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Test Canvas : TestBanks Chapter 15: Monopolistic Com petition and Product
Differentiation
Microeconomics, 3e
Test Canvas: TestBanks Chapter 15: Monopolistic Competition and
Product Differentiation
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1. True/False: Shops that sell live bait to people i...
Question Shops that sell live bait to people in Alabama may be monopolistically competitive if there is product
differentiation and differentiation by location.
2. True/False: In the market for hamburgers, there i...
Question In the market for hamburgers, there is some differentiation and many firms offering hamburgers. This would
suggest that the hamburger market is more oligopolistic than monopolistically competitive.
3. True/False: Gas stations are not monopolistically...
Question Gas stations are not monopolistically competitive, because everyone knows the gasoline is the same
regardless of where it is purchased.
4. True/False: Tacit collusion is not feasible in mo...
Question Tacit collusion is not feasible in monopolistic competition because of the large number of competing firms.
5. True/False: As product differentiation increases,...
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Question As product differentiation increases, the price elasticity of demand falls, and the firm increases its market
power.
6. True/False: Monopolistic competition is unique am...
Question Monopolistic competition is unique among the four market structures in that it is the only one that is
always characterized by product differentiation.
7. True/False: Monopolistic competition is often fou...
Question Monopolistic competition is often found in service industries.
Answer True
False
8. True/False: A monopolistically competitive firm i...
Question A monopolistically competitive firm is limited in the price it can set by the competition it faces from other
existing and potential firms that produce close substitutes.
9. True/False: If the Boston doughnut market is mono...
Question If the Boston doughnut market is monopolistically competitive, consumers in Boston will see less diversity
in the doughnuts offered over time.
10. True/False: A monopolistically competitive firm w...
Question A monopolistically competitive firm will earn maximum profit if it produces at the lowest possible average
total cost.
11. True/False: The conditions for profit maximizatio...
Question The conditions for profit maximization and the analysis of short-run equilibrium are identical for monopoly
and for a monopolistically competitive firm.
12. True/False: Short-run equilibrium in monopolistic...
Question Short-run equilibrium in monopolistic competition and in monopoly differs because the monopolistic
competitor can make losses in the short run, while in a monopoly, profits will always be zero or positive.
13. True/False: Toby operates a small deli downtown i...
Question Toby operates a small deli downtown in a monopolistically competitive restaurant industry. In long-run
equilibrium, the profit-maximizing price of the three-meat sandwich is $3. Price also equals his average
total cost. Toby's minimum average total cost is less than $3.
Answer
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14. True/False: In long-run equilibrium, monopolistic...
Question In long-run equilibrium, monopolistic competitors produce at the minimum point on the average total cost
curve.
15. True/False: A monopolistically competitive firm m...
Question A monopolistically competitive firm may have positive or negative profits in the short run but will have zero
profits in the long run.
16. True/False: Firms in monopolistic competition and...
Question Firms in monopolistic competition and in perfect competition have excess capacity.
17. True/False: Since a monopolistically competitive ...
Question Since a monopolistically competitive firm has the same long-run profits as a perfectly competitive firm, both
types of industries are efficient.
18. True/False: Since a monopolistic competitor charg...
Question Since a monopolistic competitor charges a price greater than marginal cost, there is a deadweight loss
associated with monopolistic competition.
19. True/False: All advertising is clearly a waste of...
Question All advertising is clearly a waste of resources.
20. True/False: A brand name is a name owned by a par...
Question A brand name is a name owned by a particular firm, and it distinguishes that firm's products from those of
its competitors.
21. Multiple Choice: Which of the following industries is ...
Question Which of the following industries is most likely to be monopolistically competitive?
Answer automobile production
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22. Multiple Choice: A monopolistically competitive indust...
Question A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry,
like wheat farming, are alike in that:
Answer firms in both types of industries produce identical products.
23. Multiple Choice: In monopolistic competition:
Question In monopolistic competition:
24. Multiple Choice: In monopolistic competition, each firm:
Question In monopolistic competition, each firm:
25. Multiple Choice: The wedding dress industry is monopol...
Question The wedding dress industry is monopolistically competitive. As a result, which of the following conditions
applies to this industry?
26. Multiple Choice: Monopolistic competition is similar t...
Question
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Monopolistic competition is similar to perfect competition because firms in both market structures:
Answer are price-takers.
27. Multiple Choice: In monopolistic competition:
Question In monopolistic competition:
28. Multiple Choice: For the monopolistically competitive ...
Question For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is
________, and there are ________ producers of seafood.
Answer downward sloping; few
29. Multiple Choice: The downward-sloping demand curve for...
Question The downward-sloping demand curve for a monopolistically competitive firm:
30. Multiple Choice: An industry characterized by many fir...
Question An industry characterized by many firms producing similar but differentiated products in a market with easy
entry and exit is called:
Answer perfect competition.
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31. Multiple Choice: An example of monopolistic competitio...
Question An example of monopolistic competition is the ________ market.
32. Multiple Choice: A(n) ________ is a single firm with _...
Question A(n) ________ is a single firm with ________, whereas a(n) ________ implies an industry with ________
firm(s) where there is (are) ________.
33. Multiple Choice: In large shopping malls, the retail m...
Question In large shopping malls, the retail market is most illustrative of:
34. Multiple Choice: An industry with a large number of re...
Question An industry with a large number of relatively small firms producing differentiated products in a market with
easy entry and exit of firms is:
Answer a monopoly.
35. Multiple Choice: A monopolistically competitive indust...
Question A monopolistically competitive industry is characterized by a:
Answer small number of firms producing identical products, with barriers to entry for firms.
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36. Multiple Choice: Monopolistic competition is an indust...
Question Monopolistic competition is an industry structure characterized by:
Answer a product with no close substitutes.
37. Multiple Choice: Because of the existence of a large n...
Question Because of the existence of a large number of similar but not identical substitutes in most communities,
the market for chiropractors is best considered to be:
Answer an oligopoly.
38. Multiple Choice: Because of the existence of a large n...
Question Because of the existence of a large number of similar but not identical substitutes in most communities,
the market for financial planners is best considered to be:
Answer a monopoly.
39. Multiple Choice: A feature of monopolistic competition...
Question A feature of monopolistic competition that makes it different from monopoly is the:
Answer fact that firms in monopolistically competitive industries follow the marginal decision rule, while
monopolies do not.
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40. Multiple Choice: A market structure characterized by m...
Question A market structure characterized by many competitors, each producing identical products, with free entry
and exit into the industry, is described as a(n):
Answer monopolistically competitive industry.
41. Multiple Choice: Which of the following is not a chara...
Question Which of the following is not a characteristic of monopolistic competition?
Answer product differentiation
42. Multiple Choice: Which of the following describes a fe...
Question Which of the following describes a feature shared by both monopolistic competition and perfect
competition?
Answer few firms competing in the industry
43. Multiple Choice: A common example of monopolistic comp...
Question A common example of monopolistic competition is the market for:
Answer oranges.
44. Multiple Choice: An industry with a large number of re...
Question An industry with a large number of relatively small firms producing ________ in a market with easy entry
and exit is a(n) ________.
Answer similar products; monopoly
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45. Multiple Choice: Monopolistic competition describes an...
Question Monopolistic competition describes an industry characterized by a ________ number of firms producing
________ products with ________ for firms.
Answer small; identical; barriers to entry
46. Multiple Choice: The market for dentists in most commu...
Question The market for dentists in most communities can be considered a ________ because there are a large
number of similar but not identical substitutes in the market.
47. Multiple Choice: Monopolistic competition describes an...
Question Monopolistic competition describes an industry characterized by which of the following?
48. Multiple Choice: Monopolistic competition is different...
Question Monopolistic competition is different from monopoly because of which one of the following features?
Answer firms with some power to set prices
49. Multiple Choice: Because there is a large number of si...
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Question Because there is a large number of similar but not identical substitutes in most communities, the market
for florists is best considered:
Answer a monopoly.
50. Multiple Choice: Monopolistic competition is an indust...
Question Monopolistic competition is an industry characterized by:
Answer a product with no close substitutes.
51. Multiple Choice: An industry with a large number of sm...
Question An industry with a large number of small firms producing a standardized product in a market with easy
entry and exit of firms is:
52. Multiple Choice: Because of the lack of substitutes, t...
Question Because of the lack of substitutes, the market for newly developed brand-name prescription drugs is best
considered to be:
Answer perfect competition.
53. Multiple Choice: An industry with a few interdependent...
Question An industry with a few interdependent firms is best described as:
Answer perfect competition.
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54. Multiple Choice: The market for grade A large eggs in ...
Question The market for grade A large eggs in the state of California is best considered to be:
Answer perfect competition.
55. Multiple Choice: An industry with a single firm produc...
Question An industry with a single firm producing a product for which there are no close substitutes and which is
protected by barriers to entry is:
Answer perfect competition.
56. Multiple Choice: The market for soft drinks, which is ...
Question The market for soft drinks, which is dominated by Coca Cola and Pepsi, is best considered to be:
Answer perfect competition.
57. Multiple Choice: If the toothpaste market is monopolis...
Question If the toothpaste market is monopolistically competitive, product differentiation will take place in which of
the following ways?
Answer the production of different varieties of toothpaste, including those with whitening agents
58. Multiple Choice: In many cities you can stay at a Holi...
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Question In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the
airport. These Holiday Inn establishments are examples of product differentiation by:
Answer type.
59. Multiple Choice: Many customers will walk right past a...
Question Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more
for a cup of coffee. For these customers, cups of coffee are differentiated by:
Answer style.
60. Multiple Choice: The sources of product differentiatio...
Question The sources of product differentiation do not include:
Answer differences in location.
61. Multiple Choice: Since a monopolistically competitive ...
Question Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price
will be:
Answer equal to marginal revenue.
62. Multiple Choice: The demand curve for a firm operating...
Question The demand curve for a firm operating within a monopolistically competitive industry is:
Answer U-shaped.
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63. Multiple Choice: The demand curve for a firm under mon...
Question The demand curve for a firm under monopolistic competition is:
downward sloping, the same as that facing a perfectly competitive firm.
64. Multiple Choice: The profit-maximizing rule MC = MR is...
Question The profit-maximizing rule MC = MR is followed by firms operating within:
Answer monopolistic competition but not perfect competition.
65. Multiple Choice: Product differentiation under monopol...
Question Product differentiation under monopolistic competition means that each firm:
Answer charges the same price.
66. Multiple Choice: Product differentiation under monopol...
Question Product differentiation under monopolistic competition means that each firm:
Answer charges slightly different prices.
67. Multiple Choice: In a monopolistically competitive ind...
Question In a monopolistically competitive industry:
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68. Multiple Choice: A monopolistically competitive firm h...
Question A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily
because:
69. Multiple Choice: The demand curve for a firm operating...
Question The demand curve for a firm operating in a monopolistically competitive market is best described as:
Answer U-shaped.
70. Multiple Choice: The _________ demand curve for a firm...
Question The _________ demand curve for a firm operating in a monopolistically competitive market ________.
Answer downward-sloping; is the same as the demand curve facing a perfectly competitive firm.
71. Multiple Choice: Suppose a monopolistically competitiv...
Question Suppose a monopolistically competitive firm is producing the profit-maximizing level of output and is
earning an economic profit in the short run. Then:
Answer price is less than average total costs.
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72. Multiple Choice: Suppose a monopolistically competitiv...
Question Suppose a monopolistically competitive firm is making a profit but it can increase its profits by increasing
output. Then it must be the case that at the current level of output:
73. Multiple Choice: Suppose Susan owns a business that op...
Question Suppose Susan owns a business that operates in a market characterized by monopolistic competition.
Susan's profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits
are $1,800 per week. Susan decides that she needs more profits and therefore raises her price to $15. At
the new price of $15:
Answer profits will increase.
74. Multiple Choice: Suppose a monopolistically competitiv...
Question Suppose a monopolistically competitive firm can increase its profits by decreasing its output. Then it must
be the case that at the current output:
Answer marginal revenue is less than zero.
75. Multiple Choice: To maximize profit, a monopolisticall...
Question To maximize profit, a monopolistically competitive firm should produce the level of output at which:
marginal revenue equals price.
76. Multiple Choice: Figure: Monopolistic Competition Refe...
Question
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Figure: Monopolistic Competition
Reference: Ref 15-1
(Figure: Monopolistic Competition) The monopolistic competitor in the figure Monopolistic Competition is
producing at the output level that maximizes profits (minimizes losses). The shaded rectangle depicts the
level of:
Answer profit.
77. Multiple Choice: The price for a firm under monopolist...
Question The price for a firm under monopolistic competition is:
Answer equal to marginal revenue.
78. Multiple Choice: A firm in monopolistic competition ma...
Question A firm in monopolistic competition maximizes its profit by producing at the level at which:
Answer MC = ATC.
79. Multiple Choice: If a firm operating within monopolist...
Question If a firm operating within monopolistic competition is producing a quantity that generates MC > MR, then
the marginal decision rule tells us that profit:
Answer can be increased by increasing production.
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80. Multiple Choice: If a firm operating within monopolist...
Question If a firm operating within monopolistic competition is producing a quantity that generates MC < MR, then
the marginal decision rule tells us that profit:
is maximized only if MC = P.
81. Multiple Choice: If a firm operating within monopolist...
Question If a firm operating within monopolistic competition is producing a quantity that generates MC = MR, then
the marginal decision rule tells us that profit:
is maximized only if MC = P.
82. Multiple Choice: Figure: Profit Maximization for a Fir...
Question Figure: Profit Maximization for a Firm in Monopolistic Competition
Reference: Ref 15-2
(Figure: Profit Maximization for a Firm in Monopolistic Competition) Look at the figure Profit Maximization
for a Firm in Monopolistic Competition. Suppose that an innovation reduces a firm's fixed costs and
reduces cost from ATC to ATC′. Before the innovation reduced the cost, the firm's maximum economic
profit was:
$4,500.
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83. Multiple Choice: Figure: Profit Maximization for a Fir...
Question Figure: Profit Maximization for a Firm in Monopolistic Competition
Reference: Ref 15-2
(Figure: Profit Maximization for a Firm in Monopolistic Competition) Look at the figure Profit Maximization
for a Firm in Monopolistic Competition. Suppose that an innovation reduces a firm's fixed costs and
reduces cost from ATC to ATC′. After the innovation reduced the cost, the firm's maximum economic profit
is:
Answer $0.
84. Multiple Choice: In the short run, a monopolistically ...
Question In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning
positive economic profits. Which of the following must be true for this firm?
Answer MR = MC and P = ATC.
85. Multiple Choice: A monopolistically competitive firm i...
Question A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning
negative economic profits. Which of the following must be true?
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86. Multiple Choice: A gas station operates in a monopolis...
Question A gas station operates in a monopolistically competitive market and is in short-run equilibrium. Suppose
that a fixed cost for this firm decreases. As a result, the firm's price will ________, the firm's output will
________, and the firm's economic profit will ________.
Answer increase; increase; increase
87. Multiple Choice: In order to maximize profits, a firm ...
Question In order to maximize profits, a firm in monopolistic competition will likely produce:
Answer at the output level at which marginal cost equals average total cost.
88. Multiple Choice: If a firm operating in monopolistic c...
Question If a firm operating in monopolistic competition is producing a quantity at which _____, then the marginal
decision rule tells us that profit ______.
Answer MC > MR; can be increased by increasing production
89. Multiple Choice: If a firm operating in monopolistic c...
Question If a firm operating in monopolistic competition is producing a quantity at which MC < MR, then profit can be
________ by________.
Answer increased; decreasing production
90. Multiple Choice: A firm operating in a monopolisticall...
Question A firm operating in a monopolistically competitive market is producing a quantity at which MC = MR. Profit:
Answer can be increased by increasing production.
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91. Multiple Choice: Suppose a monopolistically competitiv...
Question Suppose a monopolistically competitive firm is in long-run equilibrium. Then:
92. Multiple Choice: If a monopolistically competitive fir...
Question If a monopolistically competitive firm is in long-run equilibrium, then price ________.
93. Multiple Choice: In the long run, monopolistically com...
Question In the long run, monopolistically competitive firms:
Answer produce output at the level that minimizes average total cost.
94. Multiple Choice: Monopolistically competitive firms ha...
Question Monopolistically competitive firms have zero economic profits in the long run because of:
95. Multiple Choice: Toby operates a small deli downtown. ...
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