Download Ch10 Monopoloy-Competition-Oligopoly Multiple Choice Questions

Ch10 Monopoloy-Competition-Oligopoly
Multiple Choice Questions
1. In the competitive market for figure skate blades, manufacturers offer an array of products that
are
A. distinctly different in a particular way.
B. distinctly similar in a particular way.
C. virtually identical on the competition spectrum.
D. at opposite ends of the competition spectrum.
Answer: A Reference:
Explanation:
2. _____________ occurs when circumstances have allowed several large firms to have all or most of
the sales in an industry.
A. Collusion
B. A monopoly
C. An oligopoly
D. A cartel
Answer: C Reference:
Explanation:
3. _________ arises when firms act together to reduce output and keep prices high.
A. Collusion
B. A cartel
C. A monopoly
D. An oligopoly
Answer: B Reference:
Explanation:
Category: Remember
4. A _________ refers to a group of firms colluding with one another to produce at the monopoly
output and sell at the monopoly price.
A. prisoner's dilemma
B. cartel
C. game theory
D. duopoly
Answer: A Reference:
Explanation:
Category: Remember
5. The branch of mathematics that analyzes situations in which players must make decisions and
then receive payoffs most often used by economists is
A. oligopoly collusion.
B. prisoner's dilemma.
C. game theory.
D. collusion theory
Answer: C Reference:
Explanation:
6. If the CEO of I'MaBigBank is playing prisoner's dilemma then, from his perspective, the gains to
be had from cooperation are
A. larger than the payoffs that will be received.
B. smaller than the payoffs that will be perceived.
C. smaller than the rewards from pursuing self-interest.
D. larger than the rewards from pursuing self-interest.
Answer: D Reference:
Explanation:
7. The perceived demand curve for a group of competing oligopoly firms will appear kinked as a
result of their commitment to
A. match price increases, but not price cuts.
B. stand at opposite ends of the competition spectrum.
C. match price cuts, but not price increases.
D. stand at the high point of the competition spectrum.
Answer: C Reference:
Explanation:
8. Perfect competition and monopoly stand at _____________ of the spectrum of competition.
A. opposite ends
B. the high end
C. the low end
D. the mid-way point
Answer: A Reference:
Explanation:
Category: Remember
9. If a perfectly competitive market involves many firms selling identical products, then, in the face
of such competition,
A. each of these firms must act as a price-maker.
B. each of these firms must act as a price-taker.
C. collusion amongst them will most often result.
D. demand curves can become kinked in appearance.
Answer: B Reference:
Explanation:
10. Shopping malls typically lease retail space to a large number of clothing stores. When this
group of retailers competes to sell similar but not identical products, they engage in what
economists call ________________________.
A. a cartel
B. collusion
C. monopolistic competition
D. perfect competition
Answer: C Reference:
Explanation:
11. As the name monopolistic competition implies, a firm’s decisions in this setting will in certain
ways resemble ______________ and in other ways resemble________________ .
A. monopoly; imperfect competition
B. monopoly; perfect competition
C. imperfect competition; perfect competition
D. imperfect competition; oligopoly
Answer: B Reference:
Explanation:
Category: Remember
12. If monopolistic competitors must expect a process of entry and exit like perfectly competitive
firms,
A. they will be unable to earn higher-than-normal profits in the short run.
B. they will wish to cooperate to make decisions about what price to charge.
C. they will wish to cooperate to make decisions about what quantity to produce.
D. they will be unable to earn higher-than-normal profits in the long run.
Answer: D Reference:
Explanation:
13. In the highly competitive setting in which oligopoly firms operate, which of the following are
considered to be typical temptations each may face?
A. to cooperate to generate and then divide up monopoly-like profits
B. to cooperate to mutually decide what price to charge
C. to cooperate to make decisions about what quantity to produce
D. to cooperate to act as a single monopoly and all of the above
Answer: D Reference:
Explanation:
14. Oligopoly firms acting individually may seek to gain profits ___________________________ .
A. by expanding levels of output and cutting prices
B. by selling products that are distinctive in some way
C. by having a mini-monopoly on a particular brand name
D. by having a mini-monopoly or through tough competition
Answer: A Reference:
Explanation:
15. In a monopolistic competitive industry, firms can try to differentiate their products by
A. creating optimal perceptions of the product.
B. choosing optimal locations from which the product is sold.
C. enhancing the intangible aspects of the product.
D. enhancing product’s physical aspects and all of the above.
Answer: D Reference:
Explanation:
16. Which of the following would be classified as a differentiated product produced by a
monopolistic competitor?
A. natural gas
B. Channel No. 5
C. electricity
D. tap water
Answer: B Reference:
Explanation:
17. Monopolistic competitors in the food industry will often include a recyclable symbol on
packaging used for their product as a means to
A. be socially responsible.
B. be environmentally responsible.
C. differentiate their product.
D. be perceived more favorably.
Answer: C Reference:
Explanation:
18. Product differentiation may occur in _______________ because ____________________ created
strong preferences for certain brands.
A. shaping intangible preferences; predatory pricing
B. the minds of buyers; past habits and advertising
C. imperfect competition; the concept of differentiated products
D. imperfect competition; advertising and consumer habits
Answer: B Reference:
Explanation:
19. What role can advertising play with respect to differentiated products?
A. allows a firm to sell any quantity it wishes
B. shapes consumers intangible preferences
C. shapes perceived demand for a price taker
D. allows a firm to raise the prevailing market price
Answer: B Reference:
Explanation:
20. Which of the following best identifies what the concept of differentiated products is closely
related to?
A. unique style.
B. the degree of monopolistic competition that exists.
C. optimal location.
D. the degree of product variety that is available.
Answer: D Reference:
Explanation:
21. The demand curve as perceived by a perfectly competitive firm is __________ .
A. flat
B. downward sloping
C. upward sloping
D. hump shaped
Answer: A Reference:
Explanation:
Category: Remember
22. The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's
ability to
A. sell any quantity it wishes at the prevailing market price.
B. raise its price without losing all of its customers.
C. choose any combination of price and quantity.
D. lose fewer customers than a monopoly that raised its prices.
Answer: A Reference:
Explanation:
Category: Remember
23. If a perfectly competitive firm raises its price, the quantity demanded of its product
_____________.
A. diminishes temporarily in the short run
B. falls to zero
C. stays the same
D. falls below marginal cost
Answer: B Reference:
Explanation:
24. If a monopoly or a monopolistic competitor raises their prices, the quantity demanded
____________.
A. will expand
B. stays the same
C. will decline
D. will decline in the short run
Answer: C Reference:
Explanation:
Category: Remember
25. The perceived demand for a monopolistic competitor
A. is steep.
B. is flat.
C. takes competitors into account.
D. disregards competitors.
Answer: C Reference:
Explanation:
26. If a monopoly or a monopolistic competitor raises their prices, then
A. decline in quantity demanded will be larger for the monopoly.
B. decline in quantity demanded will be larger for the monopolistic competitor.
C. the quantity demanded for the monopoly product falls to zero.
D. the quantity demanded for the monopolistic competitor will fall to zero.
Answer: B Reference:
Explanation:
27. Would raising the price for a product create a larger decline in quantity demanded for a
monopolistic competitor's than it would for a monopoly?
A. no; a monopolistic competitor perceives demand as a price maker
B. no; conditions of imperfect competition means demand is constant
C. yes; but temporarily because price increases only create a short-run decline
D. yes; consumers will buy from competitors offering lower priced substitutes
Answer: D Reference:
Explanation:
28. The demand curve as perceived by a monopolistic competitor is ______________ .
A. upward-sloping
B. U shaped
C. downward-sloping
D. flat
Answer: C Reference:
Explanation:
Category: Remember
29. The typical slope of the demand curve as perceived by a monopolistic competitor will
A. be steeper than the demand curve perceived by a monopolist.
B. reflect that firm's ability raise its price without losing all of its customers.
C. show less of a decline in demand than would a monopoly that raised its prices.
D. be reflective of a perfectly competitive firm and all of the above.
Answer: B Reference:
Explanation:
30. If a monopolistic competitor raises its price, it _________ customers than a perfectly competitive
firm, but ________________ customers compared to the number that a monopoly that raised its
prices would.
A. will lose more; it will lose as many
B. will lose more; it will lose more
C. will lose fewer; it will lose more
D. will lose fewer; it will lose as many
Answer: C Reference:
Explanation:
Category: Remember
31. Why are the underlying economic meanings of the perceived demand curves for a monopolist
and monopolistic competitor different?
A. a monopolist faces the market demand curve and a monopolist competitor does not
B. a monopolist competitor faces the market demand curve and a monopolist does not
C. because the demand curve for a monopolistic competitor is upward sloping
D. because the demand curve perceived by the monopolist is flatter than that of a monopolist
competitor
Answer: A Reference:
Explanation:
32. The first step to be undertaken by a profit-maximizing monopolistic competitor wanting to
decide what price to charge is to
A. determine total revenue, total cost, and profit
B. select the profit maximizing quantity to produce
C. determine what price to charge for the product
D. determine average costs, total revenue, and profit
Answer: B Reference:
Explanation:
Category: Remember
33. If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost,
then,
A. the firm's perceived demand will shift to the left.
B. the firm should keep expanding production.
C. each marginal unit adds profit by bringing in less revenue than its cost.
D. the firm is now earning zero for profit.
Answer: B Reference:
Explanation:
34. Which of the following represents a difference in the process by which a monopolistic
competitor and a monopolist make their respective decisions about quantity and price?
A. only the monopolist competitor faces a downward-sloping demand curve
B. the monopolist's perceived demand curve is market demand
C. the monopolist competitor's perceived demand curve is market demand
D. a monopolist need not fear entry and also selection b above
Answer: D Reference:
Explanation:
35. A monopolistically competitive firm may earn abnormally high profits in the
A. short term, but the process of entry will drive those profits to zero in the long run.
B. long term, but the process of entry will drive those profits to zero in the short run.
C. short run, but after entry occurs, the long term perceived demand curve shifts to the right.
D. long run, but after entry occurs, the short term perceived demand curve shifts to the right.
Answer: A Reference:
Explanation:
Category: Remember
36. Through the process of exit, monopolistically competitive firms remaining in the market
A. are no longer earning zero economic profits.
B. will each have ongoing negative earnings.
C. are no longer earning losses.
D. have positive earnings.
Answer: C Reference:
Explanation:
37. Monopolistic competitors can make a _____________ in the short-run, but in the long run,
______________ will drive these firms toward _______________________ .
A. profit or loss; entry and exit; a zero-profit outcome
B. loss; exit; losses on their earnings
C. profit or loss; exit; economic profits
D. profit; entry; a price that lies at the very bottom of the AC curve
Answer: A Reference:
Explanation:
38. The long-term result of entry and exit in a perfectly competitive market is that all firms end up
selling at the price level determined by the lowest point on the
A. total cost curve.
B. average variable cost curve.
C. total marginal cost curve
D. average cost curve.
Answer: D Reference:
Explanation:
39. In monopolistic competition, the end result of entry and exist is that firms end up with a price
that lies
A. on the upward-sloping portion of the average cost curve.
B. at the very bottom of the AC curve.
C. on the downward-sloping portion of the average cost curve.
D. at the very top of the AC curve.
Answer: C Reference:
Explanation:
40. In a perfectly competitive market, each firm produces at a quantity where price is set
A. equal to marginal cost, in the short run.
B. equal to marginal cost, both in the short run and in the long run.
C. equal to average cost, in the long run.
D. equal to average cost, both in the short run and in the long run.
Answer: B Reference:
Explanation:
41. Perfect competition displays _____________________ because the social benefits of additional
production, as measured by the price that people are willing to pay, are in balance with the
____________ to society of that production.
A. allocative efficiency; total costs
B. economic efficiency; total revenues
C. allocative efficiency; marginal costs
D. economic efficiency; marginal revenues
Answer: C Reference:
Explanation:
Category: Remember
42. In a monopolistically competitive market, the rule for maximizing profit is to set MR = MC,
which means
A. price is higher than marginal revenue.
B. price is equal to marginal revenue.
C. price is equal to marginal cost.
D. price is lower than marginal revenue.
Answer: A Reference:
Explanation:
43. When P > MC in a monopolistically competitive market, that industry will most likely produce
______________________ than would be found in a perfectly competitive industry.
benefits to society of providing additional quantity as measured by the price that people are
willing to pay exceeds the marginal costs to society of producing those units.
A. a higher quantity of a good and charge a lower price
B. the price that people are willing to pay is lower
C. a lower quantity of a good and charge a higher price
D. the price people are willing to pay is not more
Answer: C Reference:
Explanation:
44. When entry occurs in a monopolistically competitive industry,
A. the perceived demand and marginal revenue curves for each firm will shift to the right.
B. the perceived demand and marginal revenue curves for each firm will shift to the left.
C. the perceived demand curve for each firm will shift to the right.
D. the marginal revenue curves for each firm will shift to the right.
Answer: B Reference:
Explanation:
45. When entry occurs in a monopolistically competitive industry,
A. marginal costs to society exceed the price people are willing to pay.
B. price is equal to marginal revenue gained by society.
C. the marginal revenue curve will shift to the left.
D. a smaller quantity will be demanded at any given price.
Answer: D Reference:
Explanation:
46. When exit occurs in a monopolistically competitive industry the
A. perceived demand and marginal revenue curves will shift to the right.
B. perceived demand and marginal revenue curves will shift to the left.
C. perceived demand curve will shift to the left.
D. marginal revenue curve will shift to the left.
Answer: A Reference:
Explanation:
47. In the framework of monopolistic competition, the way advertising works can be perceived as
A. causing a firm's perceived demand curve to become more elastic.
B. causing a firm’s perceived demand curve to become more inelastic.
C. causing demand for the firm’s product to increase.
D. causing both b and c to occur.
Answer: D Reference:
Explanation:
48. In the framework of monopolistic competition, advertising works because it causes
A. the steeper perceived demand curve to become flatter.
B. perceived demand curve to shift to the left.
C. perceived demand curve to shift to the right.
D. a steeper perceived demand curve, as well as c above.
Answer: D Reference:
Explanation:
49. A successful advertising campaign may allow competing monopolists to
A. sell a greater quantity.
B. charge a higher price.
C. increase its profits.
D. do all of the above.
Answer: D Reference:
Explanation:
50. If each of two competing monopolists undertakes equal advertising efforts to attract
consumers away from the other, the total result is
A. they will both increase market share.
B. they will simply neutralize one another's efforts.
C. they will both lose market share.
D. they will both improve their industrial position.
Answer: B Reference:
Explanation:
51. A monopolistically competitive industry does not display ____________________ in either the
short-run, when firms are making _______________, nor in the long-run, when firms are earning
________________ .
A. allocative efficiency; profits and losses; negative profits
B. productive efficiency; profits and losses; zero profits
C. productive and allocative efficiency; profits and losses; zero profits
D. productive and allocative efficiency; profits and losses; negative profits
Answer: C Reference:
Explanation:
Category: Remember
52. Which of the following is a question economists have struggled to address with only partial
success?
A. Whether monopolistic competition provides optimal productive or allocative efficiency?
B. Whether a market-oriented economy produces the optimal amount of variety?
C. Does a market-orientated economy provide productive or allocative efficiency?
D. Does a monopolistically competitive industry displays allocative efficiency in the short run?
Answer: B Reference:
Explanation:
53. If oligopolists compete hard against each other,
A. they end up acting very much like imperfect competitors.
B. costs for all are driven up.
C. zero profits result for all.
D. they end up acting very much like monopolistic competitors.
Answer: C Reference:
Explanation:
54. Which of the following would most likely create the setting for an oligopoly?
A. government grants Alex, Trent, and Alyse each a patent for their respective molybdenum based
electric car batteries
B. market demand is two or more times less than quantity needed to produce at the minimum of
the AC curve
C. market demand is two or more times more than quantity needed to produce at the minimum
of the MC curve
D. insurmountable technological difficulty associated with producing similar products acts as an
effective barrier to entry
Answer: A Reference:
Explanation:
55. If oligopolistic firms banded together with the intention of acting like a monopoly, it would
likely result in their being able to
A. divide up the monopoly level of profit amongst themselves.
B. hold down output in the short-run.
C. charge a higher price in the short-run.
D. both b and c above are correct.
Answer: A Reference:
Explanation:
56. The desire of businesses to __________________________, so that they can raise the prices that
they charge and earn higher profits, has been well-understood by economists for a long time.
A. compete with each other
B. engage in free market activities
C. maximize profits for social benefit
D. avoid competing with each other
Answer: D Reference:
Explanation:
Category: Remember
57. How can parties who find themselves in a prisoner’s dilemma situation avoid the undesired
outcome and cooperate with each other?
A. one oligopoly can physically beat up another oligopoly
B. by seeking alternatives to create pressure for members to keep output up and prices up
C. find effective ways to penalize firms who do not cooperate
D. sign legally enforceable contracts setting out their mutual agreement to act like a monopoly
Answer: C Reference:
Explanation:
58. In the framework of an oligopoly, what strategy can work like a silent form of cooperation?
A. always match other cartel firms' price cuts, but don’t match price increases
B. always match other cartel firms' price increases, but don’t match price cuts
C. immediately match price increases
D. legally enforceable agreements
Answer: A Reference:
Explanation:
59. If one firm operating in an oligopoly raises its price and other firms do not do so,
A. the sales of the firm with the higher price will decline slightly.
B. the egos of all the top executives will eventually lead to cooperation at that higher price.
C. the sales of the firm that increased its price will decline sharply.
D. the firm with the increased price will have its higher profits sustained through cooperation.
Answer: C Reference:
Explanation:
60. The single most common form of competition in the U.S. is
A. perfect competition among firms with differentiated products.
B. monopolistic competition among firms with differentiated products.
C. oligopolistic competition in a certain market with similar products.
D. perfect competition because it displays product and allocative efficiencies.
Answer: B Reference:
Explanation:
Category: Remember
61. The following table shows the demand curve and cost information for a firm that is a
monopoly.
Price
$10
$9
$8
$7
Quantity
0
200
400
600
TC
$500
$1,000
$1,600
$2,500
$6
800
$4,000
What quantity should they produce to maximize their profits?
A. 200 units
B. 400 units
C. 600 units
D. 800 units
Answer: C Reference:
Explanation:
62. The table below shows the demand curve and cost information for a firm that is a monopoly.
Price
$1,000
$800
$600
$400
$200
Quantity
0
5
10
15
20
TC
$500
$1,200
$3,100
$7,000
$11,500
If they maximize their profits, what price will they charge?
A. $800
B. $600
C. $400
D. $200
Answer: B Reference:
Explanation:
63. The following table shows the demand curve and cost information for a firm that is a
monopoly.
Price
$30
$26
$22
$18
Quantity
0
1,000
2,000
3,000
TC
$10,200
$11,000
$12,000
$15,000
$14
4,000
$22,000
If they maximize their profits, what will their revenue equal?
A. $16,000
B. $32,000
C. $54,000
D. $56,000
Answer: C Reference:
Explanation:
64. The following table shows the demand curve and cost information for a firm that is a
monopoly.
Price
$30
$25
$20
$15
$10
Quantity
0
50
100
150
200
TC
$500
$600
$1,350
$2,300
$3,400
If they maximize their profits, what will their profits equal?
A. $650
B. $1,250
C. $2,000
D. $2,250
Answer: A Reference:
Explanation:
65. Mary competes in a monopolistically competitive market. Suddenly, 5 new firms enter the
market, causing her perceived demand curve to shift. The following tables show her original and
new demand curves and her cost information.
Original Demand Curve
Price
Quantit TC
y
30
0
$130
25
10
$140
Assume that Mary can only
of output given in the table.
quantity that she produces
enter the market?
A. increase by 5
B. decrease by 5
C. increase by 10
D. decrease by 10
Answer: D Reference:
20
20
15
30
10
40
New Demand Curve
Price
Quantit
y
25
0
20
10
15
20
10
30
$260
$450
$660
5
$660
40
choose from the quantities
By how much will the
change after the new firms
TC
$130
$140
$260
$450
Explanation:
66. Bob competes in a monopolistically competitive market. Suppose some new firms enter the
market, causing his perceived demand curve to shift. The following tables show his demand
curves, before and after the change, and his cost information.
Assume that Bob can only
of output given in the table.
change after these new
A. his profits will not
B. decrease by $9,000
C. increase by $11,000
D. decrease by $11,000
Answer: B Reference:
Explanation:
Original Demand Curve
Price
Quantit TC
y
$33
0
$20,000
$32
1,000
$30,000
$31
2,000
$45,000
$30
3,000
$70,000
$29
4,000
$100,000
New Demand Curve
Price
Quantit TC
y
$30
0
$20,000
$29
1,000
$30,000
$28
2,000
$45,000
$27
3,000
$70,000
$26
4,000
$100,000
choose from the quantities
By how much will his profit
firms enter the market?
change
67. Joe owns a restaurant. Many of the restaurants that he competes with recently closed,
shifting his perceived demand curve. The following 2 tables show his old and new perceived
demand curves.
Original Demand Curve
Price
$20
$18
Quantit
y
0
100
TC
$1,000
$1,100
Assume that Joe can only
of output given in the table.
price that he charges
restaurants leave the
A. increase by 3
B. decrease by 3
C. increase by 4
D. decrease by 4
Answer: A Reference:
$16
200
$14
300
$12
400
New Demand Curve
Price
Quantit
y
$25
0
$23
100
$21
200
$19
300
$17
400
$2,000
$4,000
$7,000
TC
choose from the quantities
By how much does the
change after the
market?
$1,000
$1,100
$2,000
$4,000
$7,000
Explanation:
68. Sam owns an antique store in Boston. Many of his competitors left the market, causing his
perceived demand curve to change. The following 2 tables show his old and new perceived
demand curves.
Assume Sam can only
of output given in the table.
quantity that he sells
competitors leaving the
A. it will stay the same
B. increase by 10
C. decrease by 10
D. increase by 5
Answer: Reference:
Explanation:
Original Demand Curve
Price
Quantit TC
y
$1,000
0
$3,000
$900
10
$3,300
$800
20
$4,500
$700
30
$7,000
$600
40
$12,000
New Demand Curve
Price
Quantit TC
y
$1,100
0
$3,000
$1,000
10
$3,300
$900
20
$4,500
$800
30
$7,000
$700
40
$12,000
69. A monopolistic
following information about cost and demand.
Quantity
Price ($)
0
2
4
6
25
24
23
22
Total
Revenue
($)
0
48
92
132
Marginal
Revenue
($)
25
23
21
19
choose from the quantities
By how much will the
change as a result of his
market?
competitor has the
Total Cost Marginal
($)
Cost ($)
Average
Cost($)
30
35
45
60
—
17.5
11.25
10
—
2.5
5
7.5
8
10
12
14
16
18
20
21
20
19
18
17
16
15
168
200
228
252
272
288
300
17
15
13
11
9
7
5
77
100
126
165
210
260
320
8.5
11.5
13
19.5
22.5
25
30
9.63
10
10.5
11.79
13.13
14.44
16
If this industry was perfectly competitive, what price would the good sell for?
A. $15
B. $19
C. $21
D. $23
Answer: C Reference:
Explanation:
70. A monopolistic competitor has the following information about cost and demand.
Quantity
Price ($)
0
2
4
6
8
10
12
14
16
18
20
25
24
23
22
21
20
19
18
17
16
15
Total
Revenue
($)
0
48
92
132
168
200
228
252
272
288
300
Marginal
Revenue
($)
25
23
21
19
17
15
13
11
9
7
5
What will the firm’s profits equal in the short run?
A. 0
B. $91
C. $102
D. $228
Answer: A Reference:
Total Cost Marginal
($)
Cost ($)
Average
Cost($)
30
35
45
60
77
100
126
165
210
260
320
—
17.5
11.25
10
9.63
10
10.5
11.79
13.13
14.44
16
—
2.5
5
7.5
8.5
11.5
13
19.5
22.5
25
30
Explanation:
71. A monopolistic competitor has the following information on cost and demand.
Quantity
Price ($)
0
2
4
6
8
10
12
14
16
18
20
25
24
23
22
21
20
19
18
17
16
15
Total
Revenue
($)
0
48
92
132
168
200
228
252
272
288
300
Marginal
Revenue
($)
25
23
21
19
17
15
13
11
9
7
5
Total Cost Marginal
($)
Cost ($)
Average
Cost($)
30
35
45
60
77
100
126
165
210
260
320
—
17.5
11.25
10
9.63
10
10.5
11.79
13.13
14.44
16
—
2.5
5
7.5
8.5
11.5
13
19.5
22.5
25
30
What will the firm’s profits equal in the long run?
A. $0
B. $91
C. $102
D. $228
Answer: A Reference:
Explanation:
72. A monopolistic competitor has the following information about cost and demand.
Quantity
Price ($)
0
5
10
15
20
25
15
14
13
12
11
10
Total
Revenue
($)
0
70
130
180
220
250
Marginal
Revenue
($)
15
13
11
9
7
5
Total Cost Marginal
($)
Cost ($)
Average
Cost($)
175
180
190
207
225
250
—
36
19
13.8
11.25
10
—
1
2
3.4
3.6
5
30
35
40
45
50
9
8
7
6
5
270
280
280
270
250
3
1
-1
-3
-5
290
335
385
465
565
8
9
10
16
20
9.67
9.57
9.63
10.33
11.3
If this industry was perfectly competitive, what price would the good sell for?
A. $8
B. $9
C. $10
D. $11
Answer: C Reference:
Explanation:
73. A monopolistic competitor has the following information about cost and demand.
Quantity
Price ($)
0
5
10
15
20
25
30
35
40
45
50
15
14
13
12
11
10
9
8
7
6
5
Total
Revenue
($)
0
70
130
180
220
250
270
280
280
270
250
Marginal
Revenue
($)
15
13
11
9
7
5
3
1
-1
-3
-5
Total Cost Marginal
($)
Cost ($)
Average
Cost($)
175
180
190
207
225
250
290
335
385
465
565
—
36
19
13.8
11.25
10
9.67
9.57
9.63
10.33
11.3
—
1
2
3.4
3.6
5
8
9
10
16
20
Then, in the long run equilibrium, the firm will sell this good at what price?
A. $5
B. $7
C. $10
D. $14
Answer: B Reference:
Explanation:
74. A monopolistic competitor has the following information about cost and demand.
Quantity
Price ($)
0
5
10
15
20
25
30
35
40
45
50
15
14
13
12
11
10
9
8
7
6
5
Total
Revenue
($)
0
70
130
180
220
250
270
280
280
270
250
Marginal
Revenue
($)
15
13
11
9
7
5
3
1
-1
-3
-5
Total Cost Marginal
($)
Cost ($)
Average
Cost($)
175
180
190
207
225
250
290
335
385
465
565
—
36
19
13.8
11.25
10
9.67
9.57
9.63
10.33
11.3
—
1
2
3.4
3.6
5
8
9
10
16
20
What will this firm’s profits equal in the short run?
A. -$55
B. $0
C. $250
D. $280
Answer: B Reference:
Explanation:
75. A monopolistic competitor has the following information about cost and demand.
Quantity
Price ($)
0
5
10
15
20
25
30
35
15
14
13
12
11
10
9
8
Total
Revenue
($)
0
70
130
180
220
250
270
280
Marginal
Revenue
($)
15
13
11
9
7
5
3
1
Total Cost Marginal
($)
Cost ($)
Average
Cost($)
175
180
190
207
225
250
290
335
—
36
19
13.8
11.25
10
9.67
9.57
—
1
2
3.4
3.6
5
8
9
40
45
50
7
6
5
280
270
250
-1
-3
-5
What will this firm’s profits equal in the long run?
A. -$55
B. $0
C. $250
D. $280
Answer: A Reference:
Explanation:
385
465
565
10
16
20
9.63
10.33
11.3
Essay Questions
1. Briefly discuss how differentiated products in a monopolistic competitive framework can arise.
Reference:
Explanation: In a monopolistic competitive framework, differentiated products can arise from
characteristics of the good or service, location from which the product is sold, intangible aspects
of the product, and perceptions of the product.
2. Briefly compare and contrast the perceived demand curve for a monopolistically competitive
firm and a perfectly competitive firm.
Reference:
Explanation: The perceived demand curve for a monopolistically competitive firm is downward
sloping, which shows that unlike a perfectly competitive firm with its flat perceived demand curve,
a monopolistically competitive firm is not a price-taker, but rather chooses a combination of price
and quantity.
3. Briefly compare and contrast the perceived demand curve for a monopolistic competitor and a
monopolist.
Reference:
Explanation: The perceived demand curve for a monopolistic competitor is flatter than the
perceived demand curve for a monopolist, because if a monopolistic competitor raises price it will
lose some customers to the competition, while a monopolist does not face any competition.
4. Briefly explain what quantity a profit-maximizing monopolistic competitor will seek, as well as
why or why not this type of competitive firm is productively efficient.
Reference:
Explanation: A profit-maximizing monopolistic competitor will seek out the quantity where
marginal revenue is equal to marginal cost. A monopolistically competitive firm is not
productively efficient, because it does not produce at the minimum of its average cost curve.
5. Briefly explain whether a monopolistically competitive firm is allocatively efficient or not and
why.
Reference:
Explanation: A monopolistically competitive firm is not allocatively efficient, because it does not
produce where P = MC, but instead produces where P > MC.
6. Briefly contrast the level that a monopolistically competitive firm will tend to produce at and
the price it will charge with that of a perfectly competitive firm.
Reference:
Explanation: A monopolistically competitive firm will tend to produce a lower quantity at a higher
cost and to charge a higher price than a perfectly competitive firm.
7. Briefly describe what an oligopoly is, as well as the circumstances that could allow oligopolists
to earn their highest profits.
Reference:
Explanation: An oligopoly is a situation where a few firms sell most or all of the goods in a market.
Oligopolists would earn their highest profits if they can band together as a cartel and act like a
monopolist by reducing output and raising price.
8. Briefly compare and contrast the incentives found in perfect competition with those found in
imperfect competition.
Reference:
Explanation: Perfect competition has powerful incentives for efficiency, flexibility, and
responsiveness. But the profits to be derived from imperfect competition encourage variety and
innovation, whether in the form of monopolistic competition, monopoly, or oligopoly.
9. List at least five examples of some intangible aspects that differentiate products.
Reference:
Explanation: Some intangible aspects may be 1) promises like a guarantee of satisfaction; 2)
promise of money back refund; 3) a reputation for high quality; 4) services like free delivery, 5)
offering a loan to purchase the product; 6) lower service fees; or, 7) extended warranty on parts or
service
10. Identify and briefly discuss the ways to conceive how advertising works in the framework of
monopolistic competition.
Reference:
Explanation: In the framework of monopolistic competition there are two ways to conceive of how
advertising works: either advertising causes a firm’s perceived demand curve to become more
inelastic (that is, it causes the perceived demand curve to become steeper); or advertising causes
demand for the firm’s product to increase (that is, it causes the firm’s perceived demand curve to
shift to the right). In either case, a successful advertising campaign may allow a firm to sell either
a greater quantity or to charge a higher price, or both, and thus increase its profits.