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1. Monopolistic competition resembles pure competition because:
A) both industries emphasize nonprice competition.
B) in both instances firms will operate at the minimum point on their long-run average total cost curves.
C) both industries entail the production of differentiated products.
D) barriers to entry are either weak or nonexistent.
2. Which of the following is not a basic characteristic of monopolistic competition?
A) the use of trademarks and brand names C) product differentiation
B) recognized mutual interdependence D) a relatively large number of sellers
3. Nonprice competition refers to:
A) competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.
B) price increases by a firm that are ignored by its rivals.
C) advertising, product promotion, and changes in the real or perceived characteristics of a product.
D) reductions in production costs that are not reflected in price reductions.
4. A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:
A) the likelihood of collusion. C) product differentiation.
B) high entry barriers. D) mutual interdependence in decision making.
5. A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from:
A) a relatively large number of firms and the monopolistic element from product differentiation.
B) product differentiation and the monopolistic element from high entry barriers.
C) a perfectly elastic demand curve and the monopolistic element from low entry barriers.
D) a highly inelastic demand curve and the monopolistic element from advertising and product promotion.
6. A monopolistically competitive firm has a:
A) highly elastic demand curve. C) perfectly inelastic demand curve.
B) highly inelastic demand curve. D) perfectly elastic demand curve.
7. The monopolistically competitive seller's demand curve will become more elastic the:
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.
Use the following to answer questions
8. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be:
A) $10. B) $13. C) $16. D) $19.
9. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be:
A) 210. B) 180. C) 160. D) 100.
10. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic:
A) loss of $320. B) loss of $280. C) profit of $480. D) profit of $600. E) profit of $360.
11. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. Assume the firm is part of an increasing-cost industry. In the long run firms will:
A) leave this industry, causing both demand and the ATC curve to shift upward.
B) enter this industry, causing demand to rise and the ATC curve to shift downward.
C) enter this industry, causing demand to fall and the ATC curve to shift upward.
D) enter this industry, causing both demand and the ATC curve to shift upward.
12. In an oligopolistic market:
A) one firm is always dominant.
B) products may be standardized or differentiated.
C) the four largest firms account for 20 percent or less of total sales.
D) the industry is monopolistically competitive.
13. Oligopolistic industries are characterized by:
A) a few dominant firms and substantial entry barriers.
B) a few dominant firms and no barriers to entry.
C) a large number of firms and low entry barriers.
D) a few dominant firms and low entry barriers.
14. The automobile, household appliance, and automobile tire industries are all illustrations of:
A) homogeneous oligopoly. C) pure monopoly.
B) monopolistic competition. D) differentiated oligopoly.
15. The mutual interdependence that characterizes oligopoly arises because:
A) the products of various firms are homogeneous.
B) the products of various firms are differentiated.
C) a small number of firms produce a large proportion of industry output.
D) the demand curves of firms are kinked at the prevailing price.
16. In which of the following market models do demand and marginal revenue diverge?
A) pure monopoly, oligopoly, and monopolistic competition
B) pure monopoly, oligopoly, and pure competition
C) pure monopoly only
D) oligopoly only
17. Mutual interdependence means that each oligopolistic firm:
A) faces a perfectly elastic demand for its product.
B) must consider the reactions of its rivals when it determines its price policy.
C) produces a product identical to those of its rivals.
D) produces a product similar but not identical to the products of its rivals.
18. Clear-cut mutual interdependence with respect to the price-output policies exists in:
A) pure monopoly B) oligopoly C) monopolistic competition D) pure competition
19. Concentration ratios measure the:
A) geographic location of the largest corporations in each industry.
B) degree to which product price exceeds marginal cost in various industries.
C) percentage of total sales accounted for by the four largest firms in the industry.
D) number of firms in an industry.
20. If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry sales), you are calculating:
A) the four-firm concentration ratio. C) the degree of collusion.
B) the Herfindahl index. D) the Lerner index.
21. Assume six firms comprising an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl Index for this industry is:
A) 2,525. B) 1,600. C) 2,200. D) 80.
22. Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its:
A) demand curve as being of unit elasticity throughout.
B) supply curve as kinked, being steeper below the going price than above.
C) demand curve as kinked, being steeper below the going price than above.
D) demand curve as kinked, being steeper above the going price than below.
23. The kinked-demand curve of an oligopolist is based on the assumption that:
A) competitors will follow a price cut but ignore a price increase.
B) competitors will match both price cuts and price increases.
C) competitors will ignore a price cut but follow a price increase.
D) there is no product differentiation.
24. The kinked-demand curve model of oligopoly is useful in explaining:
A) the way that collusion works.
B) why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost.
C) why oligopolistic prices might change only infrequently.
D) the process by which oligopolists merge with one another.
25. The kinked-demand curve model helps to explain price rigidity because:
A) there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
B) demand is inelastic above and elastic below the going price.
C) the model assumes firms are engaging in some form of collusion.
D) the associated marginal revenue curve is perfectly elastic at the going price.
Use the following to answer questions
26. The above diagram portrays:
A) pure competition. B) monopolistic competition. C) noncollusive oligopoly. D) pure monopoly.
27. Refer to the above diagram. Equilibrium output is:
A) j. B) h. C) g. D) f .
28. Refer to the above diagram. Equilibrium price is:
A) e. B) d. C) c. D) b.
29. Refer to the above diagram. This firm's demand and marginal revenue curves are based on the assumption that:
A) the firm has no immediate rivals.
B) rivals will match both a price increase and a price decrease.
C) rivals will match a price increase, but ignore a price decrease.
D) rivals will ignore a price increase, but match a price decrease.
30. Refer to the above diagram. In equilibrium the firm:
A) is realizing an economic profit of ad per unit. C) is incurring a loss.
B) should close down in the short run. D) is realizing an economic profit of bd per unit.