Question 1

"Variety is the spice of life" is best applied to which market structure?

Accepted Answer

A)  pure competition
B)  monopolistic competition
C)  oligopoly
D)  monopolyE) A) and B)
F) All of the above

Question 2

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50.This firm is operating

Accepted Answer

A)  with positive profits.
B)  with a loss.
C)  at the break-even point.
D)  at a nonoptimal level of output.E) B) and C)
F) A) and D)

Question 3

A monopolistically competitive industry combines elements of both competition and monopoly.The monopoly element results from

Accepted Answer

A)  the likelihood of collusion.
B)  high entry barriers.
C)  product differentiation.
D)  mutual interdependence in decision making.E) All of the above
F) C) and D)

Question 4

A monopolistically competitive firm's marginal revenue curve

Accepted Answer

A)  is downsloping and coincides with the demand curve.
B)  coincides with the demand curve and is parallel to the horizontal axis.
C)  is downsloping and lies below the demand curve.
D)  does not exist because the firm is a "price maker."E) B) and D)
F) A) and C)

Question 5

The monopolistically competitive seller maximizes profits by equating price and marginal cost.

Accepted Answer

A) True 
 B)False

Question 6

The demand curve of a monopolistically competitive producer is

Accepted Answer

A)  less elastic than that of either a pure monopolist or a pure competitor.
B)  less elastic than that of a pure monopolist, but more elastic than that of a pure competitor.
C)  more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.
D)  more elastic than that of either a pure monopolist or a pure competitor.E) All of the above
F) C) and D)

Question 7

A monopolistically competitive industry combines elements of both competition and monopoly.The competition element results from

Accepted Answer

A)  the likelihood of collusion.
B)  product differentiation.
C)  low entry barriers.
D)  mutual interdependence in decision making.E) C) and D)
F) A) and C)

Question 8

Which of the following is not a basic characteristic of monopolistic competition?

Accepted Answer

A)  the use of trademarks and brand names
B)  recognized mutual interdependence
C)  product differentiation
D)  a relatively large number of sellersE) None of the above
F) B) and D)

Question 9

In monopolistic competition, if a firm advertises and effectively raises consumer awareness of its product, it tends to

Accepted Answer

A)  raise costs and increase demand for its product.
B)  raise costs and decrease demand for its product.
C)  lower costs and increase demand for its product.
D)  lower costs and decrease demand for its product.E) None of the above
F) A) and D)

Question 10

The monopolistically competitive seller's demand curve will become more elastic the

Accepted Answer

A)  more significant the barriers to entering the industry.
B)  greater the degree of product differentiation.
C)  larger the number of competitors.
D)  smaller the number of competitors.E) A) and B)
F) All of the above

Question 11

In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that

Accepted Answer

A)  ATC is not equal to MC.
B)  price is greater than MR.
C)  price is greater than minimum ATC.
D)  price is greater than MC.E) A) and D)
F) B) and C)

Question 12

Dequam likes product variety, while Natasha is most concerned about paying the lowest price possible for a good.This suggests that

Accepted Answer

A)  Dequam cares more about allocative efficiency, while Natasha cares more about productive efficiency.
B)  Dequam cares more about productive efficiency, while Natasha cares more about allocative efficiency.
C)  Dequam prefers monopolistically competitive industries, while Natasha prefers purely competitive industries.
D)  Dequam prefers purely competitive industries, while Natasha prefers monopolistically competitive industries.E) All of the above
F) B) and C)

Question 13

Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million, respectively.We can conclude that

Accepted Answer

A)  this industry is an oligopoly.
B)  this industry is monopolistically competitive.
C)  the concentration ratio is 25 percent.
D)  firms in this industry likely collude with each other.E) A) and D)
F) None of the above

Question 14

The Herfindahl index

Accepted Answer

A)  tells us the degree to which monopolistically competitive firms are differentiating their products.
B)  is another name for the four-firm concentration ratio.
C)  tells us whether oligopolistic firms are engaging in collusion.
D)  gives much greater weight to larger firms than to smaller firms in an industry.E) A) and B)
F) A) and C)

Question 15

Brand names and packaging are forms of product differentiation under monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 16

The price elasticity of a monopolistically competitive firm's demand curve varies

Accepted Answer

A)  inversely with the number of competitors and the degree of product differentiation.
B)  directly with the number of competitors and the degree of product differentiation.
C)  directly with the number of competitors but inversely with the degree of product differentiation.
D)  inversely with the number of competitors but directly with the degree of product differentiation.E) A) and B)
F) A) and C)

Question 17

A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost is $15, marginal cost is $13, and marginal revenue is $13.In the short run this firm should

Accepted Answer

A)  reduce product price.
B)  increase the level of output.
C)  decrease the level of output.
D)  make no change in the level of output.E) A) and D)
F) All of the above

Question 18

The monopolistically competitive seller maximizes profit by producing at the point where

Accepted Answer

A)  total revenue is at a maximum.
B)  average costs are at a minimum.
C)  marginal revenue equals marginal cost.
D)  price equals marginal revenue.E) A) and B)
F) A) and C)

Question 19

When a monopolistically competitive firm is in long-run equilibrium,

Accepted Answer

A)  production takes place where ATC is minimized.
B)  marginal revenue equals marginal cost and price equals average total cost.
C)  normal profit is zero and price equals marginal cost.
D)  economic profit is zero and price equals marginal cost.E) B) and C)
F) C) and D)

Question 20

Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264.These data suggest

Accepted Answer

A)  greater market power in X than in Y.
B)  greater market power in Y than in X.
C)  that X is more technologically progressive than Y.
D)  that price competition is stronger in Y than in X.E) A) and D)
F) B) and C)

Exam 13: Monopolistic Competition

Dequam likes product variety, while Natasha is most concerned about paying the lowest price possible for a good.This suggests that

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The monopolistically competitive seller maximizes profits by equating price and marginal cost.

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The monopolistically competitive seller maximizes profit by producing at the point where

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A monopolistically competitive industry combines elements of both competition and monopoly.The competition element results from

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Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264.These data suggest

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Which of the following is not a basic characteristic of monopolistic competition?

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When a monopolistically competitive firm is in long-run equilibrium,

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The price elasticity of a monopolistically competitive firm's demand curve varies

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In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that

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A monopolistically competitive industry combines elements of both competition and monopoly.The monopoly element results from

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In monopolistic competition, if a firm advertises and effectively raises consumer awareness of its product, it tends to

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A monopolistically competitive firm's marginal revenue curve

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A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50.This firm is operating

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A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost is $15, marginal cost is $13, and marginal revenue is $13.In the short run this firm should

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Brand names and packaging are forms of product differentiation under monopolistic competition.

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"Variety is the spice of life" is best applied to which market structure?

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The monopolistically competitive seller's demand curve will become more elastic the

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Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million, respectively.We can conclude that

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The demand curve of a monopolistically competitive producer is

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The Herfindahl index

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