Question 1

A significant benefit of monopolistic competition compared with pure competition is:

Accepted Answer

A)   less likelihood of X-inefficiency.
B)   improved resource allocation.
C)   greater product variety.
D)   stronger incentives to achieve economies of scale.E) A) and B)
F) B) and D)

Question 2

Which of the following statements is correct?

Accepted Answer

A)   Purely competitive firms,monopolistically competitive firms,and pure monopolies all earn zero economic profits in the long run.
B)   Purely competitive firms,monopolistically competitive firms,and pure monopolies all earn positive economic profits in the long run.
C)   In the long run,purely competitive firms and monopolistically competitive firms earn zero economic profits,while pure monopolies may or may not earn economic profits.
D)   Monopolistically competitive firms earn zero economic profits in both the short run and the long run.E) All of the above
F) A) and B)

Question 3

The excess capacity problem associated with monopolistic competition implies that fewer firms could produce the same industry output at a lower total cost.

Accepted Answer

A) True 
 B)False

Question 4

The oligopolist's kinked-demand curve is highly elastic below and highly inelastic above the going product price.

Accepted Answer

A) True 
 B)False

Question 5

In game theory,the credibility of a threat:

Accepted Answer

A)   determines whether or not a Nash equilibrium to a game exists.
B)   influences the degree of cooperation between two rivals.
C)   is relevant only in simultaneous games.
D)   determines whether or not a firm has a dominant strategy.E) A) and B)
F) A) and C)

Question 6

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) A) and B)
F) A) and C)

Question 7

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because:

Accepted Answer

A)   of product differentiation and consequent product promotion activities.
B)   monopolistically competitive firms cannot realize an economic profit in the long run.
C)   the number of firms in the industry is larger.
D)   monopolistically competitive producers use strategic pricing strategies to combat rivals.E) C) and D)
F) A) and B)

Question 8

The demand curve of a monopolistically competitive firm is more elastic than that of a pure monopolist.

Accepted Answer

A) True 
 B)False

Question 9

In the United States cartels are:

Accepted Answer

A)   quite common in industries that produce nondurable goods.
B)   in violation of the antitrust laws.
C)   concentrated in monopolistically competitive industries.
D)   encouraged by government policy so firms can achieve economies of scale.E) C) and D)
F) A) and B)

Question 10

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.E) C) and D)
F) None of the above

Question 11

If the several oligopolistic firms that comprise an industry behave collusively,the resulting price and output will most likely resemble those of:

Accepted Answer

A)   bilateral monopoly.
B)   pure monopoly.
C)   monopolistic competition.
D)   pure competition.E) C) and D)
F) B) and C)

Question 12

If an oligopolist is faced with a marginal revenue curve that has a gap in it,we may assume that:

Accepted Answer

A)   it is colluding with its rivals to maximize joint profits.
B)   its demand curve is kinked.
C)   it is selling a standardized product.
D)   it is selling a differentiated product.E) C) and D)
F) B) and D)

Question 13

Monopolistically competitive industries are inefficient because:

Accepted Answer

A)   they realize diseconomies of scale.
B)   advertising costs retard technological advance and product development.
C)   they are overpopulated with firms whose plants are underutilized.
D)   monopolistically competitive sellers engage in misleading advertising.E) All of the above
F) A) and B)

Question 14

The U.S.steel industry is an example of homogeneous oligopoly.

Accepted Answer

A) True 
 B)False

Question 15

The larger the number of firms and the smaller the degree of product differentiation the:

Accepted Answer

A)   greater the divergence between the demand and the marginal revenue curves of the monopolistically competitive firm.
B)   larger will be the monopolistically competitive firm's fixed costs.
C)   less elastic is the monopolistically competitive firm's demand curve.
D)   more elastic is the monopolistically competitive firm's demand curve.E) None of the above
F) A) and B)

Question 16

In monopolistically competitive markets,resources are:

Accepted Answer

A)   overallocated because long-run equilibrium occurs where price exceeds marginal cost.
B)   underallocated because long-run equilibrium occurs where price exceeds marginal cost.
C)   overallocated because long-run equilibrium occurs where marginal cost exceeds price.
D)   underallocated because long-run equilibrium occurs where marginal cost exceeds price.E) A) and B)
F) All of the above

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is a unique feature of oligopoly?

Accepted Answer

A)   Mutual interdependence.
B)   Advertising expenditures.
C)   Product differentiation.
D)   Nonprice competition.E) None of the above
F) A) and D)

Question 19

Long-run equilibrium for a monopolistically competitive firm where economic profits are zero results from:

Accepted Answer

A)   rising marginal costs.
B)   a perfectly elastic product demand curve.
C)   relatively easy entry.
D)   product differentiation and development.E) B) and C)
F) All of the above

Question 20

An important similarity between a monopolistically competitive firm and a pure monopolist is that both:

Accepted Answer

A)   realize an economic profit in the long run.
B)   achieve allocative efficiency.
C)   face demand curves that are less than perfectly elastic.
D)   achieve productive efficiency.E) A) and B)
F) A) and C)

Exam 13: Monopolistic Competition and Oligopoly

In monopolistically competitive markets,resources are:

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Long-run equilibrium for a monopolistically competitive firm where economic profits are zero results from:

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The U.S.steel industry is an example of homogeneous oligopoly.

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The demand curve of a monopolistically competitive firm is more elastic than that of a pure monopolist.

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In the United States cartels are:

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The oligopolist's kinked-demand curve is highly elastic below and highly inelastic above the going product price.

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Which of the following is a unique feature of oligopoly?

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The larger the number of firms and the smaller the degree of product differentiation the:

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Monopolistically competitive industries are inefficient because:

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

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The excess capacity problem associated with monopolistic competition implies that fewer firms could produce the same industry output at a lower total cost.

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An important similarity between a monopolistically competitive firm and a pure monopolist is that both:

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In long-run equilibrium,monopolistic competition entails:

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A significant benefit of monopolistic competition compared with pure competition is:

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If an oligopolist is faced with a marginal revenue curve that has a gap in it,we may assume that:

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

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In game theory,the credibility of a threat:

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Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because:

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Which of the following statements is correct?

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If the several oligopolistic firms that comprise an industry behave collusively,the resulting price and output will most likely resemble those of:

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