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Quiz #10: PRACTICE - micro Monopolistic Competition



Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 

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
 

 2. 

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
 

 3. 

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
 

 4. 

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
 

 5. 

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
 

 6. 

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
 

 7. 

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
 

 8. 

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
 

 9. 

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.
 

 10. 

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
 

 11. 

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.
 

 12. 

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
 

 13. 

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
 

 14. 

The monopolistic competitor faces a __________ demand curve.
a.
horizontal
b.
vertical
c.
downward-sloping
d.
upward-sloping
 

 15. 

Product differentiation is a form of
a.
arbitrage.
b.
nonprice competition.
c.
price competition.
d.
price searching.
 

 16. 

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
 

 17. 

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
 
 
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.
 

 18. 

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.
 

 19. 

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
 

 20. 

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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