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Which of the following industries is most likely to be monopolistically competitive?
a) corn
b) automobile industry
c) fresh bagel shops
d) electric utility industry
 
For the monopolistically competitive seafood market, the demand curve for any individual firm is ________, and
there are ________ producers of seafood.
a) downward-sloping; a few
b) vertical; a few
c) downward-sloping; many
d) upward-sloping; many
 
Monopolistic competition is an industry characterized by a:
a) small number of firms producing similar but not identical products, with relatively easy entry for firms.
b) small number of firms producing identical products, with barriers to entry for firms.
c) large number of firms producing identical products, with relatively easy entry for firms.
d) large number of firms producing similar but not identical products, with relatively easy entry for firms.
 
Which of the following is not a characteristic of monopolistic competition?
a) many competing producers
b) product differentiation
c) tacit collusion
d) lack of barriers to entry and exit in the long run
 
In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport.
These Holiday Inn establishments are examples of product differentiation by:
a) location.
b) style.
c) quality.
d) type.
 
The demand curve for a firm under monopolistic competition is:
 
a) downward sloping, the same as that facing a perfectly competitive firm.
b) horizontal, the same as that facing a perfectly competitive firm.
c) downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.
d) horizontal, unlike the downward-sloping demand curve facing a perfectly competitive firm.
 
A monopolistically competitive firm is operating in the short run, is operating at the optimal level of output, and is
earning positive economic profits. Which of the following must be true?
 
a) MR > MC and P = ATC
b) MR = MC and P = ATC.
c) P = MR = MC > ATC
d) MR = MC and P > ATC
 
The market for grade A large eggs in California is BEST considered to be an example of:
a.) oligopoly
b.) monopoly
c.) perfect competition
d.) monopolistic competition
 
In long-run equilibrium, a firm in monopolistic competition is similar to a monopoly because it:
a.) charges a price greater than the marginal cost
b.) earns no economic profit
c.) charges a price equal to average total cost
d.) charges a price equal to marginal cost
 
Industries that are made up of many competing producers, each selling a differentiated product, and whose
firms earn zero economic profits in the long run are:
a.) perfectly competitive
b.) monopolistically competitive
c.) oligopolies
d.) monopolies
 
Monopolistically competitive firms:
a.) engage in collusive activity to maximize profit
b.) will set a price where MC > MR
c.) are very similar to perfect competitors in producing at the minimum ATC
d.) earn a positive economic profit if price is greater than ATC
 
Both monopolists and monopolistic competitors:
a.) have a higher barrier to entry
b.) make positive economic profits in the long run
c.) produce a product for which there are no substitutes
d.) charge a price that is greater than the marginal cost to production
 
Which statement is TRUE?
a.) monopolistic competition is efficient because of product differentiation
b.) the inefficiency of monopolistic competition is arguably a small price to pay for the wide range of product choices it offers
c.) monopolistic competition and perfect competition are both inefficient
d.) the inefficiency of monopolistic competition is a result of advertising expenses
 
Defenders of advertising argue that:
a.) provides education and information about products
b.) facilities the concentration of monopoly power.
c.) seeks to persuade, rather than inform, buyers
d.) encourages artificial product differentiation
 
When a monopolistically competitive industry earns economic profit, the result of competition among sellers is usually that:
a.) firms in the industry lose market share
b.) the price of the product quickly reaches the perfectly competitive level
c.) the price of the product increases to monopoly level
d.) firms in the industry gain market share
 
A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily because:
a.) the price is greater than the marginal revenue
b.) there are no barriers to entry or exit in the long run
c.) there are many sellers in the industry
d.) its product is differentiated
 
The model of monopolistic competition characterizes the market for plumbing services in a city.
Suppose that the market is in long-run equilibrium. For a typical plumbing firm, price:
a.) equals the average total cost
b.) exceeds the average total cost
c.) is greater than the average for all other firms in the market
d.) is less than average total cost
 
A monopolistically competitive firm has excess capacity in the long run. This means that it:
a.) Could produce more by moving to a larger plant equal to the marginal cost
b.) produces less than the output at which the average total cost is minimized
c.) produces less than the output at which the price and marginal cost are equal
d.) doesn't maximize profits
 
The wedding dress industry is monopolistically competitive. As a result:
a.) dresses tend to be differentiated among the many sellers serving this market.
b.) prices tend to be lower than if the dress industry approximated perfect competition
c.) it has freedom of entry but not exit
d.) thousands of dress suppliers all sell identical products.
 
A feature of monopolistic competition that makes it different from monopoly is the:
a.) fact that firms in monopolistically competitive industries follow the marginal decision rule, while monopolies do not
b.) downward- sloping demand curve
c.) downward- sloping marginal revenue curve
d.) number of firms in the industry
 
The broccoli market is perfectly competitive. This means that the price of broccoli is ________ than the price
would be if the market was monopolistically competitive, and broccoli output is ________ than if it was monopolistically competitive.
A) lower; greater
B) lower; less
C) greater; less
D) greater; greater
 
In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits.
Which of the following describes how this firm will adjust in the long run?
A) The entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output
and increasing the price the firm can charge until price equals average total cost.
B) The entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output
and the price the firm can charge until price equals average total cost.
C) The entry of new firms shifts the firm's marginal cost and average cost curves downward, decreasing the firm's level of
output and the price the firm can charge until price equals average total cost.
D) The exit of firms shifts the firm's demand and marginal revenue curves rightward, increasing the firm's level of output
and the price the firm can charge until price equals average total cost.
 
A monopolistically competitive firm has excess capacity in the long run. This means that it:
A) produces less than the output at which average total costs are minimized.
B) produces less than the output at which price and marginal cost are equal.
C) could produce more by moving to a larger plant.
D) doesn't maximize profits.
 
Toby tells you he is producing the quantity that minimizes his average total cost. Assuming that Toby is
maximizing profits, you know Toby's:
A) marginal cost is less than his average total cost.
B) marginal cost is less than his marginal revenue.
C) price equals his average total cost.
D) price is more than his average total cost.
 
Due to the existence of a large number of similar, but not identical, substitutes in most communities,
the market for financial planners is best considered:
A) a monopoly.
B) an oligopoly.
C) perfect competition.
D) monopolistic competition.
 
Monopolistic competition is similar to perfect competition in that firms in both market structures:
A) are price-takers.
B) produce goods that are perfect substitutes.
C) find it beneficial to advertise.
D) do not face any barriers to entry into the industry in the long run.
 
In monopolistic competition, each firm:
A) is a price-taker.
B) has some ability to set the price of its differentiated good.
C) will set price equal to marginal cost.
D) has marginal revenue that is greater than price.
 
Monopolistic competition is different from perfect competition due to the fact that within monopolistic competition:
A) firms experience easy entry and exit.
B) there are many firms.
C) products are differentiated.
D) to maximize profits, a firm will produce where MR = MC.
 
Long-run equilibrium in perfect competition and in monopolistic competition are similar because, in both, firms:
A) produce at the minimum point of the average total cost curve.
B) set price equal to marginal cost.
C) make zero economic profits.
D) have excess capacity.
 
In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport.
These Holiday Inn establishments are examples of product differentiation by:
A) type.
B) location.
C) quality.
D) style.
 
Many customers will walk right past a diner that serves coffee and go to Starbucks and pay more for a cup of coffee.
For these customers, cups of coffee are differentiated by:
A) style.
B) location.
C) quality.
D) type.
 
If a monopolistically competitive firm is in long-run equilibrium, we can assume that price ________.
A) equals marginal revenue.
B) equals average total cost.
C) is greater than average total cost.
D) equals marginal cost.
 
Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year. In the long run,
the demand for any one firm's dry-cleaning services will ________ as more firms enter the industry, causing profits to ________.
A) decrease; become economic losses
B) decrease; fall to zero
C) not change; fall
D) increase; increase
 
A gas station is operating in a monopolistically competitive market and is currently in short-run equilibrium.
Suppose that a fixed cost for this firm decreases. As a result, the firm's price will ________, the firm's output
will ________, and the firm's economic profit will ________.
A) increase; increase; increase
B) increase; increase; decrease
C) stay the same; stay the same; increase
D) decrease; stay the same; increase
 
Budweiser is a brand name that many people recognize. During the Super Bowl each year, this beer company has
many of the most successful ads. Which of the following is true about advertising for Budweiser?
A) It is designed to increase the demand for Budweiser.
B) It decreases the costs of supplying Budweiser.
C) It guarantees customers that Budweiser tastes better than other beers.
D) It is designed to increase excess capacity.
 
In a monopolistically competitive market, firms:
earn zero economic profits in the long run.
 
An example of a monopolistically competitive industry is the _____ industry.
perfume
 
For a monopolistically competitive firm operating in the hotel industry, the demand curve is given by Q = 160 - P,
and the firm's cost functions are MC = 20 + 2Q and TC = 20Q + Q2.
$80
 
Super Snacking Services is a typical monopolistically competitive firm. Initially, the market is in long-run equilibrium,
and then there is an increase in the market demand for snacks. In the short run, the price of snacks will _____,
and the market output of snacks will _____.
rise; rise
 
Florists in the town of Minerva, Illinois, operate in a monopolistically competitive market.
The price in long-run equilibrium for a flower shop is _____, and output is _____, than would be the case
for a perfectly competitive firm with an identical production function and cost curves.
higher; lower
 
The market for soft drinks, which is dominated by Coca Cola and Pepsi, is best considered to be an example of:
oligopoly.
 
Coors is a widely recognized brand name. During the World Series each year, this beer company has many of the
most successful ads. Which statement is TRUE about advertising for Coors?
It is designed to increase the demand for Coors.
 
Which of the following advertisements is LEAST economically useful?
NFL player Aaron Rodgers is shown throwing a football in a Crest toothpaste commercial.
 
In monopolistic competition, each firm:
has some ability to set the price of its differentiated good.
 
Monopolistic competition in an industry will result in _____ because firms produce _____.
chronic excess capacity; less than the minimum-cost output
 
If a firm operating in monopolistic competition is producing a quantity at which MC < MR, then profit can be _____ by _____.
increased; increasing production
 
Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for
a cup of java. For these customers, coffee is differentiated by:
quality.
 
An industry with a large number of relatively small firms producing _____ products in a market with easy entry and exit is _____.
differentiated; monopolistically competitive
 
When a monopolistically competitive firm earns zero economic profits, it produces at an output at which the
average total cost curve is tangent to its demand curve. At this output:
the firm is maximizing profits, and marginal cost must equal marginal revenue.
 
The profit-maximizing rule, MC = MR, is followed by firms operating in:
monopolistic competition, monopoly, and perfect competition.
 
Excess capacity is a problem in monopolistic competition because if there were fewer firms in the industry:
average total costs would be lower and the prices paid by consumers could be lower.
 
If the toothpaste market is monopolistically competitive, product differentiation may take the form of:
production of many varieties of toothpaste, including those with whitening agents; differentiation in the
locations where certain toothpastes are available; and quality differences among the various brands.
 
Toby operates a small deli downtown. The deli industry is monopolistically competitive. In the long run, Toby will produce where:
marginal revenue equals marginal cost.
 
Because most communities have a large number of similar but not identical substitutes, the market for chiropractors
is best considered to be:
monopolistically competitive.
 
In large shopping malls, the retail clothing market is most illustrative of:
monopolistic competition.
 
In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport.
These Holiday Inn establishments are examples of product differentiation by:
location.
 
Since a firm operating in a monopolistically competitive market faces a downward-sloping demand curve, it is generally the case that:
P > MR.
 
A firm in monopolistic competition maximizes its profit by producing so that:
MC = MR.
 
Advertising is an economically productive activity and NOT a waste of resources because it:
can convey information about the product.
 
A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry,
like wheat farming, are alike in that:
there are many firms in each industry.
 
An industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit of firms is:
monopolistically competitive.
 
Suppose a monopolistically competitive firm can increase its profits by decreasing its output. At the current output:
marginal revenue is less than marginal cost.
 
Monopolistically competitive firms have zero economic profits in the long run because of:
easy entry and exit.
 
For a monopolistically competitive firm, marginal cost is _________ in long run equilibrium.
less than price
 
In the long run, monopolistically competitive firms:
cannot earn an economic profit.