58) The U.S. Justice Department
A) scrutinizes any merger of firms in a market in which the four-firm concentration exceeds 25
percent.
B) uses only the Herfindahl-Hirschman Index when considering whether to challenge a merger.
C) is likely to challenge a merger if the Herfindahl-Hirschman Index exceeds 1800.
D) Answers A and B are correct.
E) Answers B and C are correct.
59) One problem with measures of market concentrations is that they do not
A) account for barriers to entry.
B) allow for all market types.
C) account for the difficulty in collecting total revenue data.
D) create meaningful comparisons across industries.
E) accurately measure concentration in markets with fewer than 4 firms.
60) In monopolistic competition there
A) are many firms and many buyers.
B) are several large firms.
C) is one large firm.
D) might be many, several, or one firm.
E) are many firms but only a few buyers.
61) A firm in monopolistic competition has a ________ market share and ________ influence
the price of its good or service.
A) large; can
B) large; cannot
C) small; can
D) small; cannot
E) large; might be able to
62) Product differentiation means
A) making a product that has perfect substitutes.
B) making a product that is entirely unique.
C) the inability to set your own price.
D) making a product that is slightly different from products of competing firms.
E) making your demand curve horizontal.
63) Firms in monopolistic competition compete on
i. quality.
ii. price.
iii. marketing.
A) i and ii
B) ii only
C) ii and iii
D) i and iii
E) i, ii, and iii
64) A firm in monopolistic competition has ________ demand curve.
A) a downward sloping
B) an upward sloping
C) a vertical
D) a horizontal
E) a U-shaped
65) The absence of barriers to entry in monopolistic competition means that in the long run firms
A) earn an economic profit.
B) earn zero economic profit.
C) incur an economic loss.
D) earn either an economic profit or zero economic profit.
E) earn either zero economic profit or suffer an economic loss.
66) If the four-firm concentration ratio for the market for pizza is 28 percent, then this industry is
best characterized as
A) a monopoly.
B) monopolistic competition.
C) an oligopoly.
D) perfect competition.
E) oligopolistic competition.
67) Each of the ten firms in an industry has 10 percent of the industry’s total revenue. The four-
firm concentration ratio is
A) 80.
B) 100.
C) 1,000.
D) 40.
E) 10.
68) Each of the four firms in an industry has a market share of 25 percent. The Herfindahl-
Hirschman Index equals
A) 3,600.
B) 100.
C) 625.
D) 25.
E) 2,500.
69) The larger the four-firm concentration ratio, the ________ competition within an industry;
the larger the Herfindahl-Hirschman Index, the ________ competition within an industry.
A) more; more
B) more; less
C) less; more
D) less; less
E) The premise of the question is wrong because the four-firm concentration ratio applies only to
markets with four firms in it and these markets are, by definition, not competitive.
1) For a monopolistically competitive firm, the demand curve
A) is a horizontal line.
B) has a positive slope.
C) is vertical.
D) has a negative slope.
E) is the same as the marginal revenue curve.
2) The marginal revenue curve facing a monopolistically competitive firm
A) lies on its demand curve.
B) lies above its demand curve.
C) lies below its demand curve.
D) is equal to its price curve.
E) is parallel to its demand curve.
3) When a firm maximizes its profit, which of the following is correct for firms in monopolistic
competition and perfect competition?
A) P = MC for both types of firms.
B) P = MR = MC for firms in perfect competition and P > MR = MC for firms in monopolistic
competition.
C) MR = MC for firms in perfect competition and MR > MC for firms in monopolistic
competition.
D) P > MR = MC for firms in both perfect competition and monopolistic competition.
E) P = ATC always for firms in both perfect competition and monopolistic competition.
4) Firms in monopolistic competition determine the profit-maximizing level of output by
producing
A) the same output level as rivals do.
B) where average total cost is minimized.
C) at the point of minimum average fixed cost.
D) where marginal revenue equals marginal cost.
E) where price equals average total cost.
5) In monopolistic competition, profit is maximized by producing so that marginal revenue
A) equals price.
B) is negative.
C) equals marginal cost and which are less than price.
D) equals average total cost but not marginal cost.
E) equals marginal cost and equals price.
6) A firm in monopolistic competition makes its decisions on quantity and price by
A) taking price as given from the market and producing where MR = MC.
B) taking both price and quantity as given from the market.
C) producing where MR = MC and setting the price for this quantity from the demand curve.
D) taking quantity as given from the market and setting the price for this quantity from the
demand curve.
E) producing where MR = MC and setting the price so that P = MR = MC.
7) To maximize profit, a firm in monopolistic competition will produce the quantity where
marginal revenue
A) is greater than marginal cost.
B) equals zero.
C) is less than marginal cost.
D) equals marginal cost.
E) equals average total cost.
8) If a monopolistically competitive seller’s marginal cost is $3.56, the firm will increase its
output if
A) its marginal revenue is less than $3.56.
B) its marginal revenue is equal to $3.56.
C) its marginal revenue is more than $3.56.
D) average total cost is less than $3.56.
E) Both answers A and D are correct.
9) If a monopolistically competitive seller’s marginal cost is $3.56, the firm will decrease its
output if
A) its marginal revenue is less than $3.56.
B) its marginal revenue is equal to $3.56.
C) its marginal revenue is more than $3.56.
D) its average total cost is equal to $4.00.
E) Both answers B and D are correct.
10) If a monopolistically competitive seller’s marginal cost is $3.56, the firm will not change its
output if
A) its marginal revenue is less than $3.56.
B) its marginal revenue is equal to $3.56.
C) its marginal revenue is more than $3.56.
D) its average total cost is equal to $3.56.
E) Both answers B and D are correct.
11) Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand
and cost curves for his firm, which competes in a monopolistically competitive market. Kevin
will train how many clients per day?
A) 4
B) 6
C) 10
D) between 2 and 4
E) None of the above answers is correct.
12) Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand
and cost curves for his firm, which competes in a monopolistically competitive market. What
price will Kevin charge per session?
A) $100
B) $60
C) $40
D) $20
E) $80
13) Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand
and cost curves for his firm, which competes in a monopolistically competitive market. If Kevin
trains 5 clients per day, he will ________ his profit and will ________.
A) maximize; earn normal profit
B) not maximize; earn a normal profit anyway
C) maximize; earn an economic profit
D) not maximize; earn an economic profit anyway
E) not maximize; incur an economic loss
14) The above figure shows a restaurant engaged in monopolistic competition with other
restaurants. The equilibrium price at this restaurant is ________ per meal.
A) $20
B) $30
C) $50
D) less than $20
E) more than $50
15) The above figure shows a restaurant engaged in monopolistic competition with other
restaurants. The equilibrium quantity at this restaurant is ________ meals per day.
A) less than 150
B) between 151 and 250
C) between 251 and 350
D) between 451 and 450
E) more than 451
16) The above figure shows a motel engaged in monopolistic competition with other motels. The
equilibrium price at this motel is ________ per room.
A) $20
B) $30
C) $40
D) $50
E) $10
17) The above figure shows a motel engaged in monopolistic competition with other motels. The
equilibrium quantity at this motel is ________ rooms per day.
A) 200
B) 300
C) 400
D) 500
E) 100
18) The above figure shows a motel engaged in monopolistic competition with other motels. the
figure above shows the ________ equilibrium in which the motel is ________ .
A) short-run; earning an economic profit
B) short-run; earning a normal profit
C) long-run; earning an economic profit
D) long-run; earning a normal profit
E) short-run; incurring an economic loss
19) The major difference between monopolistic competition and monopoly is
A) monopoly is a price setter and a firm in monopolistic competition is a price taker.
B) only a monopoly can earn an economic profit in the long run.
C) only a firm in monopolistic competition can earn an economic profit in the short run.
D) how the quantity of output is determined.
E) only firms in monopolistic competition are protected by barriers to entry.
20) In the long run in monopolistic competition, firms
A) can earn an economic profit.
B) incur an economic loss.
C) can earn zero economic profit but not an economic profit.
D) shut down if they are earning zero economic profit.
E) earn either an economic profit or zero economic profit.
21) If firms in monopolistic competition are earning economic profits, eventually
A) they shut down.
B) they exit the industry.
C) the market turns into a monopoly.
D) new firms enter the industry.
E) the firms in the market increase their production so that their economic profit disappears.
22) If a firm in monopolistic competition is earning an economic profit,
A) it is in the long run.
B) other firms can enter the market.
C) it can do so because it is “monopolistic” and other firms will have a hard time competing with
it.
D) its average cost must exceed its marginal cost.
E) The question errs because firms in monopolistic competition cannot earn an economic profit.
23) In the long run, firms in monopolistic competition earn zero economic profit because
A) firms are free to enter and exit.
B) their products are similar but slightly different.
C) of over-reliance on product marketing.
D) of collusion among the various sellers.
E) their demand curves are horizontal.
24) In long-run equilibrium, a firm in monopolistic competition makes
A) an economic profit but the economic profit is less than it would be if the firm was a
monopoly.
B) an economic profit that is higher than what it would be if the firm was a monopoly.
C) zero economic profit.
D) an economic profit that is the same amount as it would be if the firm was a monopoly.
E) an economic profit, an economic loss, or zero economic profit.
25) In monopolistic competition there are ________ barriers to entry, so therefore in the long
run, economic profit ________.
A) no; is substantial
B) no; equals zero
C) many; equals zero
D) many; is substantial
E) many; might be earned depending on the degree of product differentiation
26) In monopolistic competition, there are ________ barriers to entry and so firms in
monopolistic competition ________ earn an economic profit in the long run.
A) high; can
B) high; cannot
C) no; can
D) no; cannot
E) sometimes; can sometimes
27) Entry and exit continue in monopolistic competition until the remaining firms are
A) earning an economic profit.
B) incurring an economic loss.
C) earning less than a normal profit.
D) earning zero economic profit.
E) producing the normal amount of product differentiation.
28) A firm in monopolistic competition is similar to a firm in perfect competition because they
both
A) can earn only zero economic profit in the long run.
B) can earn only zero economic profit in the short run.
C) maximize their profits by producing where P = MR = MC.
D) Both answers A and C are correct.
E) Both answers B and C are correct.
29) The primary reason why monopolistically competitive firms cannot earn an economic profit
in the long run is because
A) there are barriers to entry.
B) there is freedom of entry.
C) the antitrust laws prevent profit from increasing.
D) recessions occur.
E) they collude to earn a normal profit.
30) In monopolistic competition, the entry of new firms
A) shifts existing firms’ demand curves rightward.
B) shifts existing firms’ demand curves leftward.
C) only results in a movement along the existing firms’ demand curves.
D) has no effect on the existing firms’ demand curves.
E) shifts existing firms’ supply curves rightward.
31) When a monopolistically competitive firm’s demand curve shifts leftward, what happens to
its marginal revenue curve?
A) Nothing, the marginal revenue curve is unchanged.
B) It disappears.
C) It shifts rightward.
D) It shifts leftward.
E) None of the above is correct because the effect on the marginal revenue curve depends on
whether the demand was initially elastic or inelastic.
32) If firms in monopolistic competition are earning economic profits, then
A) they can expect to earn the profits indefinitely.
B) new rivals enter the industry and the demand for any seller’s good decreases.
C) the market demand becomes more inelastic.
D) the industry is in long-run equilibrium.
E) new rivals enter the industry and the demand for any seller’s good increases.
33) Nike is a firm in monopolistic competition. If Nike is earning an economic profit from new
cross-training shoe, over time the demand for these shoes
A) increases as new firms enter the market.
B) decreases as new firms enter the market.
C) does not change as new firms enter the market.
D) decreases as firms exit the market.
E) increases as firms exit the market.
34) In the long run, firms in monopolistic competition earn zero economic profit. When firms
earn zero economic profit, in the long run hey exit the industry.
A) The first sentence is correct and the second sentence is incorrect.
B) The first sentence is incorrect and the second sentence is correct.
C) Both sentences are correct.
D) Both sentences are incorrect.
E) More information about the presence or absence of barriers to entry and exit is needed to
determine if the statements are true or false.
35) When firms in monopolistic competition incur an economic loss, some firms will
A) enter the industry and produce more products.
B) exit the industry, and demand will increase for the firms that remain.
C) exit the industry, and demand will decrease for the firms that remain.
D) enter the industry, and demand will become more elastic for the original firms.
E) exit the industry and other firms will enter.
36) When firms in monopolistic competition are making an economic profit, firms will
A) enter the industry, and demand will increase for the original firms.
B) exit the industry, and demand will increase for the firms that remain.
C) exit the industry, and demand will decrease for the firms that remain.
D) enter the industry, and demand will decrease for the original firms.
E) enter the industry and then will exit the industry.
37) At a long-run equilibrium in monopolistic competition, price equals
A) average total cost.
B) marginal cost but not marginal revenue.
C) marginal revenue but not marginal cost.
D) zero.
E) marginal revenue and marginal cost.
38) In the long run, a firm in monopolistic competition will produce
A) where average total cost is minimized.
B) where price equals average total cost but average total cost is not at its minimum.
C) zero output.
D) any possible amount of output.
E) where price equals marginal cost.
39) Which of the following is NOT a characteristic of long-run equilibrium in monopolistic
competition?
A) the firm earns zero economic profit
B) price equal to average total cost
C) production occurs at minimum average total cost
D) marginal revenue is equal to marginal cost
E) price exceeds marginal revenue
40) Which of the following is TRUE about a firm in monopolistic competition in the long run?
A) P = MC
B) P = MR
C) ATC = MC
D) P = ATC
E) MC = ATC
41) In the long-run, a firm in monopolistic competition produces at an output level where
A) P > ATC and MR = MC.
B) P > ATC and MR > MC.
C) P = ATC and MR = MC.
D) P = ATC and MR > MC.
E) P = ATC and MC = ATC.
42) In monopolistic competition in the long run, firms ________.
A) make zero economic profit and require more capacity
B) incur an economic loss and require more capacity
C) make an economic profit and have excess capacity
D) make zero economic profit and have excess capacity
E) make an economic profit and require more capacity
43) Excess capacity is the
A) difference between a perfectly competitive firm’s and a monopolistically competitive firm’s
output.
B) difference between a perfectly competitive firm’s and a monopoly’s output.
C) output at the maximum point of the ATC curve.
D) difference between the price charged by a monopoly and a monopolistically competitive firm
with the same costs.
E) None of the above answers is correct.
44) In the long run, firms in monopolistic competition produce at a level that is ________ the
efficient scale of output.
A) less than
B) equal to
C) more than
D) not comparable to
E) All of the above are possible depending on market conditions.