Deck 8: Market Entry, Monopolistic Competition, and Oligopoly

Question 1

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.

Answer 1

more firms will enter the market.

Question 2

When a second firm enters a monopolistʹs 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

Answer 2

shift to the left.

Question 3

When a second firm enters a monopolistʹs market,

A)the former monopolistʹs 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

Answer 3

the market price falls.

Question 4

When a second firm enters a monopolistʹs market, the monopolistʹs 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

Question 5

When a second firm enters a monopolistʹs market,

A)the former monopolistʹs 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

Question 6

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.

Question 7

When a second firm enters a market, the original firmʹs profits decline because:

A)the original firmʹs price decreases.
B)the original firmʹs ATC increases.
C)the original firmʹs quantity decreases.
D)All of the above are correct.

Question 8

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.

Question 9

The Motor Carrier Act of 1980 removed the governmentʹs 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.

Question 10

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.

Question 11

When a second firm enters a monopolistʹs market:

A)market price will rise.
B)the quantity produced by the first firm will increase.
C)the first firmʹs profits will decrease.
D)All of the above will occur.

Question 12

Recall the Application about the price competition between name brands and store brands to answer the following question(s).
Recall the Application. In stores that introduce store brands at a lower price, usually the price of the name brand:

A)fell below that of the store brand substitute.
B)fell, but stayed above the price of the store brand.
C)rose.
D)was unaffected.

Question 13

When a second firm enters a monopolistʹs market,

A)the former monopolistʹs 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

Question 14

When a second firm enters a monopolistʹs market:

A)market price will rise.
B)the quantity produced by the first firm will decrease.
C)the first firmʹs profits increase.
D)All of the above will occur.

Question 15

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.

Question 16

When a second firm enters a monopolistʹs market:

A)market price will drop.
B)sales for the first firm will rise.
C)the first firmʹs profits will increase.
D)All of the above will occur.

Question 17

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.

Question 18

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

Question 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.

Question 20

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.

Question 21

Empirical studies show that entry into markets increases both price and quantity of goods supplied.

Question 22

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.

Question 23

Entry of a second firm will result in a downward shift in the ATC curve.

Question 24

Entry leads reduces firm profits because it leads to a lower price.

Question 25

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.

Question 26

What entices a second firm to enter a market that was previously a single price monopoly?

Question 27

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.

Question 28

Why does entry into markets decrease firm profits?

Question 29

Why does the government work to eliminate artificial barriers to entry?

Question 30

The entry of an additional firm into a market shifts the demand curve for the original firm to the left.

Question 31

For many years North Carolina-based Krispy Kreme Doughnuts have been the choice of many Southerners.
But now rival Dunkinʹ Donuts is working on changing the way Southerners expect a doughnut to taste. The
Northeastern-based Dunkinʹ Donuts has plans to become a national brand in the next 15 years by tripling the
number of stores in the USA. The difference is in the doughnut itself. Krispy Kreme offers a glazed, hot,
lighter doughnut while the product of Dunkinʹ Donuts can be described as ʺthicker and cakier.ʺ Do
consumers notice the difference? Rosemary Evans from Alabama states, ʺDunkinʹ Donuts just donʹt have
much flavor.ʺ And Jack Lehnhart from Ohio says Krispy Kremes are ʺwax doughnuts.ʺ As the size of the
industry grows the efforts to differentiate each product remain strong. Dunkinʹ Donuts focuses on coffee and
baked goods as important components in its long term business plan. When discussing the two companies
and their approaches to success, the brand officer at Dunkinʹ Donuts succinctly said, ʺWeʹre very different.ʺ
Just take note of the different ways they spell the product they produce!
Source: Beth Rucker, ʺDunkinʹ Donuts Raids Krispy Kremeʹs Turf,ʺ October 22, 2006,
http://hosted.ap.org/dynamic/stories/D/DONUT_WARS, accessed 10/30/2006
As more Dunkinʹ Donuts outlets open in the areas where Krispy Kreme has been dominant, market prices will _______ and profits will _______.

A)increase, increase
B)increase, decrease
C)decrease, increase
D)decrease, decrease

Question 32

Recall the Application about the price competition between name brands and store brands to answer the following question(s).
Recall the Application. Which of the following NOT an example of a good that has both name brands and store brands?

A)light bulbs
B)aspirin
C)disposable diapers
D)automobiles

Question 33

For many years North Carolina-based Krispy Kreme Doughnuts have been the choice of many Southerners.
But now rival Dunkinʹ Donuts is working on changing the way Southerners expect a doughnut to taste. The
Northeastern-based Dunkinʹ Donuts has plans to become a national brand in the next 15 years by tripling the
number of stores in the USA. The difference is in the doughnut itself. Krispy Kreme offers a glazed, hot,
lighter doughnut while the product of Dunkinʹ Donuts can be described as ʺthicker and cakier.ʺ Do
consumers notice the difference? Rosemary Evans from Alabama states, ʺDunkinʹ Donuts just donʹt have
much flavor.ʺ And Jack Lehnhart from Ohio says Krispy Kremes are ʺwax doughnuts.ʺ As the size of the
industry grows the efforts to differentiate each product remain strong. Dunkinʹ Donuts focuses on coffee and
baked goods as important components in its long term business plan. When discussing the two companies
and their approaches to success, the brand officer at Dunkinʹ Donuts succinctly said, ʺWeʹre very different.ʺ
Just take note of the different ways they spell the product they produce!
Source: Beth Rucker, ʺDunkinʹ Donuts Raids Krispy Kremeʹs Turf,ʺ October 22, 2006,
http://hosted.ap.org/dynamic/stories/D/DONUT_WARS, accessed 10/30/2006
What market structure best describes the doughnut industry discussed in the article above?

A)monopolistic competition
B)monopoly
C)governmental
D)perfect competition

Question 34

Recall the Application about the price competition between name brands and store brands to answer the following question(s).
Recall the Application. The introduction of store brands is a form of:

A)price gouging.
B)profiteering.
C)market entry.
D)all of the above

Question 35

Entry leads to higher prices and profits in an industry.

Question 36

The entry of an additional firm into a market decreases the profit per unit of output because entry decreases the price.

Question 37

What are the effects on a market when there is entry?

Question 38

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.

Question 39

Recall the Application about the price competition between name brands and store brands to answer the following question(s).
Recall the Application. Which of the following is/ are examples of goods with name brands and store brands?

A)light bulbs
B)aspirin
C)disposable diapers
D)All of the above are correct.

Question 40

For many years North Carolina-based Krispy Kreme Doughnuts have been the choice of many Southerners.
But now rival Dunkinʹ Donuts is working on changing the way Southerners expect a doughnut to taste. The
Northeastern-based Dunkinʹ Donuts has plans to become a national brand in the next 15 years by tripling the
number of stores in the USA. The difference is in the doughnut itself. Krispy Kreme offers a glazed, hot,
lighter doughnut while the product of Dunkinʹ Donuts can be described as ʺthicker and cakier.ʺ Do
consumers notice the difference? Rosemary Evans from Alabama states, ʺDunkinʹ Donuts just donʹt have
much flavor.ʺ And Jack Lehnhart from Ohio says Krispy Kremes are ʺwax doughnuts.ʺ As the size of the
industry grows the efforts to differentiate each product remain strong. Dunkinʹ Donuts focuses on coffee and
baked goods as important components in its long term business plan. When discussing the two companies
and their approaches to success, the brand officer at Dunkinʹ Donuts succinctly said, ʺWeʹre very different.ʺ
Just take note of the different ways they spell the product they produce!
Source: Beth Rucker, ʺDunkinʹ Donuts Raids Krispy Kremeʹs Turf,ʺ October 22, 2006,
http://hosted.ap.org/dynamic/stories/D/DONUT_WARS, accessed 10/30/2006
Why would Dunkinʹ Donuts want to keep their product different from Krispy Kreme?

A)They do not want Southerners confusing the two doughnuts.
B)They want to maintain a specific brand identity.
C)They do not have the level of technology to produce a Krispy Kreme -like doughnut.
D)They do not want customers to accuse them of stealing trade secrets.

Question 41

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.

Question 42

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.

Question 43

The word ʺmonopolisticʺ in the label ʺmonopolistic competitionʺ 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

Question 44

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.

Question 45

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

Question 46

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.

Question 47

Which of the following is the reason why pharmaceutical firms are NOT 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.

Question 48

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

Question 49

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.

Question 50

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.

Question 51

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

Question 52

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

Question 53

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

Question 54

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.

Question 55

Which of the following is NOT an example of a monopolistically competitive firm?

A)Farmer Jonesʹs wheat farm
B)the Post Cereal Company
C)Procter and Gamble, a large consumer products corporation
D)T.J.ʹs Clothes, a local retail clothing store

Question 56

The word ʺcompetitionʺ in the label ʺmonopolistic competitionʺ 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

Question 57

Which of the following is an example of a monopolistically competitive firm?

A)Farmer Smithʹs corn farm
B)Tinoʹs 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.

Question 58

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.

Question 59

Monopolistically competitive firms do NOT differentiate their products by:

A)changing the productsʹ 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.

Question 60

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.

Question 61

Suppose that a monopolistically competitive market is in its long-run equilibrium. If the market demand curve shifts to the left due to a recession,

A)the number of firms in the market decreases in the short-run.
B)some firms may earn negative profits in the short-run.
C)firmsʹ average costs of production decreases as they decrease output levels in the short-run.
D)none of the above

Question 62

If firms in a monopolistically competitive market are earning economic profits greater than zero in the short run, then in the long run:

A)firms will exit this market.
B)profits will increase.
C)profits will decrease.
D)demand will not change.

Question 63

Under the conditions of monopolistic competition, if a firm is earning economic profits in the short run:

A)prices are higher in the long run than in the short run.
B)firm profits are higher in the long run than in the short run.
C)average costs of production are higher in the long run than in the short run.
D)long-run economic profits are positive.

Question 64

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

Question 65

For a monopolistically competitive firm, the firmʹs demand curve is:

A)downward sloping.
B)horizontal.
C)upward sloping.
D)none of the above

Question 66

If short-run economic profits are greater than zero for firms in a monopolistically competitive market, in the long run we expect:

A)entry barriers to prevent competing firms from entering this market.
B)the demand curve for firms in the market to shift to the right.
C)the average cost of production to decrease.
D)the average cost of production to increase.

Question 67

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.

Question 68

Suppose coffee is sold in a monopolistically competitive market, where coffee is differentiated by coffee shop location. As firms enter in the long run and the price of coffee falls:

A)the market quantity of coffee demanded will increase, but the quantity of coffee supplied by any individual coffee shop declines.
B)the market quantity of coffee demanded will decrease as does the quantity supplied from any individual coffee shop.
C)the average costs of production decline.
D)the profits of individual coffee shops increase.

Question 69

If a firm is operating in a monopolistically competitive market, then in the long-run:

A)the firm will earn a zero economic profit.
B)the firm will maximize its profit by producing the output level at which the average cost is minimized.
C)the firm will maximize its profit by producing the output level at which the marginal revenue is minimized.
D)all of the above

Question 70

If short-run economic profits are greater than zero for firms in a monopolistically competitive market, in the long run we expect:

A)entry barriers to prevent competing firms from entering this market.
B)the demand curve for firms in the market to shift to the right.
C)competing firms to enter the market and sell similar products.
D)profits to increase.

Question 71

As firms enter a monopolistically competitive market in the long run:

A)price increases, the market quantity demanded increases, and the quantity supplied by an individual firm increases.
B)price decreases, the market quantity demanded increases, and the quantity supplied by an individual firm decreases.
C)price decreases, but firm profits increase as average costs decrease.
D)price increases and firm profits increase.

Question 72

Under the conditions of monopolistic competition:

A)prices are always lower in the long run than in the short run.
B)firm profits are always higher in the long run than in the short run.
C)average costs of production are always higher in the short run than in the long run.
D)None of the above are correct.

Question 73

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

Question 74

Suppose that a monopolistically competitive market is in its long-run equilibrium. If the market demand curve shifts to the right due to changes in consumer preferences,

A)the number of firms in the market will increase in the short-run.
B)firms will earn positive economic profits in the short-run.
C)firmsʹ average costs of production will increase as they increase output levels in the short-run.
D)none of the above

Question 75

Which of the following is a characteristic of a monopolistically competitive market? I. Firms sell differentiated products.
II. Each firmʹs product is a close substitute for other firmsʹ 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

Question 76

Under the conditions of monopolistic competition:

A)firm profits are higher in the long run than in the short run.
B)average costs of production are the same in the short run as they are in the long run.
C)economic profit is zero in the long run.
D)price equals marginal cost.

Question 77

Suppose in the city of Smugsburg, DVD rental stores operate in a monopolistically competitive market. If the price of DVD rentals in Smugsburg is currently equal to $5 per tape and the average cost of renting videos is $1 per DVD, in the long run we expect the price of renting DVDs to:

A)increase.
B)stay the same.
C)decrease, and the average cost of producing DVD rentals to increase.
D)decrease, and the average cost of producing DVD rentals to decrease.

Question 78

Suppose in the city of Blacksburg, music stores operate in a monopolistically competitive market. If the price of CDs in Blacksburg is currently equal to $20 per CD and the average cost of CDs is $15, in the long run we expect the price of CDs to:

A)increase.
B)stay the same.
C)decrease, and the average cost of selling CDs to increase.
D)decrease, and the average cost of selling CDs to decrease.

Question 79

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.

Question 80

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.