Quiz 11: Market Entry and Monopolistic Competition
Business
Q 1Q 1
A monopolistically competitive market is characterized by:
A)many firms that sell slightly different products.
B)many barriers to entry and few firms.
C)many firms that sell the same products.
D)few firms that sell the same products.
Free
Multiple Choice
A
Q 2Q 2
No barriers to entry in a market implies that,in the long run,economic profit will be:
A)above average.
B)zero.
C)equal to accounting profit.
D)none of the above.
Free
Multiple Choice
B
Q 3Q 3
What encourages firms to enter markets?
A)The diversity of products offered must be small.
B)Firms believe they can violate patent protection with impunity.
C)No firms in the industry can experience losses.
D)Some existing firms in the market must be earning economic profits.
Free
Multiple Choice
D
Q 4Q 4
Assume that there is a single firm producing toilet paper and the firm specific demand curve is the same as the market demand curve.If a second firm that also produces toilet paper enters the market what will happen to the firm-specific demand curve of the original firm?
A)There is a movement up along the demand curve.
B)There is a movement down along the demand curve.
C)shifts to the right
D)shifts to the left
Free
Multiple Choice
Q 5Q 5
Assume that there is only one firm producing electric toothbrushes and its firm specific demand curve is the same as the market demand curve.If a second firm that also produces electric toothbrushes enters the market,profit of the first firm decreases because:
A)the competition between the two firms causes the price to go down.
B)it produces less electric toothbrushes.
C)its average cost of production raises due to higher demand.
D)A and B are correct.
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Multiple Choice
Q 6Q 6
Which of the following statements is true?
A)An assumption of monopolistic competition is that firms can differentiate their products.
B)An assumption of perfect competition is that firms can differentiate their products.
C)Monopolistic competition is not subject to free entry and exit.
D)An assumption of monopolistic competition is that there are only a few large firms in the industry.
Free
Multiple Choice
Q 7Q 7
Which of the following characteristics is shared by both monopolistically competitive markets and perfectly competitive markets?
A)no barriers to entry
B)identical products across sellers
C)small number of interdependent sellers
D)firms face downward sloping demand curves
Free
Multiple Choice
Q 8Q 8
Which of the following characteristics is shared by both monopolistically competitive markets and monopoly markets?
A)free entry
B)identical products across sellers
C)Firms face downward sloping demand curves.
D)Firms are price takers.
Free
Multiple Choice
Q 9Q 9
As a result of product differentiation,a firm in a monopolistically competitive market:
A)always has some market power.
B)is very similar to a firm in a perfectly competitive market.
C)faces a perfectly elastic demand curve.
D)is very similar to a monopolist.
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Multiple Choice
Q 10Q 10
In a monopolistically competitive market,product differentiation ensures that in the long run:
A)price will equal marginal cost.
B)marginal revenue will exceed marginal cost.
C)marginal revenue will equal average total cost.
D)price will exceed marginal revenue.
Free
Multiple Choice
Q 11Q 11
Recall the application about satellite vs.cable,how will an existing cable-TV provider respond in most cases to the entry of a firm that provides TV signals via satellite?
A)The cable firm improves the quality of service and leaves the price the same.
B)The cable firm lower the quality of services and lower the price.
C)The cable firm increases the price without any improvements to its service.
D)The cable firm improves the quality of service and decreases its price.
Free
Multiple Choice
Q 12Q 12
Additional Application
For many years North Carolina-based Krispy Kreme Doughnuts have been the choice of many Southerners.But now rival Dunkin' Donuts is working on changing the way Southerners expect a doughnut to taste.The Northeastern-based Dunkin' Donuts has plans to become a national brand in the next 15 years by tripling the number of stores in the U.S.The difference is in the doughnut itself.Krispy Kreme offers a glazed,hot,lighter doughnut while the product of Dunkin' Donuts can be described as "thicker and cakier." Do consumers notice the difference? Rosemary Evans from Alabama states,"Dunkin' Donuts just don't have much flavor." And Jack Lehnhart from Ohio says Krispy Kremes are "wax doughnuts." As the size of the industry grows the efforts to differentiate each product remain strong.Dunkin' 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 Dunkin' Donuts succinctly said,"We're very different." Just take note of the different ways they spell the product they produce!
Source: Beth Rucker,"Dunkin' Donuts Raids Krispy Kreme's Turf," 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
Free
Multiple Choice
Q 13Q 13
Why would Dunkin' 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.
Free
Multiple Choice
Q 14Q 14
As more Dunkin' 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
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Multiple Choice
Q 15Q 15
As new firms enter an industry,the demand curve facing each existing firm will shift to the right.
Free
True False
Q 16Q 16
If there is free entry in a market,then in the long run economic profit will be above average.
Free
True False
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True False
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True False
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True False
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True False
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Essay
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Essay
Q 23Q 23
On South Street in Philadelphia,there are many Italian restaurants.Each Italian restaurant carries a slightly different menu.In what type of market structure do these Italian restaurants belong?
A)perfect competition
B)monopolistic competition
C)oligopoly
D)monopoly
Free
Multiple Choice
Q 24Q 24
In monopolistic competition,firms can have some market power based on the fact that:
A)they are large in size.
B)there are barriers to entry.
C)there is only one firm in the industry.
D)they produce differentiated goods.
Free
Multiple Choice
Q 25Q 25
In monopolistic competition,the firm can increase price and still sell some output because:
A)there is no free entry.
B)they are producing a product for which there is no close substitute.
C)they are colluding with other firms to set price.
D)they are producing a product that has some degree of differentiation.
Free
Multiple Choice
Q 26Q 26
The feature that distinguishes monopolistic competition from perfect competition is that monopolistically competitive firms are:
A)large relative to the market.
B)price takers.
C)able to block the entry of other firms.
D)able to differentiate their product.
Free
Multiple Choice
Q 27Q 27
In a monopolistically competitive industry,there are many firms because:
A)there are relatively large economies of scale.
B)there are relatively small economies of scale.
C)individual firms are not distinguishable from the total market.
D)products are easily produced.
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Multiple Choice
Q 28Q 28
Assume that the Indian restaurant industry is monopolistically competitive in London.Garam Masala,an Indian restaurant near Piccadilly Circus,lowers its prices by 10%,but all the other Indian restaurants in London keep their prices unchanged.Which of the following is most likely to occur?
A)Garam Masala will not be able to sell any bagels since it was the only bakery to raise its price.
B)Garam Masala will lose some of its customers.
C)Garam Masala's profits will increase.
D)The number of customers served by Garam Masala will increase.
Free
Multiple Choice
Q 29Q 29
The demand for a product of a monopolistically competitive firm is:
A)price inelastic.
B)price elastic.
C)unit elastic.
D)undefined.
Free
Multiple Choice
Q 30Q 30
To maximize profit,a monopolistically competitive firm will produce where:
A)marginal revenue exceeds price.
B)price is less than marginal cost.
C)price equals average total cost.
D)marginal revenue equals marginal cost.
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Multiple Choice
Q 31Q 31
If firms in a monopolistically competitive industry are earning economic profits,then in the long run:
A)these firms can continue earning economic profits because entry into the industry is blocked.
B)new firms producing close substitutes will continue to enter the market until economic profit is zero.
C)new firms producing the exact same product will enter the industry and this entry will continue until economic profit is zero.
D)the government will most likely regulate firms in this industry to reduce the economic profits.
Free
Multiple Choice
Q 32Q 32
What effect does the absence of barriers to entry in a monopolistically competitive industry have on the existing firms' demand and marginal revenue curves?
A)The demand and marginal revenue curves begin to shift to the right.
B)The demand curve begins to shift to the right,but the marginal revenue curve shifts to the left.
C)Both curves shift to the left.
D)The demand curve shifts to the left,but the marginal revenue curve shifts to the right.
Free
Multiple Choice
Q 33Q 33
Which type of profit maximizing firm will choose to produce where price equals marginal cost?
A)perfect competition
B)perfect competition and monopolistic competition
C)monopolistic competition
D)all types of firms
Free
Multiple Choice
Q 34Q 34
Which type of profit maximizing firm will choose to produce where marginal revenue equals marginal cost?
A)perfect competition
B)perfect competition and monopolistic competition
C)monopolistic competition
D)all types of firms
Free
Multiple Choice
Q 35Q 35
The demand curve facing a monopolistically competitive firm is:
A)horizontal at the going market price.
B)downward sloping and less than the market demand curve.
C)downward sloping and greater than the market demand curve.
D)the same as the market demand curve.
Free
Multiple Choice
Q 36Q 36
For monopolistically competitive firms in long-run equilibrium:
A)the demand curve must intersect average total cost at its minimum.
B)the demand curve must be tangent to the average total cost curve at its minimum.
C)at the profit-maximizing quantity,the demand curve must intersect the average total cost curve quantity.
D)at the profit-maximizing quantity,the demand curve must be tangent to the average total cost curve.
Free
Multiple Choice
Q 37Q 37
-Refer to Figure 11.1.If Trollio's T-shirts is in long-run equilibrium it is producing ________ silk-screened T-shirts and selling each T-shirt at a price of ________.
A)20;$5
B)50;$10
C)50;$16
D)60;$15
Free
Multiple Choice
Q 38Q 38
The condition for long-run equilibrium in a monopolistically competitive industry is:
A)price equals average total cost.
B)price equals marginal cost.
C)price equals marginal revenue.
D)marginal cost equals average total cost.
Free
Multiple Choice
Q 39Q 39
In the short run in monopolistic competition there can be:
A)economic profits,but not losses.
B)economic profits,losses or break even.
C)no economic profits,but losses
D)no economic profits or losses.
Free
Multiple Choice
Q 40Q 40
-Refer to Figure 11.2.In the long run the monopolistic competitor would generate total revenue equal to the area:
A)0BGD.
B)AHE0.
C)AFGB.
D)0AFD.
Free
Multiple Choice
Q 41Q 41
-Refer to Figure 11.2.In the long run the monopolistic competitor would generate total cost equal to the area:
A)0AFD.
B)AHE0.
C)AFGB.
D)0BGD.
Free
Multiple Choice
Q 42Q 42
-Refer to Figure 11.2.In the long run the monopolistic competitor would produce ________ units.
A)0C
B)0D
C)0E
D)none of these
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Multiple Choice
Q 43Q 43
-Refer to Figure 11.2.In the long run the monopolistic competitor would charge a price of ________ per unit.
A)0A
B)0B
C)0F
D)BA
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Multiple Choice
Q 44Q 44
-Refer to Figure 11.2.In the long run the monopolistic competitor would earn an economic profit equal to the area:
A)0AFD.
B)AHE0.
C)0BGD.
D)none of these.
Free
Multiple Choice
Q 45Q 45
Which of the following is a characteristic of monopolistic competition?
A)Many firms compete for essentially the same customers,but each firm produces a slightly different product.
B)Competitors have some price-setting power but it is limited because of the many close substitutes available.
C)Entry is relatively inexpensive.
D)all of the above
Free
Multiple Choice
Q 46Q 46
Monopolistic competition is NOT characterized by:
A)slightly different products.
B)many sellers.
C)firms with no control over price.
D)no barriers to entry.
Free
Multiple Choice
Q 47Q 47
The toothpaste industry with 5 firms is a monopolistic competition,if a sixth firm decides to entry the market,what will happen to firms' specific demand curve?
A)shifts to the right
B)shifts to the left
C)stays the same
D)none of the above
Free
Multiple Choice
Q 48Q 48
In the short run,a firm in monopolistic competition operates much like a:
A)monopolist.
B)firm in perfect competition.
C)price taker.
D)all of the above
Free
Multiple Choice
Q 49Q 49
In monopolistic competition,the presence of free entry suggests that:
A)some firms will earn economic profits in the long run.
B)some firms will be forced to incur losses in the long run.
C)all firms will earn zero economic profit in the long run.
D)all firms will earn zero economic profit in both the short run and the long run.
Free
Multiple Choice
Q 50Q 50
When a profit-maximizing firm in monopolistic competition is producing its long-run equilibrium quantity:
A)it will be earning economic profit.
B)its marginal revenue will exceed its marginal cost.
C)its price will equal its marginal cost.
D)its price will be equal to its average total cost.
Free
Multiple Choice
Q 51Q 51
When a profit-maximizing firm in monopolistic competition is in long-run equilibrium:
A)the demand curve it faces will be perfectly elastic.
B)its marginal cost will be falling.
C)its price will be greater than its marginal cost.
D)its marginal revenue will be greater than its marginal cost.
Free
Multiple Choice
Q 52Q 52
Since a firm in monopolistic competition has some market power,its long-run price will be greater than its:
A)average total cost.
B)marginal cost.
C)total cost.
D)none of the above
Free
Multiple Choice
Q 53Q 53
Which of the following goods are NOT sold in a monopolistically competitive market?
A)computer software
B)toothpaste
C)toilet paper
D)oil
Free
Multiple Choice
Q 54Q 54
In the long run,which two curves are tangent for a firm in monopolistic competition?
A)marginal cost and marginal revenue
B)marginal cost and demand
C)average total cost and demand
D)average total cost and marginal revenue
Free
Multiple Choice
Q 55Q 55
Recall the application regarding opening a Dunkin' Donuts shop and the small barriers to entering the donut business.What should an owner of a Dunkin' Donut shop expect in a monopolistically competitive market?
A)total revenue equal to total cost
B)keen competition for consumers
C)his economic profit to be zero
D)all of the above
Free
Multiple Choice
Q 56Q 56
Recall the application about opening a Dunkin' Donuts shop and the small barriers to entering the donut business.Which of the following is NOT required to operate a Dunkin' Donuts franchise?
A)paying a franchise fee
B)earning an economic profit
C)paying a royalty rate on profits
D)selling a specific brand of donuts
Free
Multiple Choice
Q 57Q 57
In some monopolistically competitive markets,differentiation is obtained simply by location.Which of the followings is NOT a good sample of differentiation by location?
A)gas stations
B)movie theaters
C)music stores
D)restaurants
Free
Multiple Choice
Q 58Q 58
Firms in a monopolistically competitive industry have small economies of scale which causes no barriers to entry.
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True False
Q 59Q 59
Under a monopolistically competitive market structure,firms will continue to enter the market until the economic profit is eliminated.
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True False
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True False
Q 61Q 61
There are patents and regulations that can prevent firms from entering a monopolistically competitive market.
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True False
Q 62Q 62
Firms gain control over price in monopolistic competition by differentiating their products.
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True False
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True False
Q 64Q 64
A monopolistically competitive firm maximizes profit by producing where marginal revenue is less than marginal cost.
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True False
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True False
Q 66Q 66
Under monopolistic competition,the typical firm maximizes profit at the point where marginal revenue equals marginal cost.
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True False
Q 67Q 67
Like firms in perfect competition,firms in monopolistic competition will earn zero economic profit in the long run.
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True False
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True False
Q 69Q 69
In a monopolistically competitive market,price will be equal to minimum average total cost in the long run.
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True False
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True False
Q 71Q 71
Explain the characteristics of monopolistic competition.Explain how price and output are determined in monopolistic competition.
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Q 76Q 76
How is it possible that monopolistically competitive firms have market power and yet cannot earn long-run profit?
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Essay
Q 77Q 77
What happens in the long run if firms in a monopolistically competitive industry are earning positive economic profits? Explain.
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Q 78Q 78
Explain the process by which long-run equilibrium will be achieved in a monopolistically competitive industry if some firms are incurring losses.
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Q 79Q 79
Explain the conditions that must be satisfied for a monopolistically competitive industry to be in long-run equilibrium.
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Q 80Q 80
One key difference between profit maximizing firms in monopolistic competition versus perfect competition is that:
A)monopolistically competitive firms will earn a positive profit in the long run.
B)perfectly competitive firms break even in the long run,but monopolistically competitive firms do not.
C)monopolistically competitive firms charge a price greater than marginal revenue.
D)none of the above
Free
Multiple Choice
Q 81Q 81
When products are differentiated by location what kind of tradeoffs exist?
A)Firms that sell the same product at different locations have a monopoly in their location and buyers pay a higher price.
B)the larger the numbers of firms that sell the same product at different locations,the higher the level of variety
C)the smaller the numbers of firms that sell the same product at different locations,the higher the average cost of production
D)the larger the numbers of firms that sell the same product at different locations,the higher the average cost of production
Free
Multiple Choice
Q 82Q 82
Monopolistically competitive firms achieve the degree of market power they command through:
A)size.
B)product differentiation.
C)collusion.
D)barriers to entry.
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Multiple Choice
Q 83Q 83
An Italian restaurant is profit-maximizing firm in monopolistic competition differs from a firm in perfect competition because the firm in monopolistic competition:
A)faces a perfectly elastic demand curve at the market price.
B)faces no barriers to entry.
C)faces a downward sloping demand curve for its product.
D)can earn economic profits in the long run.
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Multiple Choice
Q 84Q 84
With respect to output production,a monopolistically competitive firm produces:
A)more amount of output than a perfectly competitive firm.
B)identical amount of output as a perfectly competitive firm.
C)less amount of output than a perfectly competitive firm.
D)none of the above.
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Multiple Choice
Q 85Q 85
The big advantage to consumers of product differentiation is that it:
A)allows for a large number of firms.
B)provides variety.
C)prevents monopoly.
D)improves technology.
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Multiple Choice
Q 86Q 86
Product differentiation is beneficial because it:
A)ensures larger companies can grow while smaller companies fail.
B)allows the economy to satisfy a wide range of tastes and preferences.
C)reduces competition in the market.
D)all of the above
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Multiple Choice
Q 87Q 87
-In the long run,the monopolistically competitive firm in Figure 11.3 would produce ________ units and charge ________ per unit.
A)7;$50
B)10;$48
C)11;$48
D)10;$45
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Multiple Choice
Q 88Q 88
-In the long run,the monopolistically competitive firm in Figure 11.3 would earn $ ________ of economic profit.
A)14
B)30
C)35
D)0
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Multiple Choice
Q 89Q 89
-In the long run,the monopolistically competitive firm in Figure 11.3 would generate $ ________ of total revenue.
A)350
B)450
C)238
D)480
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Multiple Choice
Q 90Q 90
-In the long run,a perfectly competitive firm facing the same costs as in Figure 11.3 would produce ________ units and charge ________ per unit.
A)7;$50
B)10;$48
C)11;$48
D)10;$45
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Multiple Choice
Q 91Q 91
-In the long run,a perfectly competitive firm facing the same costs as in Figure 11.3 would earn $________ of economic profit.
A)20
B)33
C)42
D)0
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Multiple Choice
Q 92Q 92
-In the long run,a perfectly competitive firm facing the same costs as in Figure 11.3 would generate $________ of total revenue.
A)350
B)528
C)450
D)238
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Multiple Choice
Q 93Q 93
-In a perfectly competitive market,the firm specific demand curve is ________ at the market price,compared to in a monopolistically competitive market,the firm specific demand curve is ________.
A)negatively sloped;positively sloped
B)negatively sloped;horizontal
C)horizontal;negatively sloped
D)positively sloped;negatively sloped
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Multiple Choice
Q 94Q 94
Recall the application on happy hour pricing,each bar has a local monopoly within its neighborhood,but faces competition from other bars outside its neighborhood.The bars respond by decreasing its prices,in what happens to the demand curve facing each bar?
A)It becomes flatter.
B)It becomes downward slopping.
C)It shifts to the right.
D)A and C are correct.
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Multiple Choice
Q 95Q 95
As new firms enter a monopolistically competitive market,existing firms will face a lower average cost of production because the cost is spread across more firms.
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True False
Q 96Q 96
Monopolistically competitive firms tend to operate on the positively sloped portion of their average cost curves.
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True False
Q 97Q 97
As new firms enter a monopolistically competitive market,there is more product variety and lower prices.
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True False
Q 98Q 98
If product differentiation continues to diminish,the firm's demand curve becomes more elastic.
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True False
Q 99Q 99
In a perfect competitive market,the firm specific demand curve is horizontal at the market price.
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True False
Q 100Q 100
If producers differentiate themselves by location,consumers can reduce their travel costs.
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True False
Q 101Q 101
In long-run equilibrium,a monopolistically competitive firm's price is equal to its marginal cost.
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True False
Q 102Q 102
In long-run equilibrium,a monopolistically competitive firm's marginal revenue is equal to its marginal cost.
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True False
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Q 105Q 105
Monopolistically competitive firms can use advertising:
A)to lower economies of scale.
B)to collude against other firms.
C)to inform consumers about the features of their products.
D)to increase the price charged for their products.
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Multiple Choice
Q 106Q 106
By using celebrities to promote a product,a firm is attempting to:
A)send a signal to consumers.
B)increases repeat customers.
C)increase sales.
D)all of these
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Multiple Choice
Q 107Q 107
Recall the application about a South African consumer lender that advertised its products including a picture of man in some mailings and a picture of woman in others,what did the South African consumer lender conclude from the respond from men vs.women when the loan offer included a picture of a woman?
A)not release the movie to the public
B)not pay the actors high salaries
C)rewrite the script and refilm most scenes
D)not spend money on advertising
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Multiple Choice
Q 108Q 108
Firms in monopolistic competition differentiate their products through:
A)physical characteristics.
B)price.
C)both A and B.
D)neither A nor B.
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Multiple Choice
Q 109Q 109
The cost of paying celebrities to advertise a product is always less than the increase in profits.
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True False
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True False
Q 111Q 111
According to the textbook,a famous study of the eyeglass market found that advertising promoted price competition.
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True False
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True False
Q 113Q 113
if a product is an inferior product,it is not worthwhile to pay for an advertisement because the repeat customers will be fewer.
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True False
Q 114Q 114
Using celebrities and other expensive advertising to advertise a product can signal consumers that the producer expects few repeat customers.
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True False