Question 1

A monopolistically competitive market has characteristics that are similar to

Accepted Answer

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.E) B) and C)
F) A) and C)

Question 2

When a firm operates at efficient scale, it is producing at the minimum point on its average total cost curve.

Accepted Answer

A) True 
 B)False

Question 3

Suppose for some firm that average total cost is minimized at Q1 units of output. For a monopolistically competitive firm in long-run equilibrium, Q1

Accepted Answer

A)   is also the level of output at which marginal cost equals average total cost.
B)   exceeds the level of output at which there is a point of tangency between the demand curve and the average total cost curve.
C)   exceeds the level of output at which marginal revenue equals marginal cost.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 4

To be considered an oligopoly, the market must have a concentration ratio below 50%.

Accepted Answer

A) True 
 B)False

Question 5

A firm produces the welfare-maximizing level of output

Accepted Answer

A)   only when the market is perfectly competitive.
B)   only when the market is a monopoly or monopolistically competitive.
C)   only when the market is monopolistically competitive or perfectly competitive.
D)   when the market is perfectly competitive, monopolistically competitive, or monopolistid.E) A) and B)
F) All of the above

Question 6

A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to

Accepted Answer

A)   no change in profits for all hotels/motels.
B)   reduced efficiency of local lodging markets.
C)   a request by consumers to increase the number of billboards.
D)   increased price competition among hotels/motels in the community.E) None of the above
F) A) and C)

Question 7

In perfect competition as well as in monopolistic competition,

Accepted Answer

A)   marginal revenue is equal to price for each firm.
B)   profit is positive in a long-run equilibrium for each firm.
C)   entry and exit by firms are restricted.
D)   there are many firms in a single market.E) A) and D)
F) A) and C)

Question 8

Figure 16-9
The figure is drawn for a monopolistically-competitive firm. 
-Refer to Figure 16-9. For this firm, the long-run equilibrium quantity of output is

Accepted Answer

A)   100 and the long-run equilibrium price is $90.
B)   100 and the long-run equilibrium price is $140.
C)   133.33 and the long-run equilibrium price is $56.67.
D)   133.33 and the long-run equilibrium price is $123.33.E) A) and C)
F) A) and D)

Question 9

Figure 16-3
This figure depicts a situation in a monopolistically competitive market. 
-Refer to Figure 16-3. What is the profit-maximizing price, quantity, and resulting profit?

Accepted Answer

A)   P=$60, Q=20 units, profit=$200
B)   P=$80, Q=20 units, profit=$200
C)   P=$75, Q=25 units, profit=$100
D)   P=$60, Q=40 units, profit=$0E) B) and C)
F) All of the above

Question 10

A monopolistically competitive industry is characterized by

Accepted Answer

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.E) B) and D)
F) A) and B)

Question 11

One thing that both critics of advertising and defenders of advertising agree on is that advertising fosters competition.

Accepted Answer

A) True 
 B)False

Question 12

In a monopolistically competitive market,

Accepted Answer

A)   entry by new firms is impeded by barriers to entry; thus, the number of firms in the market is never ideal.
B)   entry by new firms is impeded by barriers to entry, but the number of firms in the market is nevertheless always ideal.
C)   free entry ensures that the number of firms in the market is ideal.
D)   there may be too few or too many firms in the market, despite free entry.E) A) and B)
F) B) and C)

Question 13

Figure 16-3
This figure depicts a situation in a monopolistically competitive market. 
-Refer to Figure 16-3. What price will the monopolistically competitive firm charge in this market?

Accepted Answer

A)   $60
B)   $70
C)   $75
D)   $80E) A) and D)
F) B) and D)

Question 14

In some countries, brand name fast-food restaurants are not allowed to operate. Such restrictions are likely to

Accepted Answer

A)   enhance the social welfare of society.
B)   increase the number of fast-food restaurants.
C)   reduce barriers to entry in imperfect markets.
D)   reduce the competitive nature of local fast-food markets.E) All of the above
F) None of the above

Question 15

Figure 16-4 
-Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has total costs of approximately

Accepted Answer

A)   $12,000.
B)   $18,000.
C)   $21,000.
D)   $24,000.E) A) and B)
F) A) and C)

Question 16

In which of the following market structures do firms produce the welfare-maximizing level of output?

Accepted Answer

A)   perfect competition
B)   monopolistic competition
C)   monopoly
D)   Both a and b are correct.E) A) and B)
F) A) and C)

Question 17

A study of the market for optometrists' services in the 1960s showed that

Accepted Answer

A)   all states in the United States prohibited advertising by optometrists.
B)   almost all professional optometrists opposed legal restrictions on their rights to advertise.
C)   the average price of eyeglasses would decrease if the legal restrictions on advertising by optometrists were removed.
D)   advertising on eyeglasses limited competition among optometrists.E) A) and C)
F) None of the above

Question 18

When McDonald's opens a store in Dhaka, Bangladesh, it has a strong incentive to enforce product quality consistent with stores in the United States.

Accepted Answer

A) True 
 B)False

Question 19

Figure 16-9
The figure is drawn for a monopolistically-competitive firm. 
-Refer to Figure 16-9. Efficient scale is reached

Accepted Answer

A)   at 100 units.
B)   between 100 and 133.33 units.
C)   at 133.33 units.
D)   beyond 133.33 units.E) B) and D)
F) B) and C)

Question 20

Monopolistic competition is characterized by a few sellers offering similar products, whereas oligopoly is characterized by many sellers offering differentiated products.

Accepted Answer

A) True 
 B)False

Exam 16: Monopolistic Competition

Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. Efficient scale is reached

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Monopolistic competition is characterized by a few sellers offering similar products, whereas oligopoly is characterized by many sellers offering differentiated products.

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A study of the market for optometrists' services in the 1960s showed that

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In a monopolistically competitive market,

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In which of the following market structures do firms produce the welfare-maximizing level of output?

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A monopolistically competitive market has characteristics that are similar to

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One thing that both critics of advertising and defenders of advertising agree on is that advertising fosters competition.

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Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. What price will the monopolistically competitive firm charge in this market?

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Suppose for some firm that average total cost is minimized at Q1 units of output. For a monopolistically competitive firm in long-run equilibrium, Q1

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When McDonald's opens a store in Dhaka, Bangladesh, it has a strong incentive to enforce product quality consistent with stores in the United States.

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To be considered an oligopoly, the market must have a concentration ratio below 50%.

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A firm produces the welfare-maximizing level of output

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In some countries, brand name fast-food restaurants are not allowed to operate. Such restrictions are likely to

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In perfect competition as well as in monopolistic competition,

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Figure 16-4 -Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has total costs of approximately

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When a firm operates at efficient scale, it is producing at the minimum point on its average total cost curve.

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Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. What is the profit-maximizing price, quantity, and resulting profit?

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A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to

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Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. For this firm, the long-run equilibrium quantity of output is

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A monopolistically competitive industry is characterized by

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