Survey of Economics, 6e (O’Sullivan/Sheffrin/Perez)
Chapter 8 Market Entry, Monopolistic Competition, and Oligopoly
8.1 Effects of Market Entry
1) When a second firm enters a monopolist’s market
A) market price will drop.
B) sales for the first firm will rise.
C) the first firm’s profits will increase.
D) All of the above will occur.
2) When a second firm enters a monopolist’s market
A) market price will rise.
B) the quantity produced by the first firm will decrease.
C) the first firm’s profits increase.
D) All of the above will occur.
3) When a second firm enters a monopolist’s market
A) market price will rise.
B) the quantity produced by the first firm will increase.
C) the first firm’s profits will decrease.
D) All of the above will occur.
4) When a second firm enters a market, the original firm’s profits decline because
A) the original firm’s price decreases.
B) the original firm’s ATC increases.
C) the original firm’s quantity decreases.
D) All of the above are correct.
5) When a second firm enters a monopolist’s market, the initial demand curve facing the
monopolist will
A) shift to the left.
B) shift to the right.
C) remain the same.
D) none of the above
6) When a second firm enters a monopolist’s market, the monopolist’s marginal revenue curve
will
A) shift to the left as its initial demand curve shifts to the left.
B) shift to the right as its initial demand curve shifts to the right.
C) remain the same.
D) none of the above
7) When a second firm enters a monopolist’s market,
A) the former monopolist’s average cost decreases as its output level decreases.
B) the demand curve the former monopolist faces shifts to the left.
C) the market price rises as the average cost increases.
D) none of the above
8) When a second firm enters a monopolist’s market,
A) the former monopolist’s average cost increases as its output level decreases.
B) the demand curve facing the former monopolist shifts to the right.
C) the market price rises as the average cost increases.
D) none of the above
9) When a second firm enters a monopolist’s market,
A) the former monopolist’s average cost decreases as its output level decreases.
B) the demand curve facing the former monopolist shifts to the right.
C) the market price falls.
D) none of the above
10) When the government eliminates artificial barriers to entry
A) more firms will enter the market.
B) prices to consumers will likely increase.
C) competition in the market will decrease.
D) All of the above will occur.
11) When the government eliminates artificial barriers to entry
A) firm profits will rise.
B) prices to consumers will likely decrease.
C) competition in the market will decrease.
D) All of the above will occur.
12) Empirical studies indicate that entry
A) increases price and profits.
B) decreases price, but increases profits.
C) decreases price and profits.
D) increases price, but decreases profits.
13) Empirical studies suggest that when a large number of firms are present in a market, prices
are usually ________ and profits are usually ________ than when there are only a few firms in a
market.
A) lower; higher
B) lower; lower
C) higher; higher
D) higher; lower
14) Studies of real world markets suggest that prices and the number of firms of comparable size
in a market are
A) positively related.
B) negatively or inversely related.
C) not related.
D) sometimes negatively or inversely related, but usually positively related.
15) After the U.S. government deregulated the trucking industry
A) profits rose.
B) freight prices rose.
C) freight prices fell.
D) the number of trucking companies decreased.
16) European nations are currently deregulating many markets. They are expecting
A) the price of goods sold in these markets to increase.
B) the quality of goods sold in these markets to decrease.
C) the price of goods sold in these markets to decrease.
D) the profits of firms selling in these markets to increase.
17) The Motor Carrier Act of 1980 removed the government’s restriction on
A) entry into the trucking industry.
B) the size of trucks used to transport goods and services.
C) entry into the industry that produces delivery trucks.
D) entry into parcel delivery.
18) The Motor Carrier Act of 1980 resulted in
A) lower freight prices.
B) more firms entering the trucking industry.
C) lower value of a trucking license.
D) All of the above are correct.
19) When the Motor Carrier Act of 1980 was made into law, new firms entered into the trucking
industry. This action by new trucking firms confirm that
A) the trucking industry was earning profits in the long run prior to the entry of the new firms.
B) the trucking industry was earning losses in the long run prior to the entry of the new firms.
C) the trucking industry was earning profits as a result of the entry of the new firms.
D) the trucking industry was earning losses before and after the entry of the new firms.
Recall the Application about the price competition between satellite and cable TV services
to answer the following question(s).
20) Recall the Application. In most cases where satellite TV service is introduced in an area with
cable TV service, the price of the cable TV service usually
A) increases.
B) decreases.
C) initially increases, then decreases.
D) is unaffected.
21) Recall the Application. The introduction of satellite TV service is a form of
A) price gouging.
B) profiteering.
C) market entry.
D) all of the above.
22) Recall the Application. In most cases where satellite TV service is introduced in an area with
cable TV service, the quality of the cable TV service usually
A) increases.
B) decreases.
C) initially increases, then decreases.
D) is unaffected.
23) Recall the Application. In most cases where satellite TV service is introduced in an area with
cable TV service, if the price of cable TV decreases, then consumer surplus
A) increases.
B) decreases.
C) drops to zero.
D) becomes negative.
24) Recall the Application. In most cases where satellite TV service is introduced in an area with
cable TV service, if the price of cable TV increases, then consumer surplus
A) increases.
B) decreases.
C) drops to zero.
D) becomes negative.
25) Recall the Application. In most cases where satellite TV service is introduced in an area with
cable TV service, if the quality of cable TV service increases, then consumer surplus
A) increases.
B) decreases.
C) drops to zero.
D) becomes negative.
26) The entry of an additional firm into a market decreases the profit per unit of output because
entry decreases the price.
27) The entry of an additional firm into a market shifts the demand curve for the original firm to
the left.
28) Entry leads to higher prices and profits in an industry.
29) Entry leads reduces firm profits because it leads to a lower price.
30) Entry of a second firm will result in a downward shift in the ATC curve.
31) Empirical studies show that entry into markets increases both price and quantity of goods
supplied.
32) Why does entry into markets decrease firm profits?
33) What are the effects on a market when there is entry?
34) What entices a second firm to enter a market that was previously a single price monopoly?
35) Why does the government work to eliminate artificial barriers to entry?
8.2 Monopolistic Competition
1) Which of the following is NOT a characteristic of a monopolistically competitive market?
A) Firms hold patents on their products.
B) The products that firms sell are slightly different.
C) Firms have some control over price.
D) There are no artificial barriers to entry.
2) Which of the following is NOT a characteristic of a monopolistically competitive market?
A) There are many firms.
B) Firms sell products that are similar but not identical.
C) Firms must take the market price as given.
D) There are no artificial barriers to entry.
3) Which of the following is NOT a characteristic of a monopolistically competitive market?
A) There is only one firm selling a product.
B) There are many firms selling products that are similar but not identical.
C) There are many firms that have some control over price.
D) There are no artificial barriers to entry.
4) Which of the following is NOT a characteristic of a monopolistically competitive market?
A) There are many firms.
B) Firms sell differentiated products.
C) Firms have control over price.
D) There are substantial barriers to entry.
5) A market in which there are many firms each selling differentiated products is most likely a
________ market.
A) perfectly competitive
B) monopoly
C) monopolistically competitive
D) natural monopoly
6) Which of the following is the reason why pharmaceutical firms monopolistically
competitive?
A) Pharmaceutical firms sell differentiated products
B) There are many buyers in the market.
C) There are many sellers in the market.
D) There are barriers to entry in the market, like patents.
7) Which of the following is/was an example of a monopolistically competitive firm?
A) Farmer Smith’s corn farm
B) Tino’s Italian eatery, a local restaurant
C) TCI Cablevision, a supplier of cable television services
D) Northwest Electricity, a supplier of electricity in the Northwest U.S.
8) Which of the following is a characteristic of a monopolistically competitive market?
I. There are many sellers.
II. Firms sell slightly differentiated products.
III. Each firm faces a downward-sloping demand curve.
A) I only
B) I and II only
C) II and III only
D) I, II, and III
9) Which of the following is a characteristic of a monopolistically competitive market?
I. Each firm is a price-taker.
II. Firms sell slightly differentiated products.
III. Each firm faces a downward-sloping demand curve.
A) I only
B) I and II only
C) II and III only
D) I, II, and III
10) Which of the following is a characteristic of a monopolistically competitive market?
I. There are many sellers.
II. Firms sell slightly differentiated products.
III. The demand curve facing each individual firm is horizontal.
A) I and II only
B) I and III only
C) II and III only
D) I, II, and III
11) Which of the following is NOT an example of a monopolistically competitive firm?
A) Farmer Jones’s wheat farm
B) the Post Cereal Company
C) Procter and Gamble, a large consumer products corporation
D) T.J.’s Clothes, a local retail clothing store
12) Monopolistically competitive firms do NOT differentiate their products by
A) changing the products’ physical characteristics.
B) selling products at different locations.
C) offering different levels of service that come with a product.
D) charging different prices to different groups of consumers.
13) Monopolistically competitive firms differentiate their products by
A) selling products with slightly different physical characteristics.
B) selling products at different locations.
C) creating a special aura or image for the product with advertising.
D) all of the above
14) Monopolistically competitive firms do NOT differentiate their products by
A) selling products at different locations.
B) selling a product with different levels of services accompanying the product.
C) convincing consumers that the product is identical to those sold by competitors.
D) using advertising to create a special aura or image for the product.
15) In Eugene, Oregon, there are several Italian restaurants, each offering slightly different items
prepared in slightly different ways. It is likely that an Italian restaurant in Eugene, Oregon,
operates in a
A) perfectly competitive market.
B) monopolistically competitive market.
C) monopoly market.
D) oligopoly market.
16) In Washington, D.C., there are many coffee shops, each offering nearly identical coffee but
each shop located in a different place around the city. It is likely a coffee shop in Washington,
D.C., operates in a
A) perfectly competitive market.
B) monopolistically competitive market.
C) monopoly market.
D) oligopoly market.
17) In Sioux Falls, South Dakota, there are many pizza restaurants, each offering similar types of
pizza but each restaurant located in a different place around the city. It is likely a pizza restaurant
in Sioux Falls, South Dakota, operates in a
A) perfectly competitive market.
B) monopolistically competitive market.
C) monopoly market.
D) oligopoly market.
18) Nike has used Michael Jordan to create the impression that Air Jordan basketball shoes are
superior to any other basketball shoe. Nike is attempting to
A) differentiate Air Jordan basketball shoes from other types of basketball shoe.
B) lower the marginal cost of producing Air Jordan basketball shoes.
C) sell fewer Air Jordan basketball shoes so they can raise the price.
D) convince consumers that Air Jordan basketball shoes are identical to other basketball shoes.
19) Pepsi uses advertising to create the impression that Pepsi is superior to any other soft drink.
Pepsi is attempting to
A) differentiate Pepsi from other types of soft drinks.
B) lower the marginal cost of producing for Pepsi.
C) sell less Pepsi so they can raise the price of Pepsi.
D) convince consumers that Pepsi is identical to other soft drinks.
20) When a credit card company offers different services with its card, like travel insurance for
air travel tickets purchased with the credit card or product insurance for items purchased with the
card, the credit card company is trying to
A) create a barrier to entry for competing firms.
B) create a perfectly competitive market in which to sell its credit card.
C) differentiate its credit card from those offered by other companies.
D) shift the demand curve for competing firms to the right.
21) In the mid 1990s, Coke introduced a new soda in the soft drink market. Coke then used a
new advertising campaign to associate the new soda with youth and strength. Coke was trying to
A) shift the demand curve for competing soft drinks to the left.
B) create a perfectly competitive market for soft drinks.
C) maximize its per unit costs through advertising.
D) lower the market price of soft drinks.
22) A monopolistically competitive market is one in which
A) only one firm sells a product.
B) all firms sell an identical product.
C) many firms sell similar yet slightly different products.
D) firms have no control over the price they charge for their product.
23) The word “monopolistic” in the label “monopolistic competition” refers to the fact that
A) there is only one firm producing in the market.
B) firms have no control over the price they charge.
C) each firm produces a slightly different version of the product.
D) none of the above
24) The word “competition” in the label “monopolistic competition” refers to the fact that
A) there are very few firms producing in the market.
B) firms have no control over the price they charge.
C) firms vie against each other to get customers to buy their version of the product.
D) none of the above
25) In a monopolistically competitive market, there
A) are many firms selling an identical product.
B) is only one firm that sells many similar yet slightly different products.
C) are many firms that have slight control over the price they charge for their product.
D) are substantial barriers to entry.
26) For a monopolistically competitive firm, the firm’s demand curve is
A) downward sloping.
B) horizontal.
C) upward sloping.
D) none of the above
27) Which of the following is a characteristic of a monopolistically competitive market?
I. Firms sell differentiated products.
II. Each firm’s product is a close substitute for other firms’ products.
III. Firms freely enter and exit the market.
A) I only
B) I and III only
C) II and III only
D) I, II, and III
28) Which of the following is a characteristic of a monopolistically competitive market?
I. Firms sell differentiated products.
II. Each firm earns a positive economic profit in the long-run.
III. Firms freely enter and exit the market.
A) II only
B) I and II only
C) I and III only
D) I, II, and III
29) Which of the following is a characteristic of a monopolistically competitive market?
I. Firms sell differentiated products.
II. Each firm is earning a zero economic profit in the long-run.
III. Potential entrants face artificial barriers to entry.
A) I only
B) I and II only
C) II and III only
D) I, II, and III
30) Suppose you operate in a monopolistically competitive market. If you sell your good at a
price of $10 and your average cost of production is $8
A) your market is in long-run equilibrium.
B) we can expect firms to enter your market and sell a similar good in the long run.
C) there will be no incentive for competing firms to enter your market in the long-run.
D) you cannot be in short-run equilibrium.
31) Suppose you operate in a monopolistically competitive market. If you sell your good at a
price of $20 and your average cost of production is $15
A) your market may be in long-run equilibrium.
B) you cannot be in short-run equilibrium.
C) you should expect competing firms to enter your market and shift the demand curve for your
good to the left.
D) you should expect competing firms to enter your market and shift the demand curve for your
good to the right.