Question 1

A significant benefit of monopolistic competition compared with pure competition is

Accepted Answer

A)  less likelihood of X-inefficiency.
B)  improved resource allocation.
C)  greater product variety.
D)  stronger incentives to achieve economies of scale.E) None of the above
F) All of the above

Question 2

Concentration ratios measure the

Accepted Answer

A)  geographic location of the largest corporations in each industry.
B)  degree to which product price exceeds marginal cost in various industries.
C)  percentage of total industry sales accounted for by the largest firms in the industry.
D)  number of firms in an industry.E) A) and C)
F) A) and B)

Question 3

Which of the following is correct?

Accepted Answer

A)  The excess capacity problem diminishes as the monopolistically competitive firm's demand curve becomes less elastic.
B)  The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve.
C)  The greater the degree of product variation, the lesser is the excess capacity problem.
D)  The greater the degree of product variation, the greater is the excess capacity problem.E) All of the above
F) B) and C)

Question 4

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

A)  standardized product
B)  a relatively small number of firms
C)  absence of nonprice competition
D)  relatively easy entryE) C) and D)
F) A) and C)

Question 5

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will shift

Accepted Answer

A)  right and become more elastic.
B)  left and become less elastic.
C)  left and become more elastic.
D)  right and become less elastic.E) A) and D)
F) C) and D)

Question 6

Which industry would be best characterized as monopolistically competitive?

Accepted Answer

A)  smartphone manufacturing
B)  Internet-search sites
C)  web design consulting
D)  business cloud-computing servicesE) All of the above
F) B) and D)

Question 7

An important similarity between a monopolistically competitive firm and a pure monopolist is that both

Accepted Answer

A)  realize an economic profit in the long run.
B)  achieve allocative efficiency.
C)  face demand curves that are less than perfectly elastic.
D)  achieve productive efficiency.E) None of the above
F) A) and C)

Question 8

The following pairs of products illustrate product differentiation, except

Accepted Answer

A)  Coke and Pepsi.
B)  tank tops and denim shorts.
C)  airport hotels and downtown hotels.
D)  New York-style pizza and Chicago-style pizza.E) C) and D)
F) A) and B)

Question 9

Monopolistically competitive sellers produce efficiently because they obtain only normal profits in the long run.

Accepted Answer

A) True 
 B)False

Question 10

The economic profits earned by monopolistically competitive sellers are zero in the long run.

Accepted Answer

A) True 
 B)False

Question 11

If we believe that "variety is the spice of life," then we should be more concerned about the excess capacity in monopolistic competition and do our best to eliminate it.

Accepted Answer

A) True 
 B)False

Question 12

Monopolistic competition resembles pure competition because

Accepted Answer

A)  both industries emphasize nonprice competition.
B)  in both instances firms will operate at the minimum point on their long-run average total cost curves.
C)  both industries entail the production of differentiated products.
D)  barriers to entry are either weak or nonexistent.E) C) and D)
F) None of the above

Question 13

The less elastic a monopolistic competitor's long-run demand curve, the

Accepted Answer

A)  greater its excess capacity.
B)  lower its price relative to that of a pure competitor having the same cost curves.
C)  higher its long-run economic profit.
D)  lower its average total cost at its equilibrium level of output.E) B) and D)
F) None of the above

Question 14

Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a

Accepted Answer

A)  lower price and lower output.
B)  higher price and lower output.
C)  higher price and higher output.
D)  price and output that may be higher or lower.E) A) and C)
F) All of the above

Question 15

The stronger the product differentiation in monopolistic competition, the

Accepted Answer

A)  less elastic the demand curve, and production will take place further to the left of minimum average costs.
B)  less elastic the demand curve, and production will take place further to the right of minimum average costs.
C)  more elastic the demand curve, and production will take place further to the left of minimum average costs.
D)  more elastic the demand curve, and production will take place further to the right of minimum average costs.E) A) and B)
F) A) and C)

Question 16

(Last Word)  Which of the following best explains why an increase in the minimum wage is more problematic for mom and pop restaurants than for big chain restaurants?

Accepted Answer

A)  Chain restaurants are exempt from minimum wage laws.
B)  Mom and pop restaurants have more difficulty attracting workers when wages rise.
C)  Mom and pop restaurants are more dependent on labor relative to chain restaurants.
D)  Chain restaurants have more monopoly pricing power and can more easily raise prices than mom and pop stores.E) B) and D)
F) A) and B)

Question 17

Which of the following forces does not play a major part in the adjustments of a monopolistically competitive industry toward its long-run equilibrium?

Accepted Answer

A)  profits/losses making firms enter or exit the industry
B)  firms expanding or shrinking their productive capacity
C)  introduction of new products and patents
D)  shifts in the demand curves of individual firms as the industry expands or contractsE) A) and D)
F) B) and C)

Question 18

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

Accepted Answer

A)  pure competition
B)  pure monopoly
C)  monopolistic competition
D)  oligopolyE) A) and B)
F) A) and C)

Question 19

Monopolistic competition provides the benefit of product variety but at the cost of productive inefficiency.

Accepted Answer

A) True 
 B)False

Question 20

The larger the number of firms and the smaller the degree of product differentiation, the

Accepted Answer

A)  greater the divergence between the demand and the marginal revenue curves of the monopolistically competitive firm.
B)  larger will be the monopolistically competitive firm's fixed costs.
C)  less elastic is the monopolistically competitive firm's demand curve.
D)  more elastic is the monopolistically competitive firm's demand curve.E) All of the above
F) A) and B)

Exam 13: Monopolistic Competition

Concentration ratios measure the

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Which industry would be best characterized as monopolistically competitive?

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The less elastic a monopolistic competitor's long-run demand curve, the

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If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will shift

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Which of the following is a characteristic of monopolistic competition?

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Which of the following forces does not play a major part in the adjustments of a monopolistically competitive industry toward its long-run equilibrium?

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Monopolistic competition resembles pure competition because

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Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a

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An important similarity between a monopolistically competitive firm and a pure monopolist is that both

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(Last Word) Which of the following best explains why an increase in the minimum wage is more problematic for mom and pop restaurants than for big chain restaurants?

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

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The stronger the product differentiation in monopolistic competition, the

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Monopolistically competitive sellers produce efficiently because they obtain only normal profits in the long run.

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A significant benefit of monopolistic competition compared with pure competition is

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Which of the following is correct?

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The following pairs of products illustrate product differentiation, except

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If we believe that "variety is the spice of life," then we should be more concerned about the excess capacity in monopolistic competition and do our best to eliminate it.

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The economic profits earned by monopolistically competitive sellers are zero in the long run.

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The larger the number of firms and the smaller the degree of product differentiation, the

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Monopolistic competition provides the benefit of product variety but at the cost of productive inefficiency.

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