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Monopolistic Competition
Multiple Choice – Section 00: Introduction
1. Which of the following is a characteristic of monopolistic competition?
a. ownership of a key resource by a single firm
b. free entry
c. identical product
d. patents
2. The market for novels is
a. perfectly competitive.
b. a monopoly.
c. monopolistically competitive.
d. an oligopoly.
3942 Monopolistic Competition
3. Monopolistic competition is a type of
a. oligopoly.
b. market structure.
c. price discrimination.
d. advertising strategy.
4. A monopolistically competitive market has characteristics that are similar to
a. a monopoly only.
b. a competitive firm only.
c. both a monopoly and a competitive firm.
d. neither a monopoly nor a competitive firm.
Monopolistic Competition 3943
Multiple Choice – Section 01: Between Monopoly and Perfect Competition
1. A typical firm in the US economy would be classified as
a. perfectly competitive.
b. imperfectly competitive.
c. a duopolist.
d. an oligopolist.
2. The typical firm in the US economy
a. has some degree of market power.
b. sells its product for a price that is equal to the marginal cost of producing the last unit.
c. is perfectly competitive.
d. is a monopoly.
3944 Monopolistic Competition
3. Which of the following pairs illustrates the two extreme examples of market structures?
a. competition and oligopoly
b. competition and monopoly
c. monopoly and monopolistic competition
d. oligopoly and monopolistic competition
4. The general term for market structures that fall somewhere between monopoly and perfect
competition is
a. incomplete markets.
b. imperfectly competitive markets.
c. oligopoly markets.
d. monopolistically competitive markets.
Monopolistic Competition 3945
5. The two types of imperfectly competitive markets are
a. markets with advertising and markets with price competition.
b. public goods and common resources.
c. oligopoly and monopoly.
d. monopolistic competition and oligopoly.
6. The two types of imperfectly competitive markets are
a. monopoly and monopolistic competition.
b. monopoly and oligopoly.
c. monopolistic competition and oligopoly.
d. monopolistic competition and cartels.
3946 Monopolistic Competition
7. Which of the following statements is not correct?
a. Monopolistic competition is similar to monopoly because in each market structure the firm can
charge a price above marginal costs.
b. Monopolistic competition is similar to perfect competition because both market structures are
characterized by free entry.
c. Monopolistic competition is similar to oligopoly because both market structures are characterized
by barriers to entry.
d. Monopolistic competition is similar to perfect competition because both market structures are
characterized by many sellers.
8. Which of the following statements is not correct?
a. Monopolistic competition is different from monopoly because monopolistic competition is
characterized by free entry, whereas monopoly is characterized by barriers to entry.
b. Both monopolistic competition and oligopoly fall in between the more extreme market structures
of competition and monopoly.
c. Monopolistic competition is different from oligopoly because each seller in monopolistic
competition is small relative to the market, whereas each seller can affect the actions of other
sellers in an oligopoly.
d. Both monopolistic competition and perfect competition are characterized by product
differentiation.
Monopolistic Competition 3947
9. In a market that is characterized by imperfect competition,
a. firms are price takers.
b. there are always a large number of firms.
c. there are at least a few firms that compete with one another.
d. the actions of one firm in the market never have any impact on the other firms' profits.
10. Firms in industries that have competitors but do not face so much competition that they are price
takers are operating in either a(n)
a. oligopoly or perfectly competitive market.
b. oligopoly or monopoly market.
c. oligopoly or monopolistically competitive market.
d. monopoly or monopolistically competitive market.
3948 Monopolistic Competition
11. Imperfectly competitive firms are characterized by
a. horizontal demand curves.
b. standardized products.
c. a large number of small firms.
d. price making ability.
12. An oligopoly
a. has a concentration ratio of less than 50 percent.
b. is a price taker.
c. is a type of imperfectly competitive market.
d. has many firms rather than just one firm or a few firms.
Monopolistic Competition 3949
13. An oligopoly is a market in which
a. there are only a few sellers, each offering a product similar or identical to the products offered
by other firms in the market.
b. firms are price takers.
c. the actions of one seller in the market have no impact on the other sellers' profits.
d. there are many price-taking firms, each offering a product similar or identical to the products
offered by other firms in the market.
14. One characteristic of an oligopoly market structure is:
a. firms in the industry are typically characterized by very diverse product lines.
b. firms in the industry have some degree of market power.
c. products typically sell at a price equal to their marginal cost of production.
d. the actions of one seller have no impact on the profitability of other sellers.
3950 Monopolistic Competition
15. A market structure with only a few sellers, each offering similar or identical products, is known as
a. oligopoly.
b. monopoly.
c. monopolistic competition.
d. perfect competition.
16. The commercial jetliner industry consisting of Boeing and Airbus would best be described as a
(an)
a. perfectly competitive market.
b. monopolistically competitive market.
c. oligopoly.
d. monopoly.
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17. The breakfast cereal industry, with its concentration ratio of 80%, would best be described as
a(n)
a. perfectly competitive market.
b. monopolistically competitive market.
c. oligopoly.
d. monopoly.
18. Crude oil is primarily supplied to the world market by a few Middle Eastern countries. Such a
market is an example of a(n)
(i) imperfectly competitive market.
(ii) monopoly market.
(iii) oligopoly market.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. (iii) only
3952 Monopolistic Competition
19. A concentration ratio
a. measures the percentage of total output supplied by the four largest firms in the industry.
b. reflects the level of competition in an industry.
c. is related to the control that each firm has over price.
d. All of the above are correct.
20. A concentration ratio
a. measures the percentage of total sales of the top firm in the industry.
b. reflects the level of competition in an industry.
c. is inversely related to the price charged by the top firm in the industry.
d. All of the above are correct.
21. The higher the concentration ratio, the
a. more control an individual firm has to set prices.
b. more competitive the industry.
c. less competitive the industry.
d. Both a and c are correct.
Monopolistic Competition 3953
22. The lower the concentration ratio, the
a. more control an individual firm has to set prices.
b. more competitive the industry.
c. less competitive the industry.
d. Both a and c are correct.
23. Which of the following industries has the highest concentration ratio?
a. jeans
b. fruit
c. household laundry equipment
d. restaurants
24. hich of the following industries has the highest concentration ratio?
a. dresses
b. apples
c. books
d. cigarettes
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25. Which of the following industries has the lowest concentration ratio?
a. breakfast cereal
b. electric lamp bulbs
c. household laundry equipment
d. cigarettes
Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different
industries.
Firm
Industry A
Industry B
Industry C
Industry D
1
38%
18%
52%
23%
2
33
16
13
16
3
14
15
11
10
4
7
12
8
9
5
3
11
6
8
6
1
9
4
2
7
1
7
2
2
8
1
7
1
2
26. Refer to Table 16-1. What is the concentration ratio in Industry A?
a. 38%
b. 71%
c. 92%
d. 98%
Monopolistic Competition 3955
27. Refer to Table 16-1. What is the concentration ratio in Industry B? a. 18%
b. 34%
c. 61%
d. 95%
28. Refer to Table 16-1. What is the concentration ratio in Industry C?
a. 13%
b. 32%
c. 52%
d. 84%
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29. Refer to Table 16-1. What is the concentration ratio in Industry D?
a. 23%
b. 39%
c. 58%
d. 72%
30. Refer to Table 16-1. Which industry has the highest concentration ratio?
a. Industry A
b. Industry B
c. Industry C
d. Industry D
Monopolistic Competition 3957
31. Refer to Table 16-1. Which industry is the least competitive?
a. Industry A
b. Industry B
c. Industry C
d. Industry D
32. Refer to Table 16-1. Which industry has the lowest concentration ratio?
a. Industry A
b. Industry B
c. Industry C
d. Industry D
33. Refer to Table 16-1. Which industry is the most competitive?
a. Industry A
b. Industry B
c. Industry C
d. Industry D
3958 Monopolistic Competition
Table 16-2
The following table shows the total output produced by the top six firms as well as the total
industry output for each industry.
Firm
Industry J
Industry K
Industry L
Industry M
1
14,288
7,878
1,554
22,987
2
12,128
7,242
1,486
21,444
3
11,192
5,321
1,294
18,787
4
3,245
4,900
1,287
16,454
5
2,442
4,526
911
12,890
6
1,004
3,800
745
10,045
Total
55,050
70,250
7,340
198,400
34. Refer to Table 16-2. What is the concentration ratio for Industry J?
a. about 14%
b. about 48%
c. about 74%
d. about 80%
35. Refer to Table 16-2. What is the concentration ratio for Industry K?
a. about 8%
b. about 36%
c. about 48%
d. about 84%
Monopolistic Competition 3959
36. Refer to Table 16-2. What is the concentration ratio for Industry L?
a. about 99%
b. about 77%
c. about 41%
d. about 16%
37. Refer to Table 16-2. What is the concentration ratio for Industry M?
a. about 96%
b. about 52%
c. about 40%
d. about 22%
3960 Monopolistic Competition
38. Refer to Table 16-2. Which industry has the highest concentration ratio?
a. Industry J
b. Industry K
c. Industry L
d. Industry M
39. Refer to Table 16-2. Which industry is the least competitive?
a. Industry J
b. Industry K
c. Industry L
d. Industry M
