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Monopolistic Competition 3961
40. Refer to Table 16-2. Which industry has the lowest concentration ratio?
a. Industry J
b. Industry K
c. Industry L
d. Industry M
41. Refer to Table 16-2. Which industry is the most competitive?
a. Industry J
b. Industry K
c. Industry L
d. Industry M
3962 Monopolistic Competition
Table 16-3
The following table shows the output produced by each of the top eight firms in four industries as
well as the total industry output for those industries.
Firm
Industry A
Industry B
Industry C
Industry D
1
50,000
18,000
37,000
40,000
2
47,000
17,750
36,500
39,000
3
43,000
17,250
35,500
37,000
4
38,000
16,500
34,000
34,000
5
32,000
15,500
32,000
30,000
6
25,000
14,250
29,500
25,000
7
17,000
12,750
26,500
19,000
8
8,000
11,000
23,000
12,000
Total
270,000
130,000
300,000
250,000
42. Refer to Table 16-3. What is the concentration ratio for Industry A?
a. approximately 52%
b. approximately 58%
c. approximately 66%
d. approximately 72%
43. Refer to Table 16-3. What is the concentration ratio for Industry B?
a. approximately 46%
b. approximately 54%
c. approximately 57%
d. approximately 61%
Monopolistic Competition 3963
44. Refer to Table 16-3. What is the concentration ratio for Industry C?
a. approximately 44%
b. approximately 48%
c. approximately 53%
d. approximately 56%
45. Refer to Table 16-3. What is the concentration ratio for Industry D?
a. approximately 48%
b. approximately 54%
c. approximately 60%
d. approximately 66%
46. Refer to Table 16-3. Which industry has the highest concentration ratio?
a. Industry A
b. Industry B
c. Industry C
d. Industry D
3964 Monopolistic Competition
47. Refer to Table 16-3. Which industry has the lowest concentration ratio?
a. Industry A
b. Industry B
c. Industry C
d. Industry D
48. Refer to Table 16-3. Based on the concentration ratio, which industry is the most competitive?
a. Industry A
b. Industry B
c. Industry C
d. Industry D
49. Refer to Table 16-3. Based on the concentration ratio, which industry is the least competitive?
a. Industry A
b. Industry B
c. Industry C
d. Industry D
Monopolistic Competition 3965
Scenario 16-1
Suppose the following are the sales for all of the firms in two different industries.
Industry A
Industry B
$225,000
$400,000
$200,000
$325,000
$180,000
$300,000
$100,000
$200,000
$100,000
$95,000
$90,000
$80,000
$75,000
$78,000
$60,000
$75,000
50. Refer to Scenario 16-1. What are the concentration ratios for these industries?
a. Industry A: 22%, Industry B: 26%
b. Industry A: 41%, Industry B: 47%.
c. Industry A: 68%, Industry B: 79%
d. Industry A: 100%, Industry B: 100%.
51. Refer to Scenario 16-1. Which of the following statements is correct regarding the
competitiveness of these two industries?
a. Industry A and Industry B are equally competitive.
b. Industry A is more competitive than Industry B.
c. Industry A is less competitive than Industry B.
d. The competitiveness of these two industries cannot be determined from the information given.
3966 Monopolistic Competition
52. One key difference between an oligopoly market and a competitive market is that oligopolistic
firms
a. are price takers while competitive firms are not.
b. can affect the profit of other firms in the market by the choices they make while firms in
competitive markets do not affect each other by the choices they make.
c. sell completely unrelated products while competitive firms do not.
d. sell their product at a price equal to marginal cost while competitive firms do not.
53. One way in which monopolistic competition differs from oligopoly is that
a. there are no barriers to entry in oligopolies.
b. in oligopoly markets there are only a few sellers.
c. all firms in an oligopoly eventually earn zero economic profits.
d. strategic interactions between firms are rare in oligopolies.
Monopolistic Competition 3967
54. Which of the following is unique to a monopolistically competitive firm when compared to an
oligopoly?
a. The monopolistically competitive firm advertises.
b. The monopolistically competitive firm produces a quantity of output that falls short of the
socially optimal level.
c. Monopolistic competition features many buyers.
d. Monopolistic competition features many sellers.
55. Which of the following is an example of a monopolistically competitive industry?
a. computer operating systems
b. tennis balls
c. movies
d. cable television
3968 Monopolistic Competition
56. Which of the following is an example of a monopolistically competitive industry?
a. electric lamp bulbs
b. aircraft manufacturing
c. corn
d. sweaters
57. Which of the following goods are likely to be sold in a monopolistically competitive market?
a. jeans
b. breakfast cereal
c. electricity distribution in Chicago
d. postage stamps
Monopolistic Competition 3969
58. Which of the following goods are not likely to be sold in monopolistically competitive markets?
a. jeans
b. books
c. tap water
d. clocks
59. Examples of monopolistically competitive markets include the markets for
a. restaurants and furniture.
b. wheat and corn.
c. postage stamps and wooden pencils.
d. All of the above are correct.
3970 Monopolistic Competition
60. Which of the following markets is not likely characterized by a monopolistically competitive
market?
a. mobile telephone service
b. auto mechanic service
c. barbershops
d. jewelry
61. A monopolistically competitive industry is characterized by
a. many firms selling products that are similar but not identical.
b. many firms selling identical products.
c. a few firms selling products that are similar but not identical.
d. a few firms selling highly different products.
Monopolistic Competition 3971
62. A monopolistically competitive industry is characterized by
a. many firms, differentiated products, and barriers to entry.
b. many firms, differentiated products, and free entry.
c. a few firms, identical products, and free entry.
d. a few firms, differentiated products, and barriers to entry.
63. A market structure in which there are many firms selling products that are similar but not identical
is known as
a. oligopoly.
b. monopoly.
c. monopolistic competition.
d. perfect competition.
3972 Monopolistic Competition
64. Which of the following is not a characteristic of monopolistic competition?
a. a large number of sellers
b. firms are price takers
c. free entry into the market
d. a differentiated product
65. Monopolistic competition is characterized by which of the following attributes?
(i) free entry
(ii) product differentiation
(iii) many sellers
a. (i) and (iii) only
b. (i) and (ii) only
c. (ii) and (iii) only
d. (i), (ii), and (iii)
Monopolistic Competition 3973
66. A monopolistically competitive market
a. is imperfectly competitive, and all imperfectly competitive markets are monopolistically
competitive.
b. is imperfectly competitive, but not all imperfectly competitive markets are monopolistically
competitive.
c. is imperfectly competitive, whereas an oligopolistic market is not imperfectly competitive.
d. is not imperfectly competitive.
67. Free entry and exit means that the number of firms in the market adjusts until
a. producers continuously enter the market freely.
b. the market grows to a profitable level.
c. economic profits are driven to zero.
d. products are free.
3974 Monopolistic Competition
68. In a monopolistically competitive market,
a. there are only a few sellers.
b. each firm takes the price of its product as given.
c. firms can enter or exit the market without restrictions.
d. each firm produces a product that is essentially identical to the products of other firms in the
market.
69. A monopolistically competitive market is characterized by
a. free entry, but not differentiated products.
b. differentiated products, but not long run profits.
c. long run profits, but not many firms.
d. many firms, but not free entry.
Monopolistic Competition 3975
70. Select the type of market that is described by the following attributes: many firms, differentiated
products, and free entry.
a. natural monopoly
b. perfectly competition
c. monopolistic competition
d. monopoly
71. If firms in a particular market sell similar or identical products, then the market is
(i) perfectly competitive.
(ii) monopolistically competitive.
(iii) an oligopoly.
a. (i) or (ii) only
b. (ii) or (iii) only
c. (i) or (iii) only
d. (i) only
3976 Monopolistic Competition
72. When an industry has many firms, the industry is
a. an oligopoly if the firms sell differentiated products, but it is monopolistically competitive if the
firms sell identical products.
b. an oligopoly if the firms sell differentiated products, but it is perfectly competitive if the firms
sell identical products.
c. monopolistically competitive if the firms sell differentiated products, but it is perfectly
competitive if the firms sell identical products.
d. perfectly competitive if the firms sell differentiated products, but it is monopolistically
competitive if the firms sell identical products.
73. If there are many firms participating in a market, the market is either
a. an oligopoly or monopolistically competitive.
b. perfectly competitive or monopolistically competitive.
c. an oligopoly or perfectly competitive.
d. an oligopoly or a cartel.
Monopolistic Competition 3977
74. Which of the following statements is correct?
a. Monopolistic competition is similar to monopoly because both market structures are
characterized by firms being price makers rather than price takers.
b. Monopolistic competition is similar to perfect competition because both market structures are
characterized by differentiated products.
c. Monopolistic competition is similar to oligopoly because both market structures are
characterized by strategic interaction between firms in the market.
d. Monopolistic competition is similar to perfect competition because both market structures are
characterized by perfectly elastic demand curves for firms.
75. In which of the following market structures is(are) there a large number of sellers?
(i) monopolistic competition
(ii) perfect competition
(iii) oligopoly
a. (i) and (ii) only
b. (ii) and (iii) only
c. (ii) only
d. (i), (ii), and (iii)
3978 Monopolistic Competition
76. Monopolistic competition differs from perfect competition because in monopolistically competitive
markets
a. there are barriers to entry.
b. all firms can eventually earn economic profits.
c. each of the sellers offers a somewhat different product.
d. strategic interactions between firms are important.
77. Monopolistically competitive markets differ from perfectly competitive markets due to
(i) the number of sellers.
(ii) the barriers to entry.
(iii) the product differentiation among the sellers.
a. (i) only
b. (iii) only
c. (i) and (iii) only
d. (ii) and (iii) only
Monopolistic Competition 3979
78. In both perfect competition and monopolistic competition, each firm
a. has some monopoly power.
b. sells a product that is at least slightly different from those of other firms.
c. faces a downward-sloping demand curve.
d. has many competitors.
79. Which of the following conditions distinguishes monopolistic competition from perfect
competition?
a. the number of sellers in the market
b. the freedom of entry and exit by firms in the market
c. the size of firms in the market
d. product differentiation
3980 Monopolistic Competition
80. A similarity between monopoly and monopolistic competition is that in both market structures
a. strategic interactions among sellers are important.
b. there are a small number of sellers.
c. sellers are price makers rather than price takers.
d. there are only a few buyers but many sellers.
81. Which of the following statements is correct?
a. Cigarettes are likely to be produced in a monopolistically competitive industry.
b. Novels are likely to be produced in a monopoly industry.
c. Movies are likely to be produced in a monopolistically competitive industry.
d. Milk is likely to be produced in an oligopoly industry.
82. Which of the following statements is not correct?
a. Novels are likely to be produced in a monopolistically competitive industry.
b. Cable television is likely to be produced in a monopoly industry.
c. Milk is likely to be produced in a monopolistically competitive industry.
d. Cigarettes are likely to be produced in an oligopoly industry.
