Question 1

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm.  If the firm is producing Q1 and charging P3, this graph likely shows the firm's cost and revenue curves in the:

Accepted Answer

A)  long run, and economic profits are zero.
B)  short run, and accounting profits are negative.
C)  long run, and accounting profits are zero.
D)  short run, and economic profits are positive.E) None of the above
F) A) and B)

Question 2

Economists believe that, more often than not:

Accepted Answer

A)  competition encourages innovation.
B)  innovation encourages competition.
C)  innovation leads to market power and should be regulated.
D)  market power leads to innovation.E) B) and D)
F) A) and D)

Question 3

For the monopolistically competitive firm, the demand curve it faces will become flatter as:

Accepted Answer

A)  more substitute goods become available.
B)  less substitute goods become available.
C)  more complement goods become available.
D)  less complement goods become available.E) B) and D)
F) All of the above

Question 4

An oligopoly is characterized by the _______, while the defining characteristic of a monopolistic competition is the ______________.

Accepted Answer

A)  number of firms; variety of products
B)  variety of products; barriers to entry
C)  barriers to entry; number of firms
D)  variety of products; number of firmsE) A) and B)
F) A) and C)

Question 5

The welfare loss associated with the outcome in a colluding oligopoly is:

Accepted Answer

A)  smaller than that of a perfectly competitive market.
B)  smaller than that of a competitive oligopoly.
C)  the same as that of a perfectly competitive market.
D)  None of these is true.E) All of the above
F) C) and D)

Question 6

The outcome of a colluding oligopoly:

Accepted Answer

A)  is more efficient than that of a monopolist.
B)  is the same as that of a monopolist.
C)  is less efficient than that of a monopolist.
D)  is more efficient than that of a competitive oligopoly.E) B) and D)
F) None of the above

Question 7

In the short run, product differentiation enables firms in monopolistically competitive markets to:

Accepted Answer

A)  act like monopolists.
B)  sell standardized goods.
C)  collude with competing firms to set prices.
D)  act like perfectly competitive firms.E) A) and B)
F) B) and D)

Question 8

Which of the following is not a characteristic of monopolistically competitive firms in the long run?

Accepted Answer

A)  They earn zero profits.
B)  They each maximize their profits.
C)  They charge a price above marginal cost.
D)  There is no deadweight loss.E) A) and B)
F) All of the above

Question 9

If the demand curve for a firm in a monopolistically competitive market is shifting to the right, it will only stop shifting when:

Accepted Answer

A)  the firm is earning zero economic profits.
B)  the firm's price is equal to its average total cost.
C)  other firms have no incentive to exit the market.
D)  All of these are true.E) A) and B)
F) A) and C)

Question 10

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm.  If the firm is producing Q1 and charging P3, it is likely:

Accepted Answer

A)  earning positive economic profits.
B)  earning negative economic profits.
C)  earning zero economic profits.
D)  It is impossible to know the profits the firm is earning from the graph provided.E) All of the above
F) A) and B)

Question 11

In an oligopolistic market, when the quantity effect outweighs the price effect:

Accepted Answer

A)  an increase in output may increase a firm's profits.
B)  a decrease in output may increase a firm's profits.
C)  keeping output constant and raising price will increase a firm's profits.
D)  keeping output constant and lowering price will increase a firm's profits.E) All of the above
F) None of the above

Question 12

The more firms that exist in a market, the:

Accepted Answer

A)  more competition is likely to be present.
B)  less competition is likely to be present.
C)  more like a monopoly it will behave.
D)  more collusion is likely to occur.E) A) and D)
F) C) and D)

Question 13

For the monopolistically competitive firm, the demand curve it faces will become steeper:

Accepted Answer

A)  the more differentiated the good is.
B)  the less differentiated the good is.
C)  the more complementary the good is.
D)  the less complementary the good is.E) All of the above
F) A) and B)

Question 14

These are the cost and revenue curves associated with a monopolistically competitive firm.  According to the graph shown, the price will be:

Accepted Answer

A)  $30
B)  $50
C)  $70
D)  $100E) B) and C)
F) All of the above

Question 15

An oligopolist's production decision affects:

Accepted Answer

A)  its profits.
B)  the profits of other firms in the market.
C)  the prices charged by each firm.
D)  All of these are true.E) A) and D)
F) None of the above

Question 16

In an oligopolistic market, the price effect decreases as:

Accepted Answer

A)  the number of firms decreases.
B)  the number of firms increases.
C)  demand increases.
D)  demand decreases.E) A) and C)
F) A) and D)

Question 17

Once a monopolistically competitive firm innovates, it is likely that:

Accepted Answer

A)  it will enjoy long-run profits.
B)  other firms will rush to create similar, highly substitutable goods.
C)  it will need government protection while recovering its research and development costs.
D)  None of these is likely to occur when a monopolistically competitive firm innovates.E) B) and D)
F) B) and C)

Question 18

A(n) _______ is characterized by the number of firms in the market, while the defining characteristic of a(n) _______ is the variety of products.

Accepted Answer

A)  monopolistic competition; oligopoly
B)  oligopoly; monopolistic competition
C)  perfect competition; monopoly
D)  monopoly; oligopolyE) A) and C)
F) A) and B)

Question 19

If firms in a monopolistically competitive market are earning negative economic profits, it is likely that:

Accepted Answer

A)  new firms will enter the market.
B)  they will exit the market.
C)  they will shut down immediately.
D)  they will expand to try to capture lower costs per unit.E) None of the above
F) All of the above

Question 20

In the short run, a monopolistically competitive firm will earn _______ economic profits by acting like a _______.

Accepted Answer

A)  positive; monopolist
B)  positive; perfectly competitive firm
C)  zero; monopolist
D)  zero; perfectly competitive firmE) A) and D)
F) B) and C)

Exam 15: Monopolistic Competition and Oligopoly

Which of the following is not a characteristic of monopolistically competitive firms in the long run?

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These are the cost and revenue curves associated with a monopolistically competitive firm. According to the graph shown, the price will be:

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For the monopolistically competitive firm, the demand curve it faces will become steeper:

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The more firms that exist in a market, the:

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Once a monopolistically competitive firm innovates, it is likely that:

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For the monopolistically competitive firm, the demand curve it faces will become flatter as:

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The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm is producing Q1 and charging P3, this graph likely shows the firm's cost and revenue curves in the:

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An oligopolist's production decision affects:

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Economists believe that, more often than not:

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A(n) _______ is characterized by the number of firms in the market, while the defining characteristic of a(n) _______ is the variety of products.

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An oligopoly is characterized by the _______, while the defining characteristic of a monopolistic competition is the ______________.

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The welfare loss associated with the outcome in a colluding oligopoly is:

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If firms in a monopolistically competitive market are earning negative economic profits, it is likely that:

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The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm is producing Q1 and charging P3, it is likely:

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In the short run, product differentiation enables firms in monopolistically competitive markets to:

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In an oligopolistic market, the price effect decreases as:

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The outcome of a colluding oligopoly:

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In the short run, a monopolistically competitive firm will earn _______ economic profits by acting like a _______.

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In an oligopolistic market, when the quantity effect outweighs the price effect:

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If the demand curve for a firm in a monopolistically competitive market is shifting to the right, it will only stop shifting when:

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A(n) _ is characterized by the number of firms in the market, while the defining characteristic of a(n) _ is the variety of products.

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An oligopoly is characterized by the _, while the defining characteristic of a monopolistic competition is the ________.

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In the short run, a monopolistically competitive firm will earn _ economic profits by acting like a _.

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