Question 1

The process of entry and exit into a monopolistically competitive market causes a firm's:

Accepted Answer

A)  demand curve to shift to the left or to the right.
B)  supply curve to shift to the left or to the right.
C)  average total cost curve to shift to the left or to the right.
D)  marginal cost curve to shift straight up or down.E) A) and D)
F) None of the above

Question 2

Monopolistically competitive firms have an incentive to create products that:

Accepted Answer

A)  are easily substituted for competitors' products.
B)  have a unique feature, making it difficult to substitute.
C)  are identical to a competitor's products.
D)  None of these are true.E) A) and D)
F) All of the above

Question 3

Advertising: can be valuable because it provides free information about products and prices to consumers. can be harmful because it creates a false sense of differentiation, driving prices up unnecessarily. will always give firms the ability to charge higher prices for their products.

Accepted Answer

A)  II only
B)  I and II only
C)  II and III only
D)  I, II, and IIIE) B) and C)
F) A) and D)

Question 4

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm.  If the firm were to maximize profits, it would:

Accepted Answer

A)  produce Q1 and charge P3.
B)  cause deadweight loss.
C)  earn zero economic profits.
D)  All of these are true.E) C) and D)
F) None of the above

Question 5

When firms currently in a monopolistically competitive market are earning profits:

Accepted Answer

A)  more firms will leave the market before the profits are lost due to competition.
B)  the government will step in to regulate prices to ensure the firms stay competitive.
C)  the firms will lower prices to keep competitors out of the market.
D)  more firms will enter the market with products that are close substitutes.E) A) and B)
F) None of the above

Question 6

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm.  If the firm produces Q1 and charges P3, then area A represents:

Accepted Answer

A)  consumer surplus.
B)  producer surplus.
C)  deadweight loss.
D)  profits.E) A) and B)
F) C) and D)

Question 7

If a monopolistically competitive firm is earning profits in the short run, the entry of competing firms into the market will:

Accepted Answer

A)  shift the firm's demand to the right.
B)  shift the firm's demand to the left.
C)  cause price to drop, but will not affect the firm's demand curve.
D)  cause price to rise, but will not affect the firm's demand curve.E) C) and D)
F) All of the above

Question 8

Which of the following would cause the demand curve of a monopolistically competitive firm to shift to the right? Negative economic profits are being earned. Firms are leaving the market. The selling price is less than the firm's average total cost.

Accepted Answer

A)  I and II only
B)  II only
C)  I and III only
D)  I, II, and IIIE) B) and D)
F) A) and C)

Question 9

In the short run, monopolistically competitive firms can maximize profits by:

Accepted Answer

A)  acting like perfectly competitive firms.
B)  acting like monopolists.
C)  playing strategic games like oligopolists.
D)  None of these is true.E) A) and B)
F) None of the above

Question 10

Which type of market structure contains many firms selling goods and services that are close substitutes for one another?

Accepted Answer

A)  Perfect competition
B)  Monopolistic competition
C)  Oligopoly
D)  MonopolyE) A) and B)
F) A) and C)

Question 11

The prisoner's dilemma shown displays the payoffs associated with two firms: Firm A and Firm B. These firms are in an oligopoly and they can choose to either collude or compete.  Given the payoffs in this matrix, Firm A:

Accepted Answer

A)  has a dominant strategy to compete.
B)  does not have a dominant strategy.
C)  has a dominant strategy to collude.
D)  None of these are true.E) None of the above
F) A) and B)

Question 12

Firms that effectively differentiate their products from their competitors' products do so by having:

Accepted Answer

A)  real, not just perceived, differences in product design.
B)  perceived, but not real, differences in product design.
C)  real or perceived differences in product design.
D)  None of these is true.E) B) and C)
F) A) and D)

Question 13

Monopolistic competition describes a market in which _______ firms sell _______ goods and services.

Accepted Answer

A)  few; similar but slightly different
B)  many; standardized
C)  many; similar but slightly different
D)  few; standardizedE) C) and D)
F) A) and D)

Question 14

In the long run, monopolistically competitive firms: charge prices equal to marginal cost. have excess capacity. produce at the minimum of average total cost.

Accepted Answer

A)  I and III only
B)  II only
C)  II and III only
D)  I, II, and IIIE) None of the above
F) A) and C)

Question 15

Which of the following statements is true regarding the welfare loss created by monopolistically competitive markets?

Accepted Answer

A)  Whether the welfare loss is acceptable or not is hotly debated among economists.
B)  The welfare loss is typically not very concerning to governments.
C)  It is larger than the welfare loss created by monopolies.
D)  Many countries measure welfare loss using widely accepted methods.E) C) and D)
F) B) and D)

Question 16

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm.  If the firm produces Q1 and charges P3 in the long run, what area represents the deadweight loss?

Accepted Answer

A)  Area A
B)  Area B
C)  Area C
D)  There is no deadweight loss.E) B) and C)
F) A) and D)

Question 17

Branding:

Accepted Answer

A)  can be a barrier to entry.
B)  guarantees high-quality products.
C)  creates perceived, but not real, differences in products.
D)  All of these are true.E) B) and C)
F) None of the above

Question 18

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm.  In the graph, area C represents:

Accepted Answer

A)  producer surplus.
B)  consumer surplus.
C)  deadweight loss.
D)  profits.E) A) and C)
F) A) and B)

Question 19

In practice, monopolistically competitive markets are:

Accepted Answer

A)  very rare.
B)  very common.
C)  virtually nonexistent.
D)  the only type of market that truly exists.E) A) and D)
F) A) and B)

Question 20

The more firms that exist in an oligopolistic market, the:

Accepted Answer

A)  larger will be the price effect of one firm's output decision.
B)  smaller will be the price effect of one firm's output decision.
C)  more collusion is likely to happen.
D)  None of these statements is true.E) None of the above
F) A) and B)

Exam 15: Monopolistic Competition and Oligopoly

Advertising: can be valuable because it provides free information about products and prices to consumers. can be harmful because it creates a false sense of differentiation, driving prices up unnecessarily. will always give firms the ability to charge higher prices for their products.

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The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm were to maximize profits, it would:

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When firms currently in a monopolistically competitive market are earning profits:

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The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm produces Q1 and charges P3, then area A represents:

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In the long run, monopolistically competitive firms: charge prices equal to marginal cost. have excess capacity. produce at the minimum of average total cost.

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The prisoner's dilemma shown displays the payoffs associated with two firms: Firm A and Firm B. These firms are in an oligopoly and they can choose to either collude or compete. Given the payoffs in this matrix, Firm A:

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Monopolistically competitive firms have an incentive to create products that:

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In the short run, monopolistically competitive firms can maximize profits by:

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Firms that effectively differentiate their products from their competitors' products do so by having:

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The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. If the firm produces Q1 and charges P3 in the long run, what area represents the deadweight loss?

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Which type of market structure contains many firms selling goods and services that are close substitutes for one another?

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Which of the following would cause the demand curve of a monopolistically competitive firm to shift to the right? Negative economic profits are being earned. Firms are leaving the market. The selling price is less than the firm's average total cost.

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In practice, monopolistically competitive markets are:

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Branding:

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The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. In the graph, area C represents:

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The process of entry and exit into a monopolistically competitive market causes a firm's:

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Monopolistic competition describes a market in which _______ firms sell _______ goods and services.

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If a monopolistically competitive firm is earning profits in the short run, the entry of competing firms into the market will:

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Which of the following statements is true regarding the welfare loss created by monopolistically competitive markets?

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The more firms that exist in an oligopolistic market, the:

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Monopolistic competition describes a market in which _ firms sell _ goods and services.

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