978-1259723223 Test Bank TBChap013 Part 1

Chapter 13 Monopolistic Competition Answer Key

Multiple Choice Questions

1. Monopolistic competition means

2. Monopolistic competition is characterized by a

3. Under monopolistic competition, entry to the industry is

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Blooms: Remember

Difficulty:

01 Easy

Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

4. In which of these continuums of degrees of competition (highest to lowest) is

monopolistic competition properly placed?

5. Monopolistic competition resembles pure competition because

6. Which of the following is not a basic characteristic of monopolistic competition?

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Blooms: Remember

Difficul t y:

01 Easy

Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

7. Nonprice competition refers to

8. The restaurant, legal assistance, and clothing industries are each illustrations of

9. If the number of firms in a monopolistically competitive industry increases and the

degree of product differentiation diminishes,

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A. the likelihood of realizing economic profits in the long run would be enhanced.

B. individual firms would now be operating at outputs where their average total costs

would be higher.

C.

the industry would more closely approximate pure competition.

D. the likelihood of collusive pricing would increase.

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Blooms: Remember

Difficulty:

01 Easy

Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

10. Economic analysis of a monopolistically competitive industry is more complicated

than that of pure competition because

11. A monopolistically competitive industry combines elements of both competition and

monopoly. The monopoly element results from

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Topic:

Monopolistic Competition

12. A monopolistically competitive industry combines elements of both competition and

monopoly. The competition element results from

13. A significant difference between a monopolistically competitive firm and a purely

competitive firm is that the

14. A significant difference between a monopolistically competitive firm and a purely

competitive firm is that the

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Blooms: Remember

Difficul t y:

01 Easy

Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

15. A monopolistically competitive industry combines elements of both competition and

monopoly. It is correct to say that the competitive element results from

16. Monopolistically competitive and purely competitive industries are similar in that

17. The monopolistic competition model assumes that

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D. firms will realize economic profits in the long run.

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Blooms: Remember

Difficulty:

01 Easy

Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

18. Use your basic knowledge and your understanding of market structures to answer this

question. Which of the following companies most closely approximates a monopolistic

competitor?

19. In which of the following market models do demand and marginal revenue diverge?

20. Concentration ratios measure the

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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 industry sales accounted for by the largest firms in the industry.

D. number of firms in an industry.

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Blooms: Remember

Difficulty:

01 Easy

Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

21. If the four-firm concentration ratio for industry X is 80,

22. An industry having a four-firm concentration ratio of 30 percent

23. The Herfindahl index for a pure monopolist is

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A. 100.

B.

10,000.

C. 100,000.

D. 10.

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Difficulty:

01 Easy

Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

24. Industries X and Y both have four-firm concentration ratios of 32 percent, but the

Herfindahl index for X is 256, while that for Y is 264. These data suggest

25. Suppose that total sales in an industry in a particular year are $800 million and sales by

the top four sellers are $50 million, $40 million, $30 million, and $30 million,

respectively. We can conclude that

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Topic:

Monopolistic Competition

26. The four-firm sales concentration ratio for an industry measures the

27. If an industry evolves from oligopoly to monopolistic competition, we would expect

28. 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 the

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Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

29. The Herfindahl index

30. If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each

firm has an equal percentage of sales, the Herfindahl index is

31. Assume the top six firms comprising an industry have market shares of 10, 8, 8, 5, 5,

and 4 percent. The remaining 20 firms each have market shares of 2 percent. The

Herfindahl index for this industry is

13–12

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Blooms: Remember

Difficulty:

01 Easy

Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

32. Suppose the Herfindahl indexes for industries A, B, and C are 1,200, 5,000, and 7,500

respectively. These data imply that

33.

Firm

Market Share (%)

A

20

B

20

C

20

D

20

E

10

F

10

Refer to the data. The Herfindahl index for the industry is

13–13

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AACSB: Reflective Thinking

Blooms: Remember

Difficulty:

01 Easy

Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

Type: Table

34.

Firm

Market Share (%)

A

20

B

20

C

20

D

20

E

10

F

10

Refer to the data. If all the firms in the industry merged into a single firm, the Herfindahl

index would become

35.

Firm

Market Share (%)

A

20

B

20

C

20

D

20

E

10

F

10

Refer to the data. Suppose that firms in this industry split up such that there were 100

firms, each with a 1 percent market share. The four-firm concentration ratio and the

Herfindahl index respectively would be

36.

Firm

Market Share (%)

A

40

B

30

C

20

D

5

E

5

Refer to the data. The four-firm concentration ratio for this industry is

13–15

written consent of McGraw-Hill Education.

Difficulty:

01 Easy

Learning Objective: 13–01 List the characteristics of monopolistic competition.

Test Bank: I

Topic:

Monopolistic Competition

Type: Table

37.

Firm

Market Share (%)

A

40

B

30

C

20

D

5

E

5

Refer to the data. The Herfindahl index for this industry is

38.

Firm

Market Share (%)

A

40

B

30

C

20

D

5

E

5

Refer to the data. If Firm B merged with Firm C, the industry’s four-firm concentration

ratio would and its Herfindahl index would .

39. A monopolistically competitive firm has a

40. The monopolistically competitive seller’s demand curve will become more elastic the

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Topic:

Price and Output in Monopolistic Competition

41. The larger the number of firms and the smaller the degree of product differentiation, the

42. The demand curve of a monopolistically competitive producer is

43. A monopolistically competitive firm‘s marginal revenue curve

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Difficulty:

02 Medium

Learning Objective: 13–02 Explain why monopolistic competitors earn only a normal

profit in the long run.

Test Bank: I

Topic:

Price and Output in Monopolistic Competition

44. The price elasticity of a monopolistically competitive firm’s demand curve varies

45. In the short run, a profit–maximizing monopolistically competitive firm sets it price

46. In the long run, a profit-maximizing monopolistically competitive firm sets it price

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A.

above marginal cost.

B. below marginal cost.

C. equal to marginal revenue.

D. equal to marginal cost.

AACSB: Reflective Thinking

Accessibility:

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Blooms: Understand

Difficulty:

02 Medium

Learning Objective: 13–02 Explain why monopolistic competitors earn only a normal

profit in the long run.

Test Bank: I

Topic:

Price and Output in Monopolistic Competition

47. In the short run, the price charged by a monopolistically competitive firm attempting to

maximize profits

48. In the long run, the price charged by the monopolistically competitive firm attempting

to maximize profits

13–20

written consent of McGraw-Hill Education.

Learning Objective: 13–02 Explain why monopolistic competitors earn only a normal

profit in the long run.

Test Bank: I

Topic:

Price and Output in Monopolistic Competition

49. Monopolistically competitive firms

50. The monopolistically competitive seller maximizes profit by producing at the point

where

51. In the long run, the price charged by a monopolistically competitive firm seeking to

maximize profit will