13–96
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B. marginal cost is less than price.
C. marginal cost is not at its lowest.
D.
average total cost is not at its lowest.
188. In the long run, the representative firm in monopolistic competition tends to have
189. At long-run equilibrium in monopolistic competition, there is
190. Compared to a purely competitive firm in long-run equilibrium, the monopolistic
competitor has a
191. Which is true of pure competition but not of monopolistic competition?
192. Compared to pure competition, monopolistic competition
13–98
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written consent of McGraw-Hill Education.
Difficulty:
02 Medium
Learning Objective: 13–04 Relate how the ability of monopolistic competition to deliver
product differentiation helps to compensate for its failure to deliver economic efficiency.
Test Bank: II
Topic:
Product Variety
193. The variety of products and features that consumers may choose from in
monopolistically competitive industries
194. Product variety in monopolistic competition comes at the cost of
195. In monopolistic competition, if a firm advertises and effectively raises consumer
awareness of its product, it tends to
13–99
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written consent of McGraw-Hill Education.
C. lower costs and increase demand for its product.
D. lower costs and decrease demand for its product.
196. Which statement concerning monopolistic competition is false?
197. Which is not a common form of nonprice competition in monopolistic competition?
13-100
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written consent of McGraw-Hill Education.
product differentiation helps to compensate for its failure to deliver economic efficiency.
Test Bank: II
Topic:
Product Variety
198. The stronger the product differentiation in monopolistic competition, the
199. Product differentiation in monopolistic competition involves a trade-off between
200. The market situation of a monopolistic competitor is made more complex than our
simple revenue-and-costs graphs would suggest, because the firm in reality juggles three
decisions:
13-101
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written consent of McGraw-Hill Education.
A. price, output quantity, and revenues.
B. revenue, costs, and profits.
C. advertising, resources, and product.
D.
price, product, and advertising.
201. Communist central planners didn’t care about product differentiation, opting
instead for a uniform design of products in order to achieve
202. “Variety is the spice of life” is best applied to which market structure?
13-102
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written consent of McGraw-Hill Education.
Test Bank: II
Topic:
Product Variety
203. In a monopolistically competitive market like restaurants, large capital-intensive firms
like McDonald’s may co-exist with more labor-intensive mom-and-pop shops. In this
case, higher labor costs would tend to favor the survival of
True / False Questions
204. Monopolistically competitive firms exist due to high barriers to entry.
205. Monopolistically competitive firms have some control over the price of their
products.
13-103
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written consent of McGraw-Hill Education.
Test Bank: II
Topic:
Monopolistic Competition
206. Brand names and packaging are forms of product differentiation under monopolistic
competition.
207. Product differentiation is what allows monopolistically competitive firms to have
some market power.
208. The four-firm concentration ratio cannot have a value above 1.0.
209. The Herfindahl index is a measure of the degree of product differentiation in an
industry.
13-104
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written consent of McGraw-Hill Education.
FA LSE
210. We would expect the four-firm concentration ratio of the restaurant industry in a large
metropolitan area to be about 0.80, or 80 percent, and higher.
211. The demand curve faced by a monopolistically competitive firm is more elastic than
the monopolist‘s demand curve.
212. The larger the number of firms in an industry and the less the extent of product
differentiation, the greater will be the elasticity of the individual seller’s demand curve.
13-105
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written consent of McGraw-Hill Education.
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 13–02 Explain why monopolistic competitors earn only a normal
profit in the long run.
Test Bank: II
Topic:
Price and Output in Monopolistic Competition
213. If the representative firm in a monopolistically competitive industry has an optimal
output where P < ATC, the industry will expand in the long run.
214. In the long run, a typical firm in a monopolistically competitive market earns positive
economic profits.
215. In monopolistic competition, easy industry entry and exit drives long-run profits of
firms to zero.
13-106
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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: II
Topic:
Price and Output in Monopolistic Competition
216. In monopolistic competition, short-run positive economic profits of firms in the
market will cause the market demand to expand.
217. Long–run profits of individual firms in monopolistic competition will be larger than
their short-run profits.
218. As new firms enter a monopolistically competitive market, the demand curves facing
existing firms will tend to shift left.
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written consent of McGraw-Hill Education.
Test Bank: II
Topic:
Price and Output in Monopolistic Competition
219. As firms exit from a monopolistically competitive industry in the long run, the
remaining firms’ profits will begin to rise.
220. Monopolistically competitive firms will achieve the most efficient allocation of
society’s resources because there are no significant barriers to entry into the industry.
221. Pure competition results in a lower price but identical output level compared to those
in monopolistic competition.
222. Monopolistic competition entails a deadweight loss to society, even if the firms earn
zero economic profits.
223. “Excess capacity” exists in monopolistic competition but not in pure competition.
224. The amount of excess capacity in pure competition tends to become larger the more
elastic the individual firm’s demand curve becomes.
225. The entry of more firms into a monopolistically competitive market tends to increase
the excess capacity of firms in the industry in the long run.
226. Monopolistic competition provides the benefit of product variety but at the cost of
productive inefficiency.
227. That one thing that monopolistic competition provides, which is not assured in the
other market structures, is product variety.
228. Product differentiation in a monopolistically competitive market always entails more
costs than benefits.
229. If we believe that “variety is the spice of life,” then we should be more concerned
about the excess capacity in monopolistic competition and do our best to eliminate it.