Multiple Choice Identify the
choice that best completes the statement or answers the question.
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1.
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The term monopolistic competition
a. | is an alternate expression for monopoly | b. | is used to describe
perfect competition with strong entry barriers | c. | denotes an industry with one seller of many
differentiated products | d. | denotes an industry with many sellers of
homogeneous products | e. | denotes an industry with many sellers of
differentiated products |
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2.
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Differentiated products are
a. | unique and different for each brand | b. | uniform or standardized | c. | heterogenous | d. | rare and expensive | e. | a and c
above | f. | a and d above |
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3.
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Which of the following is an example of a monopolistic competitor?
a. | General Motors | b. | a wheat farmer in Iowa | c. | a long-distance
telephone company | d. | a family-owned Italian
restaurant |
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4.
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Monopolistically competitive firms ignore the effect of their decisions upon
other firms in the industry because
a. | each firm is large relative to the market | b. | each firm is small
relative to the market | c. | there are few sellers in the
market | d. | there is only one seller in the market | e. | all firms follow the same known pricing
rules |
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5.
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The demand curve facing Imelda's Shoe Boutique, a firm in monopolistic
competition,
a. | is horizontal because Imelda's is small relative to the market as a
whole | b. | is horizontal because Imelda's is large relative to the market as a
whole | c. | slopes downward because Imelda's is small relative to the market as a
whole | d. | slopes downward because Imelda's sells a differentiated
product | e. | slopes downward because Imelda's is the entire
industry |
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6.
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In economics, products are considered "differentiated" only if
a. | they are physically or chemically different | b. | sellers decide that
they are different | c. | buyers think that they are
different | d. | the government determines that they are different | e. | they are produced by
different firms |
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7.
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Assume a monopolistically competitive firm is earning an economic profit. The
marginal revenue from selling an additional unit is $30 and the marginal cost of producing that
additional unit is $23. The firm should
a. | change neither its price nor its output level | b. | reduce its price and
increase its output level | c. | increase its price and reduce its output
level | d. | reduce both its price and its output level | e. | increase both its
price and its output level |
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8.
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Because of relatively easy entry, monopolistically competitive firms will
a. | produce at the lowest average total cost | b. | charge a price equal
to marginal cost | c. | earn no economic profit in the long run | d. | take advantage of
all economies of scale | e. | earn no economic profit in the short
run |
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9.
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If the firms in a monopolistically competitive industry are suffering short-run
losses, which of the following will occur in the long run?
a. | Some firms will enter the industry. | b. | Customers of firms that leave the industry will
switch to remaining firms. | c. | Firms that remain in the industry will face
reduced demand. | d. | Firms will continue to incur losses. | e. | There will be no excess
capacity. |
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10.
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Suppose that firms in a monopolistically competitive industry are earning
short-run economic profits. In the long run, the demand curve facing each individual firm can be
expected to
a. | shift to the left and become flatter | b. | shift to the left and become
steeper | c. | shift to the right and become flatter | d. | shift to the right and become
steeper | e. | remain constant |
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11.
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Which of the following is one of the assumptions upon which the theory of
monopolistic competition is built?
a. | There are many sellers. | b. | There are few buyers. | c. | It is difficult to
enter the industry. | d. | Each firm in the industry produces a
homogeneous product. |
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12.
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In a monopolistically competitive market, which of the following factors
probably does not give rise to product differentiation?
a. | packaging of the product | b. | brand names | c. | loyalty of customers
to a particular producer | d. | quality difference | e. | the small number of
sellers |
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13.
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Which of the following industries is the best example of monopolistic
competition?
a. | cell phone service providers | b. | electricity generation | c. | automobiles | d. | automobile repair
shops |
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14.
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The monopolistic competitor faces a __________ demand curve.
a. | horizontal | b. | vertical | c. | downward-sloping | d. | upward-sloping |
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15.
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Product differentiation is a form of
a. | arbitrage. | b. | nonprice competition. | c. | price
competition. | d. | price searching. |
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16.
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When the long-run outcomes of perfect competition and monopolistic competition
are compared, monopolistic competition is likely to be
a. | slightly less efficient and less innovative | b. | more efficient, but
less innovative | c. | slightly less efficient, but more innovative | d. | more efficient and
more innovative |
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17.
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Collusion among firms to raise price is rarely successful in monopolistically
competitive markets because
a. | there are too many firms | b. | there are too few firms | c. | there is only one
firm | d. | products are homogeneous | e. | price leadership is used
instead |
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Hewlett-Packard introduced the first laser printer to be used with personal
computers in 1983. It proved to be a very good seller and earned significant
profits for H-P. Indeed, laser printers accounted for the majority of all of H-P’s
profits in the 1980’s and early 1990’s. Today, many brands, styles, types of laser
printers are available from a large number of firms, including H-P. However, H-P no longer
earns high profits on it’s laser printers.
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18.
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With only the information given above, an economist would probably explain the
drop in H-P’s profits as follows:
a. | H-P must have experienced an increase in some important cost of production, resulting
in a drop in profits | b. | H-P’s high profits and success attracted
new firms into the market for coffeemakers. | c. | Consumer demand for laser printers has been
replaced by ink jet printers, forcing H-P to heavily discount it’s
printers. | d. | The government has taxed away H-P’s excess profits as part of the an anti-trust
settlement. |
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19.
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Suppose H-P calculates that at present output and prices, marginal revenue is
$56 and marginal cost is $43. The company could increase its profits in the short run by:
a. | leaving output unchanged and raising the price | b. | leaving output
unchanged and lowering the price. | c. | increasing output. | d. | decreasing
output
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20.
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Today, laser printers are available as both color or black-and-white. Some
lasers are small and others designed for heavy-duty. Some have extra features like scanners,
while others are very simple. There are many brands of laser printers. The market for portable
computers is now
a. | pure monopoly | b. | oligopoly | c. | monopolistic
competition | d. | perfect competition |
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