Economics Today, 19e (Miller)
Chapter 25 Monopolistic Competition
25.1 Monopolistic Competition
1) Which of the following is NOT a characteristic of monopolistic competition?
A) product differentiation
B) a large number of entry barriers
C) advertising
D) a significant number of sellers
2) Which of the following is a characteristic of monopolistic competition?
A) few firms
B) homogeneous products
C) easy entry and exit
D) strategic dependence
3) All of the following are characteristics of monopolistic competition EXCEPT
A) a few firms dominate the industry.
B) product differentiation.
C) many firms in the industry.
D) advertising.
4) Which of the following is NOT a characteristic of monopolistic competition?
A) a large number of sellers in a highly competitive market
B) differentiated products
C) the existence of advertising
D) marginal cost pricing in the long run
5) Which of the following describes monopolistic competition?
A) homogeneous products
B) All firms are price takers.
C) Advertising plays a key role.
D) There is only one seller in the industry.
6) Which of the following is NOT a characteristic of monopolistic competition?
A) large number of sellers
B) differentiated products
C) advertising
D) barriers to entry
7) Monopolistic competition is characterized by
A) relative ease of entry into the market.
B) a standard, undifferentiated product.
C) persistent long-run economic profits.
D) a horizontal demand curve faced by all firms.
8) A good example of a monopolistic competitive industry is
A) the restaurant industry.
B) the public utility industry.
C) the computer game industry.
D) diamond mining.
9) A good example of a monopolistic competitive industry is
A) the federal highway system.
B) wheat farms in the United States.
C) the country music industry.
D) the four major textbook publishers together with nearly 90 percent of industry sales.
10) In a monopolistically competitive market, the consumer receives the benefit of
A) production at minimum average cost.
B) production where price equals marginal cost.
C) product differentiation.
D) allocative efficiency.
11) In a monopolistically competitive market there are
A) many firms producing an identical product.
B) many firms producing similar but not identical products.
C) many firms producing totally different products.
D) few firms producing identical products.
12) Entry into a monopolistically competitive industry
A) is relatively easy.
B) is very difficult.
C) can be easy or difficult, depending on the type of product.
D) is about the same as entering a monopoly industry.
13) Advertising by monopolistically competitive firms can do all of the following EXCEPT
A) lower the consumer’s purchase price.
B) help differentiate a firm’s product.
C) act as a signal to consumers that the company is serious about staying in business.
D) result in increased profits for the advertising firm.
14) In a monopolistically competitive market, a firm should advertise to the point at which
A) it is selling the most units it can possibly sell.
B) the extra revenue from an additional dollar spent on advertising just equals the marginal cost
of producing one more unit of the good.
C) the additional revenue generated by one more dollar of advertising just equals the extra dollar
cost of advertising.
D) it can raise price to the highest level possible.
15) In a monopolistically competitive market if the additional revenue generated from
advertising equals the additional cost of advertising, the firm should
A) advertise more to increase sales.
B) advertise more to lower marginal costs.
C) maintain its current amount of advertising.
D) advertise less to decrease costs.
16) The main objective of advertising for a monopolistically competitive firm is
A) to differentiate the product and raise sales.
B) to reduce cost.
C) to earn long run profits.
D) to comply with government requirements on product information.
17) In which industry structure is advertising and sales promotion likely to be most important?
A) perfect competition
B) monopoly
C) monopolistic competition
D) All of the above are equally reliant on effective advertising and promotion.
18) A market situation in which a large number of firms produce similar but not identical
products is
A) a collusive market structure.
B) competitive monopoly.
C) a homogeneous market.
D) monopolistic competition.
19) A market situation in which a large number of firms produce similar but not identical
products is
A) a monopoly.
B) an oligopoly.
C) monopolistic competition.
D) perfect competition.
20) The theory of monopolistic competition was developed in two separate models by
A) Adam Smith and David Ricardo.
B) John Kenneth Galbraith and John Maynard Keynes.
C) Edward Chamberlin and Joan Robinson.
D) Roger Leroy Miller and Paul Samuelson.
21) Entry into a monopolistic competitive industry
A) is easy.
B) is hard.
C) requires governmental approval.
D) requires collusion.
22) All of the following are assumptions of monopolistic competition EXCEPT
A) many buyers and sellers.
B) homogeneous product.
C) easy entry of new firms in the long run.
D) profit-maximizing behavior.
23) Which of the following assumptions is TRUE about monopolistic competition?
A) The firm’s products are differentiated.
B) There are few producers of the product.
C) Firms will not advertise.
D) It is difficult for firms to enter this industry.
24) For a monopolistically competitive market, the number of firms in the market implies that
A) each firm faces a perfectly elastic demand.
B) all firms will make losses.
C) each firm acts independently of other firms.
D) firms will collude to set monopoly price and output.
25) The number of firms in a monopolistically competitive market means that
A) all firms will have substantial monopoly power since there are so few firms in the industry.
B) each firm has a relatively small share of the total market since there are many firms in the
industry.
C) the firms will be likely to collude since there are only a few firms in the industry.
D) firms will have a hard time earning non-negative profits since there are many firms in the
industry.
26) The number of firms in a monopolistically competitive industry means that
A) firms will collude.
B) existing firms in the industry will make sure new firms do not enter.
C) firms will not cooperate to set a pure monopoly price.
D) firms will try to set a common price.
27) In a monopolistically competitive market, having a large number of firms in the market
means that
A) no firm attempts to take into account the reaction of rival firms.
B) individual firms will have a large portion of the market giving them monopoly power.
C) firms will get together and collude because this will be the only way to earn monopoly profits.
D) firms will cooperate with each other to drive competitors out of the market.
28) The meaning of interdependence in a monopolistically competitive market is
A) that it is difficult for firms to get together to collude.
B) that products produced by firms will be good substitutes.
C) that firms will not take into account the reaction of rival firms.
D) that price rigging commonly occurs.
29) The distinguishing of products by brand name, color, and other attributes
A) is known as interdependence.
B) is known as product differentiation.
C) leads to many firms in the market.
D) leads to collusion.
30) Products can be differentiated
A) if the buyers are homogeneous and their number increases.
B) by location and by brand name.
C) only by brand name.
D) none of the above.
31) The model of perfect competition and the model of monopolistic competition differ in that
A) perfect competition assumes many buyers and sellers while monopolistic competition
assumes many buyers but few sellers.
B) perfect competition assumes easy entry of new firms while there are more significant barriers
to entry in monopolistic competition.
C) perfect competition assumes firms make zero profits in the long run and monopolistic
competition assumes firms make positive profits.
D) perfect competition assumes the product is homogeneous and monopolistic competition
assumes the product is differentiated.
32) The demand curve for the product of a monopolistic competitor is
A) downward sloping.
B) horizontal.
C) vertical.
D) unitary elastic.
33) Because of product differentiation in a monopolistically competitive market, the demand
curve for an individual firm will be
A) horizontal.
B) vertical.
C) downward sloping.
D) upward sloping.
34) The demand curve for a monopolistically competitive firm is
A) more elastic than for a perfectly competitive firm.
B) more elastic than for a monopoly firm.
C) more inelastic than for a monopoly firm.
D) the same elasticity as a perfectly competitive firm.
35) The demand curve for a monopolistically competitive firm is
A) elastic because the products produced are homogeneous.
B) inelastic because of barriers to entry.
C) inelastic because of the profit maximizing behavior of the firm.
D) elastic because of product differentiation.
36) The major similarity between monopolistic competition and perfect competition is
A) the shape of the demand curve.
B) that both assume many buyers and sellers.
C) price equals marginal revenue in each.
D) both assume products are differentiated.
37) The market demand for the product of a monopolistic competitor will likely be
A) unitary elastic.
B) relatively inelastic.
C) relatively elastic.
D) perfectly elastic.
38) An implication of the downward slope of the demand curve for a monopolistic competitive
firm is that
A) its marginal revenue curve slopes upward.
B) its marginal revenue curve is the same as the demand curve.
C) its marginal revenue curve slopes downward but lies above the demand curve.
D) its marginal revenue curve slopes downward but lies below the demand curve.
39) The demand for the product of a monopolistically competitive firm is highly elastic when
A) firms collude.
B) there are fewer firms in the industry.
C) there is a lot of product differentiation.
D) there are a lot of close substitutes.
40) The key feature of monopolistic competition is
A) interdependence of the firms.
B) lack of advertisement.
C) product differentiation.
D) the small number of firms in the industry.
41) Monopolistic competitors advertise because
A) they have downward sloping demand curves.
B) the demand curves they face are very elastic.
C) they produce goods that can be differentiated from the goods of other firms in the industry.
D) they can earn long-run profits if they advertise.
42) A monopolistic competitor behaving in a profit-maximizing way will
A) not advertise.
B) advertise as much as it can in order to increase its sales.
C) advertise to the point where the additional sales from advertising equal the additional
marginal costs of the product.
D) advertise to the point where the additional revenue from one more dollar of advertising just
equals the extra dollar cost of advertising.
43) Firms in a monopolistically competitive market will advertise because
A) they want to differentiate their products.
B) they want to increase the elasticity of the demand curve.
C) of the significant differences in their product over their competitors.
D) the elasticity for their product is inelastic.
44) Which of the following is NOT a feature of a monopolistically competitive market?
A) numerous buyers and sellers
B) differentiated products
C) advertising
D) perfectly elastic demand curve
45) The products sold by monopolistically competitive firms
A) are differentiated.
B) are homogeneous.
C) can be either homogeneous or differentiated.
D) have no close substitutes.
46) Which of the following is NOT a characteristic of monopolistic competition?
A) large number of sellers
B) sales promotion and advertising
C) homogeneous product
D) easy entry of new firms in the long run
47) The demand curve for the product of a monopolistically competitive firm
A) is perfectly elastic.
B) is unitary elastic.
C) is downward sloping.
D) is perfectly inelastic.
48) Which of the following products is most likely to be sold in a monopolistically competitive
market?
A) fast food
B) automobile
C) wheat
D) electricity
49) Which of the following is most likely to be a monopolistically competitive firm?
A) smartphone manufacturer
B) cellphone service provider
C) college textbook publisher
D) computer software maker
50) Monopolistic competition means
A) monopolies from several countries compete in the global market.
B) a large number of firms producing homogeneous products.
C) a large number of firms producing differentiated products.
D) few firms producing differentiated products.
51) In a monopolistically competitive market, entry into the industry
A) is relatively easy.
B) is blocked.
C) is difficult due to extensive government regulation.
D) is as difficult as entry into a monopoly.
52) Which of the following is NOT a characteristic of firms in a monopolistically competitive
market?
A) advertising
B) differentiated products
C) ease of entry and exit
D) existence of significant economies of scale
53) Which of the following products would most likely be produced in a monopolistically
competitive market?
A) corn
B) crude oil
C) local water supply
D) pizza
54) All of the following are characteristics of a monopolistically competitive industry EXCEPT
A) homogeneous products.
B) many firms.
C) low barriers to entry and exit.
D) sales promotion and advertising.
55) Which of the following is most likely to be a monopolistically competitive firm?
A) a soybean farmer
B) a lettuce farmer
C) a municipal water district
D) a fast food restaurant
56) Monopolistically competitive firms advertise to attempt to
A) lower their average variable costs.
B) build brand loyalty.
C) lower barriers to entry.
D) increase barriers to entry.
57) The greater the product differentiation between monopolistically competitive firms
A) the lower the barriers to entry.
B) the greater the price elasticity of demand.
C) the higher the average variable costs.
D) the lower the price elasticity of demand.
58) The greater the the number and closeness of substitutes available between monopolistically
competitive firms
A) the greater the ability of a firm to raise its price above the price of close substitutes.
B) the smaller the ability of a firm to raise its price above the price of close substitutes.
C) the more inelastic the demand curve.
D) the greater the positive economic profits for a single firm.
59) Because the products of firms in a monopolistically competitive market are NOT
homogeneous, the
A) demand curve for the industry is the same for the firm.
B) demand curve for the firm’s product is horizontal.
C) demand curve for the firm’s product is downward sloping.
D) demand curve for the firm’s product is upward sloping.
60) A market situation in which a large number of firms produce similar but not identical
products is called
A) pure monopoly.
B) monopolistically competitive.
C) oligopolistic behavior.
D) perfectly competitive.
61) In the 1920s and 1930s, economists became increasingly aware that there were industries
that did not fit the model of perfect competition or pure monopoly. Two separate theories of
monopolistic competition resulted. Edward Chamberlin of Harvard published the Theory of
Monopolistic Competition in 1933. Chamberlin defined monopolistic competition as
A) a relatively large number of producers offering similar but differentiated products.
B) a relatively small number of producers offering similar but differentiated products.
C) a market situation in which a large number of firms produce identical products.
D) a market situation in which a small number of firms produce similar products.
62) Which of the following is NOT a feature of monopolistic competition?
A) significant numbers of sellers in a highly competitive market
B) differentiated products
C) sales promotion and advertising
D) inability of firms to enter or exit the market
63) Considering the relevant market structures, which is an INCORRECT statement?
A) In a perfectly competitive situation, there is an extremely large number of firms.
B) In pure monopoly, there is only one firm.
C) In monopolistic competition, there is a large number of firms.
D) In any market situation, the number of firms is not very important.