.
there are many small firms.
c.
there are many firms with no control over price.
d.
there are few firms selling either a homogeneous or differentiated product.
 

    74.    Excluding foreign competition, which of the following is an oligopoly in the United States?

a.
The computer industry.
b.
The automobile industry.
c.
The steel industry.
d.
All of these are oligopolies.
 

    75.    In which of the following market structures must the price and output decisions of an individual firm include the possible price and output reactions of the firm's rivals?

a.
Monopoly.
b.
Oligopoly.
c.
Perfect competition.
d.
Cartel.
 

    76.    A characteristic of an oligopoly is:

a.
mutual interdependence in pricing decisions.
b.
independent pricing decisions.
c.
lack of control over prices.
d.
none of these.
 

    77.    Mutual interdependence among firms in an oligopoly means that:

a.
firms never practice price leadership.
b.
firms never form a cartel.
c.
it is difficult to know how firms will react to decisions of rivals.
d.
no formal agreement is possible among firms.
 

    78.    A common characteristic of oligopolies is:

a.
interdependence in pricing decisions.
b.
independent pricing decisions.
c.
low industry concentration.
d.
few or no plant-level economies of scale.
 

    79.    In an oligopoly industry, price:

a.
will be lower than the competitive price, due to cost savings.
b.
will exceed the monopoly price, due to the destructiveness of competitive forces.
c.
cannot be predicted exactly, because it is likely to lie between the competitive and monopoly prices.
d.
none of these.
 

    80.    A major characteristic of the theory of oligopoly is that:

a.
there are no real-world examples.
b.
the reactions of each firm depends on how the firm believes rivals will react.
c.
in reality few oligopolies survive more than 10 years.
d.
none of these.
 

    81.    The automobile, steel, and oil markets are all examples of:

a.
perfectly competitive markets.
b.
monopolies.
c.
monopolistically competitive markets.
d.
oligopolies.
 

    82.    What is the key feature shared by all oligopoly markets?

a.
A large number of sellers.
b.
Mutual interdependence.
c.
Product differentiation.
d.
Easy entry and exit.
 

    83.    When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:

a.
mutual interdependence.
b.
price leadership.
c.
collusion.
d.
monopolistic competition.
 

    84.    Which of the following is a characteristic of an oligopoly?

a.
Mutual interdependence in pricing decisions.
b.
Independent pricing decisions.
c.
Lack of control over prices.
d.
All of these are true.
 

    85.    An oligopoly:

a.
and monopolistically competitive market produce less and charge higher prices than if their markets were perfectly competitive.
b.
is characterized by mutual interdependence of pricing decisions.
c.
may be characterized by a kinked demand curve.
d.
all of these.
 

    86.    Which of the following is the best example of an oligopoly?

a.
Area restaurants.
b.
The automobile industry.
c.
Agricultural markets free of government support.
d.
Local utilities.
 

    87.    If a firm has substantial market power, it must be operating in an industry that would be classified as:

a.
a monopoly or oligopoly.
b.
perfectly competitive.
c.
monopolistically competitive.
d.
perfectly competitive or monopolistically competitive.
e.
perfectly competitive or a monopoly.
 

    88.    Nonprice competition, price leadership, and cartels are models in the ____ market structure(s).

a.
perfectly competitive
b.
monopolistically competitive
c.
oligopoly
d.
monopoly
e.
perfectly competitive and monopolistically competitive
 

    89.    If a firm reacts to other firms' market decisions by anticipating how the other will then react, this is:

a.
not profit-maximizing behavior
b.
a monopolistic competitive market
c.
a market with a low concentration ratio
d.
mutual interdependence
e.
collusion by definition
 

    90.    Which of the following statements is always true with respect to oligopolists?

a.
They react slowly to actions taken by other firms
b.
They lower prices together
c.
They raise prices together
d.
They know with certainty what they other firms will do
e.
They take into consideration how other firms might react.
 

    91.    When oligopolists take into account their competitors' behavior, this situation is called:

a.
mutual interdependence.
b.
monopolistic competition.
c.
independent.
d.
price discrimination.
e.
loss minimization.
 

    92.    Mutual interdependence applies to actions of:

a.
monopolistic competitors.
b.
oligopolists.
c.
perfect competitors.
d.
monopolists.
e.
firms operating in different industries.
    93.    Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries. The primary reason for the complication is the:

a.
fewness of firms.
b.
brand loyalty of consumers.
c.
powerful effect of advertising.
d.
variability of concentration ratios.
e.
mutual interdependence of firms.
 

    94.    Suppose Ford, GM, and Dodge make the majority of pick-up trucks sold in the United States If they all sell for approximately the same price, and Ford offers a $2,000 rebate on new truck sales, what can Ford expect to see?

a.
an unprecedented increase in truck sales
b.
an immediate response by GM and Dodge
c.
a visit from the antitrust authorities of the government
d.
a revolution from Ford stockholders
e.
announcements by GM and Dodge that plans are underway to produce a much cheaper pick-up truck in six years
 

    95.    A "kinked" demand curve reflects a tendency on the part of an oligopolist to:

a.
follow price increases but not price reductions.
b.
following price reductions but not price increases.
c.
be unconcerned with rivals' behavior.
d.
None of these.
 

    96.    An oligopolist operating with a kinked demand curve would expect rivals to match its price:

a.
increases.
b.
decreases.
c.
both a and b.
d.
neither a nor b.
 

    97.    A kink in the demand curve facing an oligopolist is caused by:

a.
rapidly rising marginal revenues.
b.
excessive advertising.
c.
the belief that competitors will follow price increases but not match price decreases.
d.
the tendency of competitors to follow price reductions but not price increases.
 

    98.    As a result of a kinked demand curve, the price:

a.
fluctuates.
b.
falls below the kink.
c.
settles at the kink.
d.
rises above the kink.
 

    99.    Suppose an oligopoly has a dominant firm that sets the price for the entire industry. In this situation, the oligopoly has:

a.
nonprice competition.
b.
a kinked demand curve.
c.
price leadership.
d.
a cartel.
 

  100.    The "kinked" oligopoly demand curve is a result of the assumption by an oligopolist that:

a.
price increases will be matched, but price reductions will not.
b.
price increases will not be matched, but price reductions will.
c.
both price increases and price reductions will be matched.
d.
neither price increases, nor price reductions will be matched.
 

  101.    The kinked demand theory attempts to explain why an oligopolistic firm:

a.
has relatively large advertising expenditures.
b.
fails to invest in research and development (R and D).
c.
infrequently changes its price.
d.
engages in excessive brand proliferation.
 

  102.    According to the kinked demand theory, when one firm raises its price, other firms will:

a.
also raise their prices.
b.
refuse to follow.
c.
increase their advertising expenditures.
d.
exit the industry.
 

  103.    A kink in the demand curve facing an oligopolist is caused by:

a.
the belief that competitors will follow price increases but not match price decreases.
b.
excessive advertising.
c.
rapidly rising marginal revenues.
d.
the assumption that competitors will follow price reductions but not price increases.
 

  104.    The assumption(s) made to construct a kinked-demand oligopoly model is (are) that:

a.
all firms in the industry will ignore the price changes made by any one firm.
b.
any price decrease will be ignored, but price increases will be followed.
c.
all firms will follow a price decrease but will ignore any price increase.
d.
all price changes made by any firm will be followed by all of the other firms.
e.
price can go up, but it cannot go down.
 

Exhibit 10-4 Kinked demand curves

 

  105.    In Exhibit 10-4, in a kinked-demand oligopoly model, D1 represents the:

a.
demand curve applicable to any price increase above $50.
b.
demand curve applicable to any price decrease below $50.
c.
demand curve facing firms when a cartel is formed.
d.
market demand curve.
e.
demand curve facing the price leader.
  106.    In Exhibit 10-4, in a kinked-demand oligopoly model, D2 represents the:

a.
demand curve applicable to any price increase above $50.
b.
demand curve applicable to any price decrease below $50.
c.
demand curve facing firms when a cartel is formed.
d.
market demand curve.
e.
demand curve facing the price leader.
 

  107.    In Exhibit 10-4, the exhibit represents a kinked-demand oligopoly model. Suppose the current price is $50. If one firm in the oligopoly now attempts to raise price, all firms will:

a.
follow along demand curve D1.
b.
follow along demand curve D2.
c.
ignore this price increase and cause the price-raising firm to move along D1.
d.
ignore this price increase and cause the price-raising firm to move along D2.
e.
lower their prices.
 

  108.    In Exhibit 10-4, the exhibit represents a kinked-demand oligopoly model. Suppose the current price is $50. If one firm in the oligopoly now attempts to lower price, all firms will:

a.
follow along demand curve D1.
b.
follow along demand curve D2.
c.
ignore this price decrease and cause the price-raising firm to move along D1.
d.
ignore this price decrease and cause the price-raising firm to move along D2.
e.
raise their prices.
 

  109.    The conclusion arrived at from a kinked-demand oligopoly model is that:

a.
oligopoly firms cannot maximize their profits.
b.
oligopoly firms should keep prices at their current level.
c.
all oligopoly firms should raise prices.
d.
all oligopoly firms should lower prices.
e.
oligopoly market structure will lead to lower prices than more competitive industries.
 

  110.    The kinked demand curve:

a.
applies when competitors match price decreases but not price increases.
b.
could apply to market demand in any market structure.
c.
applies when competitors match price increases but not price decreases.
d.
applies to the price leadership model.
e.
applies when competitors act independently.
 

   111.    A kinked demand curve is perceived by the firm as being:

a.
more elastic to the right of the kink
b.
more inelastic to the right of the kink
c.
more inelastic to the left of the kink
d.
present when there is a monopoly
e.
bowed-in or bowed-out
 

  112.    For a kinked demand curve, the marginal revenue curve is:

a.
positively sloped.
b.
a horizontal line.
c.
a vertical line.
d.
discontinuous.
e.
above the demand curve.
 

  113.    Assume that an oligopolist has a kinked demand curve. Suppose that the marginal cost curve passes through the gap in the marginal revenue curve. This means price and output will be shown by a point:

a.
above the curve.
b.
below the curve.
c.
at the kink
d.
on the upper part of the curve.
e.
on the lower part of the curve.
 

  114.    An increase in marginal cost that remains within the gap of the marginal revenue curve of a kinked demand oligopolist will:

a.
keep price and output the same.
b.
raise price and decrease output.
c.
lower price and increase output.
d.
raise price and raise output.
e.
lower price and lower output.
 

  115.    In a price leadership oligopoly model,

a.
a cartel of leading firms determines price and industry output.
b.
the industry in consortium with the government determines price and output.
c.
one firm is the price leader and all other firms follow.
d.
the firms abandon a profit-maximizing goal.
e.
firms do not operate where MR = MC.
 

  116.    Suppose that R. J. Reynolds raises the price of cigarettes by 10 percent. Although they have no requirement or agreement to do so, the other cigarette firms decide to raise their prices accordingly. This situation is best described as:

a.
price leadership.
b.
a cartel.
c.
monopolistic competition.
d.
a market with kinked demand.
 

  117.    An organization of sellers designed to coordinate their supply decisions to maximize joint profits is called a:

a.
consumer cooperative.
b.
marketing association.
c.
regulatory agency.
d.
cartel.
 

  118.    The two tendencies of a firm in a cartel are the incentive to:

a.
cheat to maximize joint profits and the incentive to raise prices.
b.
cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits.
c.
increase output in order to minimize per-unit cost and the incentive to reduce price in order to maximize joint profit.
d.
cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit.
 

  119.    Cartel agreements are difficult to maintain because individual members:

a.
can gain by raising their price above the price that is best for the cartel.
b.
are often unable to police the price and output policies of other members.
c.
can gain by secretly raising their price above the price that is best for the cartel.
d.
can enforce price arrangements vigorously in court.
 

  120.    Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product?

a.
Perfect competition.
b.
Monopoly.
c.
Oligopoly.
d.
Cartel.
e.
Monopolistic competition.
 

  121.    If OPEC is an effective cartel,

a.
price changes are dictated by changes in demand.
b.
output changes are dictated by changes in demand.
c.
members agree on output quotas.
d.
all of these.
 

  122.    In order to make oil profits as large as possible, OPEC meets to set oil production quotas for its members. OPEC is best classified as a:

a.
monopoly.
b.
cartel.
c.
kinked demand industry.
d.
price-leadership industry.
 

  123.    Which of the following is evidence of an ineffective cartel?

a.
Output changes are dictated by changes in demand.
b.
Price changes are dictated by changes in demand.
c.
Members do not agree on output quotas.
d.
All of these.
 

  124.    A cartel:

a.
is a group of firms formally agreeing to control the price and the output of a product.
b.
has as its primary goal to reap monopoly profits by replacing competition with cooperation.
c.
is illegal in the United States, but not in other nations.
d.
all of these.
 

  125.    Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $30 per barrel. A single cartel member may want to cheat and exceed its quota so that it can:

a.
reduce its costs.
b.
charge higher prices.
c.
make demand more inelastic.
d.
earn a bigger profit.
 

  126.    A cartel is:

a.
a joint venture of two companies.
b.
a joining of firms for the purpose of fixing prices and controlling output.
c.
a breaking up of a company into two or more parts.
d.
the joining of industry with government to solve a specified problem.
e.
the joining of two firms with unrelated products.
 

  127.    The purpose of a cartel is to:

a.
promote product innovation.
b.
increase market competition.
c.
act like a monopoly.
d.
diversify operations.
e.
decrease market concentration.
 

  128.    Cartel members have an incentive to cheat on the cartel because:

a.
the cartel does not maximize profits.
b.
the cartel price is the competitive price.
c.
each member's output quota is too high.
d.
each member's MR is not equal to the cartel's MC.
e.
the industry profit would be higher under competitive conditions.
 

  129.    A group of firms that collude to limit competition is called a(n):

a.
conglomerate.
b.
oligopoly.
c.
cartel.
d.
kinked demand.
e.
market concentration.
 

  130.    A cartel maximizes industry profit by:

a.
eliminating quotas.
b.
producing at the kink in its demand curve.
c.
producing where MR = MC.
d.
giving secret price concessions.
e.
producing more output than a monopoly would.
 

  131.    Cartel pricing refers to the output and price choice of a cartel. This choice most closely resembles that of a:

a.
b or d
b.
godfather oligopoly.
c.
duopoly.
d.
monopoly.
e.
more competitive industry.
 

  132.    Game theory is an especially useful model for analysis in the following types of markets:

a.
perfect competition.
b.
monopolistic competition.
c.
oligopoly.
d.
monopoly.
 

  133.    Game theory is a model for describing oligopoly price decisions among firms that are:

a.
interdependent.
b.
independent.
c.
regulated
d.
merging
 

  134.    A(n) ____ can be used to demonstrate why a competitive oligopoly tends to result in a low-price strategy that does not maximize mutual profits.

a.
interdependence index
b.
gini coefficient
c.
herfindahl index
d.
payoff matrix
 

  135.    Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?

a.
Tit-for-tat
b.
Win-win
c.
Last in-first out
d.
Second best
 

  136.    Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?

a.
Tit-for-tat
b.
Price leadership
c.
Cartel
d.
All of these
 

Exhibit 10-5 Two-Firm Payoff Matrix

 

  137.    Assume costs are identical for the two firms in Exhibit 10-5. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:

a.
Beta Co. charging $1,000 and Alpha Co. charging $1,000.
b.
Beta Co. charging $1,000 and Alpha Co. charging $500.
c.
Beta Co. charging $500 and Alpha Co. charging $500.
d.
Beta Co. charging $500 and Alpha Co. charging $1,000.
 

  138.    Suppose costs are identical for the two firms in Exhibit 10-5. If both firms assume the other will compete and charge a lower price, equilibrium will be established by:

a.
Beta Co. charging $1,000 and Alpha Co. charging $1,000.
b.
Beta Co. charging $1,000 and Alpha Co. charging $500.
c.
Beta Co. charging $500 and Alpha Co. charging $500.
d.
Beta Co. charging $500 and Alpha Co. charging $1,000.
 

  139.    Suppose costs are identical for the two firms in Exhibit 10-5. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by:

a.
Beta Co. charging $1,000 and Alpha Co. charging $1,000.
b.
Beta Co. charging $1,000 and Alpha Co. charging $500.
c.
Beta Co. charging $500 and Alpha Co. charging $500.
d.
Beta Co. charging $500 and Alpha Co. charging $1,000.
 

Exhibit 10-6 Two-Firm Payoff Matrix

 

 

  140.    Assume costs are identical for the two firms in Exhibit 10-6. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:

a.
Widget Co. charging the low price and Ajax Co. charging the high price.
b.
Widget Co. charging the high price and Ajax Co. charging the low price.
c.
Widget Co. charging the low price and Ajax Co. charging the low price.
d.
Widget Co. charging the high price and Ajax Co. charging the high price.
 

  141.    Suppose costs are identical for the two firms in Exhibit 10-6. If both firms assume the other will compete and charge a lower price, equilibrium will be established by:

a.
Widget Co. charging the low price and Ajax Co. charging the low price.
b.
Widget Co. charging the high price and Ajax Co. charging the low price.
c.
Widget Co. charging the low price and Ajax Co. charging the high price.
d.
Widget Co. charging the high price and Ajax Co. charging the high price.
 

  142.    Suppose costs are identical for the two firms in Exhibit 10-6. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by:

a.
Widget Co. charging the high price and Ajax Co. charging the low price.
b.
Widget Co. charging the high price and Ajax Co. charging the high price.
c.
Widget Co. charging the low price and Ajax Co. charging the low price.
d.
Widget Co. charging the low price and Ajax Co. charging the high price.
 

Exhibit 10-7 Two-Firm Payoff Matrix

 

  143.    Assume costs are identical for the two firms in Exhibit 10-7. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:

a.
Camel charging the low price and Marlboro charging the high price.
b.
Camel charging the high price and Marlboro charging the low price.
c.
Camel charging the high price and Marlboro charging the high price.
d.
Camel charging the low price and Marlboro charging the low price.
 

  144.    Suppose costs are identical for the two firms in Exhibit 10-7. If both firms assume the other will compete and charge a lower price, equilibrium will be established by:

a.
Camel charging the high price and Marlboro charging the high price.
b.
Camel charging the low price and Marlboro charging the low price.
c.
Camel charging the low price and Marlboro charging the high price.
d.
Camel charging the high price and Marlboro charging the low price.
 

  145.    Suppose costs are identical for the two firms in Exhibit 10-7. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by:

a.
Camel charging the high price and Marlboro charging the high price.
b.
Camel charging the high price and Marlboro charging the low price.
c.
Camel charging the low price and Marlboro charging the low price.
d.
Camel charging the low price and Marlboro charging the high price.
 

  146.    Which of the following is a distinction between perfectly competitive and monopolistic competition?

a.
Perfectly competitive firms must compete with rival sellers; monopolistically competitive firms do not confront rival sellers.
b.
Monopolistically competitive firms can raise their price without losing sales; perfectly competitive firms must lower their price in order to sell more of their product.
c.
Perfectly competitive firms confront a perfectly elastic demand curve; monopolistically competitive firms face a downward-sloping demand curve.
d.
Perfectly competitive firms may make either economic profits or losses in the short run, but monopolistically competitive firms always earn an economic profit.
  147.    Some economists argue that monopolistically competitive markets are inefficient because:

a.
the firms earn economic profits in the long run.
b.
the firms' marginal costs and marginal revenues are not always equal.
c.
firms do not produce the output rate that would minimize their average total cost.
d.
barriers to entry are high.
 

  148.    Compared to the perfectly competitive outcome, monopolistically competitive markets will result in:

a.
a wider variety of products and higher prices.
b.
less product variety and higher prices.
c.
a wider variety of products and lower prices.
d.
less product variety and lower prices.
 

  149.    In long-run equilibrium, output is expanded to the minimum long-run average total cost by:

a.
perfectly competitive firms but not by monopolistically competitive firms.
b.
monopolistically competitive firms but not by perfectly competitive firms.
c.
both monopolistically competitive firms and perfectly competitive firms.
d.
neither perfectly competitive firms nor monopolistically competitive firms.
 

  150.    In the long run, a monopolistically competitive firm will set price:

a.
at the intersection of the marginal cost and demand curves.
b.
at the intersection of the average total cost and demand curves.
c.
higher than the competitive level, but lower than the monopoly price.
d.
higher than the marginal cost, but lower than average total cost.
 

  151.    How will the price and output of a monopolist compare with perfect competition?

a.
The output of the monopolist will be too large and the price too high.
b.
The output of the monopolist will be too large and the price too low.
c.
The output of the monopolist will be too small and the price too high.
d.
The output of the monopolist will be too small and the price too low.
  152.    Which of the following is true for perfect competition, monopolistic competition, and monopoly?

a.
The product of all firms is homogeneous.
b.
Firms will earn zero economic profits in the long run.
c.
Short-run profits are maximized when marginal cost equals marginal revenue.
d.
All of these.
 

  153.    Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?

a.
Perfectly competition.
b.
Monopoly.
c.
Monopolistic competition.
d.
Oligopoly.
____        1.    A firm’s accounting profit is always greater than its economic profit because:

a.
economic profit considers implicit costs, which accounting profit does not.
b.
accounting profit considers explicit costs, which economic profit does not.
c.
economic profit is always zero, no matter what kind of firm it is.
d.
accounting profit considers implicit costs, which economic profit does not.
e.
accounting profit is always positive, no matter what kind of firm it is.
 

 

____        2.    Lauren is the owner of a bakery. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her accounting profit was:

a.
$145,000.
b.
$53,000.
c.
$65,000.
d.
$15,000.
e.
$27,000.
 

 

____        3.    Madison owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Madison know if she is experiencing economies of scale from increasing the size of her boxing gym?

a.
Her average cost per client increases.
b.
Her total cost increases.
c.
Her average cost per client remains the same.
d.
Her average cost per client decreases.
e.
Her total cost remains unchanged.
 

 

____        4.    Which is the best example of economies of scale?

a.
the local power company
b.
the pizza business
c.
the restaurant industry
d.
a parking garage
e.
a small family farm
 

 

____        5.    Darrell owns a furniture store. If he decided to expand the size of his store in order to sell more furniture, how would he know if he is experiencing diseconomies of scale?

a.
His total cost of selling furniture decreases.
b.
His average cost of selling furniture increases.
c.
His total cost of selling furniture remains unchanged.
d.
His average cost of selling furniture remains unchanged.
e.
His average cost of selling furniture decreases.
 

 

____        6.    A firm characterized as a price-taker:

a.
has control over the price it pays, or receives, in the market.
b.
sets the price for the market.
c.
has no control over the price it pays, or receives, in the market.
d.
is not a characteristic of a perfectly competitive market.
e.
takes the price that is determined from the lowest price consumers are willing to pay for an item.
 

 

____        7.    In competitive markets:

a.
firms set the prices for their products with little concern for the consumer.
b.
firms control the prices they charge.
c.
market forces are much stronger than individual firms are.
d.
individual firms are much stronger than the market forces are.
e.
market forces set the quantity in the market but not the prices.
 

 

____        8.    In competitive markets:

a.
firms set the prices for their products with little concern for the consumer.
b.
firms are considered to be price makers.
c.
firms are at the mercy of market forces.
d.
the individual firms are much stronger than the market forces are.
e.
the market forces set the quantity in the market but not the prices.
 

 

____        9.    Which characteristic of competitive markets is mainly responsible for ensuring that prices will be kept low?

a.
many buyers
b.
many sellers
c.
similar goods
d.
easy entry into and exit from the market
e.
differentiated goods
 

 

____     10.    Which characteristic of competitive markets is mainly responsible for firms making zero economic profits in the long run?

a.
many buyers
b.
many sellers
c.
similar goods
d.
differentiated goods
e.
easy entry into and exit from the market
 

 

____      11.    If Firm A is making zero economic profits,

a.
Firm A is also making negative accounting profits.
b.
Firm A is breaking even when opportunity cost is taken into consideration.
c.
other firms want to enter the market.
d.
Firm A wants to leave the market.
e.
Firm A wants to shut down in the short run.
 

 

____     12.    One difference between implicit costs and explicit costs is that:

a.
implicit costs are included in accounting profits, whereas explicit costs are not.
b.
implicit costs are included in economic profits, whereas explicit costs are not.
c.
explicit costs are included in accounting profits, whereas implicit costs are not.
d.
explicit costs are included in economic profits, whereas implicit costs are not.
e.
explicit costs involve opportunity costs, whereas implicit costs involve a monetary transaction.
 

 

____     13.    A monopoly:

a.
always makes a profit.
b.
can force consumers to purchase what it is selling.
c.
is characterized by a single seller who produces a well-defined product for which there are no good substitutes.
d.
always has naturally created barriers.
e.
always has government-created barriers.
 

 

____     14.    Monopolists:

a.
enjoy market power for their specific product.
b.
have no market power for their specific product.
c.
will never experience a loss.
d.
always experience economies of scale.
e.
exist in all markets.
 

 

____     15.    Barriers to entry:

a.
measure the ability of firms to set the price for a good.
b.
do not exist for monopolies.
c.
always lead to profits.
d.
restrict the entry of new firms into the market.
e.
exist for perfectly competitive firms.
 

 

____     16.    Monopolies result in a(n) __________ level of output and provide __________ choice to consumers.

a.
inefficient; less
b.
inefficient; more
c.
efficient; less
d.
efficient; more
e.
high; more
 

 

____     17.    Beer prices at major league baseball stadiums are usually much higher than prices at a bar or restaurant. This is mainly because:

a.
it costs the owners of the baseball teams more money to buy the beer from distributors.
b.
demand is much higher at a baseball game than at a bar.
c.
baseball team owners have market power and can charge a higher price when they are the only sellers of the beer.
d.
the government forces the owner of baseball teams to charge a high price.
e.
the owners’ baseball teams are not profit-maximizing.
 

 

____     18.    Reducing trade barriers creates _________ competition, _________ the influence of monopoly, and _________ the efficient use of resources.

a.
less; reduces; promotes
b.
more; reduces; promotes
c.
less; increases; promotes
d.
more; reduces; hinders
e.
more; increases; hinders
 

 

____     19.    Price discrimination exists when a firm sells __________ goods at more than one price to __________ groups of customers.

a.
different; similar
b.
existing; distinct
c.
discounted; large
d.
identical; different
e.
limited; restricted
 

 

____     20.    Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of:

a.
producers.
b.
firms.
c.
consumers.
d.
promoters.
e.
commodities.
 

 

____     21.    A firm can be identified as practicing price discrimination when:

a.
consumers engage in comparison shopping to find the lowest advertised price.
b.
firms behave as price-takers, whereas consumers react with price-making behavior.
c.
buyers in a perfectly competitive market are able to influence the prices that firms set.
d.
producers pass on differences in costs to those price-conscious consumers willing to buy in bulk.
e.
producers set different prices for distinct groups of consumers, despite selling identical products to each group.
 

 

____     22.    Despite the gain from higher profits, firms are not always able to price-discriminate because:

a.
they are unable to partition their customers into distinct groups.
b.
it is always illegal to price-discriminate in the United States.
c.
they already hold a large degree of market power.
d.
they already provide their goods at the lowest possible prices.
e.
they can easily determine each customer’s reservation price.
 

 

____     23.    Price discrimination can help improve efficiency in the market because goods are sold to more people, thus increasing profits. If all consumers have similar tastes, will a firm be able to price-discriminate?

a.
Yes, because the market is homogeneous
b.
Yes, as long as reselling is prohibited in the market
c.
No, because the firm will not be able to distinguish among groups of consumers
d.
No, because the similarities among consumers will lead to collusion among buyers
e.
Yes, because there will be a monopoly in the market (because all consumers want to purchase the same goods and services)
 

 

____     24.    An example of price discrimination is when:

a.
movie theaters do not allow children into R-rated movies without a parent or guardian.
b.
you can purchase a new PC for half the price of a new Mac, even though they are both computers.
c.
Procter & Gamble charges $9 for a bottle of Tide laundry detergent, while the store brand costs the consumer significantly less, despite being somewhat similar products.
d.
out-of-state students pay more for the same education as in-state students.
e.
a single box of Froot Loops costs $3.50, but when purchased in a case of six, it costs only $3.00 per box.
 

 

____     25.    Monopolistic competition means:

a.
firms are in a monopoly but they compete.
b.
firms are in perfect competition but they collude similar to monopolies.
c.
firms differentiate their output, which makes them price-makers, but barriers to entry are low or non-existent.
d.
oligopoly firms collude until they become monopolies.
e.
firms have downward-sloping demand.
 

 

____     26.    If we are to discuss why the term “monopolistic competition” is used, the best description would be that the industry is “monopolistic” because it: 

a.
has high barriers to entry but is “competitive” because it has many firms.
b.
has low barriers to entry but is “competitive” because it has few firms.
c.
has product differentiation but is “competitive” because it has many firms.
d.
has a monopoly but is “competitive” because there are low barriers to entry, meaning it has potential rivals.
e.
holds patents but is “competitive” because other firms might invent similar patentable products.
 

 

____     27.    One critical characteristic of monopolistic competition is:

a.
one firm dominates the industry.
b.
a few firms collude with each other by agreeing on price.
c.
a few firms compete without agreeing on price.
d.
there are many small firms in the industry.
e.
there is one large firm in the industry but it has no control over the price.
 

 

____     28.    A monopolistically competitive market is characterized by:

a.
many small sellers selling a differentiated product.
b.
a single seller of a unique product that has few or no substitutes.
c.
very high barriers to entry.
d.
many small sellers selling an identical product.
e.
a few firms producing either differentiated or identical products.
 

 

____     29.    Like a pure monopoly, an oligopoly is characterized by:

a.
free entry and exit in the long run.
b.
free entry and exit in the short run.
c.
significant barriers to entry.
d.
all firms in the market producing the socially efficient level of output in the long run.
e.
a single firm selling a product with no close substitutes.
 

 

____     30.    A monopolistically competitive market consists of many sellers, an oligopoly consists of __________ seller(s), and a monopoly consists of __________ seller(s).

a.
one; one
b.
one; two
c.
a few; many
d.
a few; one
e.
many; one
 

 

For a monopolist, marginal revenue is always

Which of the following is true for the monopolist

One necessary condition for effective price discrimination is

To maximize its profit, a monopoly should choose a price where demand is

One of the necessary conditions for price discrimination to occur is that

Suppose a monopolist and a perfectly competitive firm have the same cost curves. The monopolistic firm would

In Exhibit 9-10, at the profit-maximizing or loss-minimizing output, the monopolist's total economic profit is

Compared to a perfectly competitive firm with the same cost structure, a monopoly firm will charge a

A monopolist always faces a demand curve that is

An industry in which total costs are kept to a minimum because only one firm serves the whole market is called a

Which of the following is always associated with monopolistic competition

The purpose of a cartel is to

In the long run, monopolistically competitive firms have

When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called

In monopolistic competition if there is profit, there is

Product differentiation makes the demand for a monopolistically competitive firm's product

The entry of new firms into a monopolistic competitive industry will shift the

Which of the following is not a characteristic of the monopolistic competition market structure

Perfect competition and monopolistic competition are similar because under both market structures

A cartel is

Food stamps and Medicaid are examples of

One of the main tools used by economists to measure the actual distribution of income is the

As shown in Exhibit 12-7, a family of four with no earned income receives ____ from the government

Which of the following statements is true

Starting in 1964, the U.S. government has defined the poverty line as income at or below ________ the amount of money needed to buy a minimum diet for all family members

The Lorenz curve measures the

In the United States, approximately what percentage of the total income is earned by the highest 5 percent of the families

A negative income tax system would provide all households, including the poor, with

After 1929 in the United States, as measured by the Lorenz curve, income inequality

According to the Lorenz curve shown in Exhibit 12-3, what percentage of total income is earned by the richest 20 percent of families

In Exhibit 13-3, if this industry is regulated and the regulatory commission sets price equal to average total cost, then

Government regulators can achieve efficiency for a natural monopoly by setting a price ceiling equal to the intersection of the demand curve and the

When the court determines that a firm's size alone is sufficient to find that it violated antitrust laws, this criterion is called

Deregulation, especially for the transportation and telecommunication industries, was the trend in the United States during the

A merger between an auto manufacturer and a steel mill would result in which of the following

Which of the following is not a type of merger

The per se rule refers to the interpretation of the courts that dominant firms should be broken up because of their

The per se rule was introduced in the

If a firm offers quantity discounts or special promotional allowances only to favored distributors and the effect is to substantially lessen competition, then it is in violation of the

The government will have to subsidize a natural monopoly in the long run if regulators choose to pursue

 

Which of the following conditions will result in the firm making zero economic profits

A good economist will ignore _________ and focus on _________ when it comes to making the right decisions

The presence of many buyers and sellers is an important characteristic of competitive markets because it allows

At current production levels, the marginal revenue of a competitive firm is $15 and the marginal cost of the firm is $15. The firm should

Marginal revenue is the change in total

Firms will break even if the price they charge is

Firms will always make a positive economic profit if the price they charge is

If firms in a competitive market are incurring economic losses, you would expect firms to

The marginal cost curve is the short-run supply curve

Which of the following is a characteristic of a monopoly but not a characteristic of a competitive market

Firms in a monopolistically competitive industry produce

A monopoly

One critical characteristic of monopolistic competition is

Monopolistically competitive firms that are earning zero economic profit would most likely

We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms

The accompanying table shows two firms in a single- stage duopoly game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. Assume firms are not able to collude. The Nash equilibrium total quantity of potatoes on the market is

 

Which of the following industry structures is best associated with low barriers to entry

A price-maker

 

Firms will always make a positive economic profit if the price they charge is

Firms in every market structure

Costs that have been incurred as a result of past decisions are known as

Which of the following conditions will result in the firm making zero economic profits

Marginal revenue is the change in total

If a competitive firm can make enough revenue to cover its variable costs, the firm will

The marginal cost curve is the short-run supply curve

If firms in a competitive market are making positive economic profits, you would expect firms to

At current production levels, the marginal revenue of a competitive firm is $15 and the marginal cost of the firm is $15. The firm should

A firm operating in an oligopolistic market has __________ market power compared to a __________.

The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Stan chooses scissors and Kyle chooses rock, Stan’s payoff is __________ and Kyle’s payoff is __________.

 

Monopolistically competitive firms that are earning zero economic profit would most likely

The accompanying table shows two firms in a single- stage duopoly game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. Assume firms are not able to collude. The Nash equilibrium total quantity of potatoes on the market is

 

If barriers to entry are high and products are somewhat differentiated

Barriers to entry

Monopolistic competition means

Both monopolies and competitive firms

Two government-created barriers to entry are:

 

Advertising is designed to:

The best description of industries below is that:

Bob watches advertising that makes him want to consume Bugles, a corn snack, after he hears that, for Bugles, "more is better." Most people consider that all corn snack foods are not the same and that Doritos and other corn snacks are not perfect substitutes for Bugles. Based on this information, we would most accurately say that advertising probably caused:

Both perfectly competitive and monopolistically competitive industries have many firms, in fact so many that, in the long run:

Caskets are produced in a monopolistic competitive market. One producer, Final Boxes, sells 20 caskets a week at a price of $550 each. Its average total cost is $600. From this information, we know that:

A competitive firm would have:

A convenience store is generally able to charge and obtain a higher price for its candy bars than is Wal-Mart because the convenience store:

Costume jewelry is produced in a monopolistically competitive market. A profit-maximizing producer finds that marginal revenue = marginal cost = $4.50 when output is 700 rings. An economist studying this information can conclude that:

Costume jewelry is produced in a monopolistically competitive market. A profit-maximizing producer finds that marginal revenue = marginal cost = $4.50 when output is 700 rings. An economist studying this information can conclude that:

The demand curve for a monopolistically competitive firm is downward sloping because of:

The descriptor "monopolistic" in the term "monopolistic competition" best describes:

The difference between price and marginal cost is:

The entry of new firms into a monopolistically competitive industry causes the:

Entry of new firms will continue in a monopolistically competitive industry until:

Excess capacity best describes the fact that:

False advertising is generally regulated by:

The fast-food, bottled water, and cereal markets are all examples of:

Fast-food restaurants are a good illustration of:

Firms in a monopolistically competitive industry produce:

Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

A franchise might be worth $1 million or more because:

A generic product would be best described as one that is:

The greeting card industry is:

If a firm has substantial market power, it must be operating in an industry that would be classified as:

If all monopolistically competitive firms had identical cost curves:

If a monopolistically competitive firm is incurring losses, then at the profit-maximizing output amount:

If a monopolistically competitive firm wants to maximize profits, it will increase production until:

If a monopoly firm suddenly lost its barriers to entry and faced new competition, yet consumers thought that the former monopoly's products were somewhat different than its new competitors, then:

If barriers to entry are high and products are somewhat differentiated:

If monopolistically competitive firms are incurring losses, existing firms would:

If monopolistically competitive firms are making positive economic profits, then new firms would:

If monopolistically competitive firms are making zero economic profit, then these firms would:

If positive economic profit exists in monopolistic competition, there is:

If the marginal revenue curve lies above the demand curve for a firm:

If the price that determined where marginal revenue equaled marginal cost were below the bottom of the average variable cost curve, then the profit-maximizing, monopolistically competitive firm would:

If we are to discuss why the term "monopolistic competition" is used, the best description would be that the industry is "monopolistic" because it:

In a monopolistically competitive industry, price:

An increase in marginal cost causes a profit-maximizing, monopolistically competitive firm to:

An industry (such as California cheese) might advertise so that cheese:

In the long run, both monopolistic competition and competitive markets result in:

In the long run, in monopolistic competition:

In the long run, monopolistically competitive firms like Hardee's and Carl's Jr. operate at a price that:

In the long run, the demand curve for the monopolistically competitive firm would:

In the long run, the positive economic profits of Wings and Things, a monopolistic competitor, are:

In the long run, which of the following is true for the profit-maximizing firm?

The marginal revenue of a monopolistically competitive firm will always be:

Market power is best described as when the firm's demand curve is:

Markup would generally be lowest under:

The maximum long-run economic profit earned by this monopolistic competitive firm is:

A monopolistically competitive firm is inefficient because the firm:

Monopolistically competitive firms:

Monopolistically competitive firms that are earning zero economic profit would most likely:

Monopolistically competitive firms that are earning zero economic profit would most likely:

A monopolistically competitive firm usually charges more than a perfectly competitive firm because:

A monopolistically competitive market is characterized by:

Monopolistic competition:

Monopolistic competition is inefficient because:

Monopolistic competition is like monopoly in that:

Monopolistic competition means:

One could argue correctly that:

One critical characteristic of monopolistic competition is:

One drawback to advertising might be that it could easily:

One source of economic inefficiency from monopolistic competition is:

One thing that makes monopolistic competition similar to perfect competition is that, in the:

Perfect competition and monopolistic competition are similar because, under both market structures:

Product differentiation:

Profit-maximizing, monopolistically competitive firms:

Refer to the accompanying graph. If all firms in a monopolistically competitive industry have demand and cost curves like those shown, we would expect that, in the long run,

Refer to the accompanying graph. If there are exactly 20 firms in the monopolistically competitive industry that are identical to the firm shown, we would expect that, in the long run:

Refer to the accompanying graph. Profit-maximizing output for the monopolistically competitive firm is:

Refer to the accompanying graph. The maximum long-run economic profit earned by this monopolistically competitive firm is:

Refer to the accompanying graph. The maximum short-run economic profit earned by this monopolistic competitive firm is:

Refer to the accompanying graph. The short-run profit-maximizing output for the monopolistic competitive firm is:

Refer to the accompanying graph. To maximize profit, the monopolistically competitive firm shown will charge a price per unit of:

Sarah's Ice Cream distinguishes itself from other firms through great service by attractive servers. Sarah's Ice Cream faces competition from firms that produce similar but not identical products. Based on the this information Sarah's Ice Cream:

Sart Bimpson, an economics student, believes that a beer sold by one particular shack on the beach is completely different from an identical beer produced by the same factory and sold by the luxury hotel adjacent to the shack. The response that would best describe Sart's belief is:

The shape and/or slope of the marginal revenue curve under monopolistic competition is:

Successful advertising:

Successful advertising would be most effective in the __________ industry.

The theory of monopolistic competition predicts that, in long-run equilibrium, a monopolistically competitive firm will:

There is a discussion of Kevin Trudeau in your textbook. Which answer below best describes him?

We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms':

We could state correctly that the minimum characteristic necessary to distinguish among price-making firms is:

When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit:

When would advertising be least effective?

Which of the following best describes DiGiorno's incentive for quality control versus that of the generic brands of pizza?

Which of the following industry structures is best associated with low barriers to entry?

Which of the following is a characteristic of a monopolistically competitive firm?

Which of the following is evidence of market power?

Which of the following is the best description of monopolistic competition?

Which of the following is the best example of a monopolistically competitive market?

Which of the following is true for a profit-maximizing firm operating in a competitive market, monopolistic competition, and monopoly?

Which of the following is true in long-run equilibrium for both a competitive market and monopolistic competition?

Which of the following market structures describes an industry in which all firms produce differentiated output and there are few barriers to entry?

Which of the following most closely approximates the conditions of monopolistic competition?

Which of the following statements best describes firms under monopolistic competition?

Why would perfectly competitive industries advertise even though individual firms do not?

You operate a monopolistically competitive firm and you notice that your company is making an economic profit. Which of the following is most likely to happen?

 

If the market price of a product is between the minimum average variable cost (AVC) and minimum average total cost (ATC) of a firm, that firm will...

When a tax is imposed on some good, the lost consumer surplus and producer surplus both typically end up as:

You share a house with two people . You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of ______; for the other roommate it is an example of _____.

An example of price discrimination is when:

Monopolistically competitive firms that are earning zero economic profit would most likely:

If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to _____ and the equilibrium quantity to _____.

The change in total cost given a change in output is also known as:

What is necessary for price discrimination to occur

Kim owns a cupcake shop in Newport, CA. The market for cupcakes is very competitive. At Kim's current production level, her marginal cost is $25 and her marginal revenue is $29. To maximize profits, Kim should?

Accounting profit is equal to:

Compared to producers, consumers will lose the lesser amount of surplus from a tax if:

Total revenue minus total cost is equal to:

What is an example of a good that is non rival

A tax on apples would cause consumers to suffer because:

Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of:

If a monopolistically competitive firm is incurring losses, then at the profit maximizing output amount:

In 1996 Victoria's Secret shipped different catalogs to customers based on their buying habits. Frequent customers received catalogs with lower prices, whereas new customers received catalogs with high prices for those same items. What is the firm's motivation for practicing price discrimination, despite knowing that if their customers' found out, the company could potentially experience a loss in sales?

If Tommy's Tank Tops is a perfectly competitive firm and is currently making a positive economic profits of $1,000:

Charlie's Churros is a perfectly competitive firm that sells desserts in Houston, Texas. Charlie's Churros currently is taking in $40,000 in revenues, and has $15,000 in explicit costs and $25,000 in implicit costs. Charlie's Churro's economic profits are:

Holding all else constant, a decrease in the market demand for a product in a competitive market would cause:

Compared to producers, consumers will lose the greater amount of surplus from a tax if:

You can tell a firm is operating in a market that is in long run competitive equilibrium if:

When talking about economic profits in a perfectly competitive market, the difference between the long run and the short run is that, in the short run, firms:

When a negative externality is not internalized, then the equilibrium price of the good purchased is too___ and the equilibrium quantity produced is too ___.

Consumer surplus is defined as the:

At current production levels, the marginal revenue of a competitive firm is $15 and the marginal cost of the firm is $15. The firm should:

A tax on apples would cause apple growers to suffer because:

Both monopolies and competitive firms:

If a firm's average total costs decrease as it increases its scale of production, the firm is experiencing:

Which of the following is a question that a firm must answer in the long run but not in the short run?

Fast food restaurants are a good illustration of:

If a monopolist is producing a quantity where marginal revenue is equal to $32 and the marginal cost is equal to $30, the monopolist should:

The incidence of a tax is determined by:

It is unrealistic to regulate a natural monopoly at marginal cost pricing because:

Two government created barriers to entry are:

Compared to consumers, producers will lose the greater amount of surplus from a tax if:

In competitive markets:

The fast food, bottled water, and cereal markets are all examples of:

When demand is perfectly inelastic, the demand curve is:

The government imposes a tax on sale of a good whose production is creating a negative externality. The value of the tax is $4 per unit sold. In the new equilibrium, you would expect:

Nathan owns a coffee roasting company. He buys raw coffee beans, roasts them, grinds them, and sells them to stores. He recently moved into a larger factory so that he can sell coffee to more stores. How would Nathan know if he is experiencing constant returns to scale from increasing the size of his factory?

If a tax is imposed on a good where both supply and demand are somewhat elastic, but demand is more elastic than supply, the burden of tax will be borne:

If a firm hires another worker and her marginal product of labor is zero, we know that the firm's total output is:

To maximize profits, a monopolist chooses the quantity where:

If Nicole's Knick Knacks is a perfectly competitive firm and is making zero economic profits:

Despite creating maximum market efficiency, perfect price discrimination is often disliked by consumers because it transfers the gains in trade from: