Question 1

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.

Question 2

In monopolistic competition, which of the following would make an individual firm's demand curve less elastic?

Accepted Answer

A)  the purchase of more efficient machinery
B)  an increase in the price of the firm's product
C)  increased brand loyalty toward the firm's product
D)  an increase in the number of rival firms

Question 3

An important similarity between a monopolistically competitive firm and a purely competitive firm is that

Accepted Answer

A)  both face perfectly elastic demand schedules.
B)  economic profit tends toward zero for both.
C)  both realize productive efficiency.
D)  both realize allocative efficiency.

Question 4

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

Accepted Answer

A)  former does not seek to maximize profits.
B)  latter recognizes that price must be reduced to sell more output.
C)  former sells similar, although not identical, products.
D)  former's demand curve is perfectly inelastic.

Question 5

Refer to the diagram. In short-run equilibrium, the monopolistically competitive firm shown will set its price

Accepted Answer

A)  below ATC.
B)  above ATC.
C)  below MC.
D)  below MR.

Question 6

The Herfindahl index is a measure of the degree of product differentiation in an industry.

Accepted Answer

A) True 
 B)False

Question 7

"Excess capacity" exists in monopolistic competition but not in pure competition.

Accepted Answer

A) True 
 B)False

Question 8

What are types of firms that exemplify monopolistic competition?

Accepted Answer

In addition to some manufacturers, many ...

Question 9

If monopolistically competitive firms have some control over their prices, why don't they set price above average total cost so they will realize an economic profit in the long run?

Accepted Answer

Entry is relatively easy in monopolistic...

Question 10

Pure competition results in a lower price but identical output level compared to those in monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 11

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.

Question 12

In long-run equilibrium, monopolistic competition entails

Accepted Answer

A)  an efficient allocation of resources.
B)  an overallocation of resources due to inadequate capacity.
C)  an underallocation of resources due to excess capacity.
D)  production at the minimum attainable average total cost.

Question 13

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

Accepted Answer

A)  greater its excess capacity.
B)  higher its price relative to that of a pure competitor having the same cost curves.
C)  lower its long-run economic profit.
D)  lower its average total cost at its profit-maximizing level of output.

Question 14

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor?

Accepted Answer

A)  Subway Sandwiches
B)  Pittsburgh Plate Glass
C)  Ford Motor Company
D)  Microsoft

Question 15

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.

Question 16

If the four-firm concentration ratio for industry X is 80,

Accepted Answer

A)  the four largest firms account for 80 percent of total sales.
B)  each of the four largest firms accounts for 20 percent of total sales.
C)  the four largest firms account for 20 percent of total sales.
D)  the industry is monopolistically competitive.

Question 17

Refer to the data. If Firm B merged with Firm E, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____.

Accepted Answer

A)  rise; rise
B)  fall; rise
C)  remain the same; rise
D)  remain the same; fall

Question 18

Refer to the diagram. If all monopolistically competitive firms in the industry have profit circumstances similar to the firm shown above,

Accepted Answer

A)  new firms will enter the industry.
B)  some firms will exit the industry.
C)  all firms will exit the industry.
D)  no firms will enter the industry.

Question 19

The larger the number of firms in an industry and the less the extent of product differentiation, the greater will be the elasticity of the individual seller's demand curve.

Accepted Answer

A) True 
 B)False

Question 20

Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion.  What output and price levels will maximize the firm's profit in the short run?

Accepted Answer

A)  2 units and $24
B)  3 units and $21
C)  4 units and $18
D)  5 units and $15

Exam 13: Monopolistic Competition

If monopolistically competitive firms have some control over their prices, why don't they set price above average total cost so they will realize an economic profit in the long run?

Correct AnswerverifiedEntry is relatively easy in monopolistic...View AnswerShow Answer

Refer to the data. If Firm B merged with Firm E, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

What are types of firms that exemplify monopolistic competition?

Correct AnswerverifiedIn addition to some manufacturers, many ...View AnswerShow Answer

Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. What output and price levels will maximize the firm's profit in the short run?

Correct AnswerverifiedShow Answer

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

Correct AnswerverifiedShow Answer

"Excess capacity" exists in monopolistic competition but not in pure competition.

Correct AnswerverifiedShow Answer

In long-run equilibrium, monopolistic competition entails

Correct AnswerverifiedShow Answer

The Herfindahl index is a measure of the degree of product differentiation in an industry.

Correct AnswerverifiedShow Answer

The larger the number of firms in an industry and the less the extent of product differentiation, the greater will be the elasticity of the individual seller's demand curve.

Correct AnswerverifiedShow Answer

Refer to the diagram. If all monopolistically competitive firms in the industry have profit circumstances similar to the firm shown above,

Correct AnswerverifiedShow Answer

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor?

Correct AnswerverifiedShow Answer

An important similarity between a monopolistically competitive firm and a purely competitive firm is that

Correct AnswerverifiedShow Answer

Refer to the diagram. In short-run equilibrium, the monopolistically competitive firm shown will set its price

Correct AnswerverifiedShow Answer

In monopolistic competition, which of the following would make an individual firm's demand curve less elastic?

Correct AnswerverifiedShow Answer

If the four-firm concentration ratio for industry X is 80,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Pure competition results in a lower price but identical output level compared to those in monopolistic competition.

Correct AnswerverifiedShow Answer

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Entry is relatively easy in monopolistic...
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Refer to the data. If Firm B merged with Firm E, the industry's four-firm concentration ratio would and its Herfindahl index would .

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In addition to some manufacturers, many ...
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