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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
13-2
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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?
13-3
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Reflective Thinking
Accessibility:
Keyboard Navigation
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,
13-4
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
AACSB: Reflective Thinking
Accessibility:
Keyboard Navigation
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
13-5
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
13-6
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
13-7
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. firms will realize economic profits in the long run.
AACSB: Reflective Thinking
Accessibility:
Keyboard Navigation
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
13-8
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
AACSB: Reflective Thinking
A c c e s s i b i l i t y :
Keyboard Navigation
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
13-9
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A. 100.
B.
10,000.
C. 100,000.
D. 10.
AACSB: Reflective Thinking
Accessibility:
Keyboard Navigation
Blooms: Remember
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
13-10
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
13-11
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Reflective Thinking
Accessibility:
Keyboard Navigation
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
13-17
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
13-18
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Reflective Thinking
A c c e s s i b i l i t y :
Keyboard Navigation
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
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
13-19
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A.
above marginal cost.
B. below marginal cost.
C. equal to marginal revenue.
D. equal to marginal cost.
AACSB: Reflective Thinking
Accessibility:
Keyboard Navigation
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
