Oligopoly and Monopolistic Competition

A monopolistically competitive firm faces: A. a perfectly elastic demand curve. B. the market demand curve for the good. C. a highly elastic demand curve. D. a perfectly inelastic demand curve.

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Which of the following is true of monopolistic competition but is not true of perfect competition? A. Each firm distinguishes its product from that of its competitors. B. The firm engages in marginal cost pricing. C. The firm produces at the point where average total cost is minimized. D. There are significant barriers to the entry of new firms in the industry.

A. Each firm distinguishes its product from that of its competitors.

Suppose a monopolistically competitive industry is in long-run equilibrium. Rising energy prices raise average total costs in the industry. Which of the following will occur? A. Firms will exit the industry. B. Firms will begin to make positive economic profits. C. The firm's demand curve will lie below its average total cost curve. D. Eventually the individual firm demand curve will shift to the right.

A. Firms will exit the industry.

The monopolistically competitive firm maximizes profit by producing where: A. MR = MC. B. P = MC. C. MR = AR. D. ATC = MR.

A. MR = MC.

Which of the following is true of the long run in perfect competition but not true of the long run in monopolistic competition? A. The firm produces where ATC is minimized. B. Economic profit is zero. C. Marginal revenue equals marginal cost. D. The firm will fail to produce enough to minimize ATC.

A. The firm produces where ATC is minimized.

If firms in a monopolistically competitive industry have demand curves that lie above the average total marginal cost curve, then in the long run: A. firms will enter the industry. B. firms will exit the industry. C. firms are making zero economic profits. D. the industry is in long run equilibrium.

A. firms will enter the industry.

The goal of a monopolistically competitive firm is to: A. maximize profit. B. minimize cost. C. maximize the quantity sold. D. create product diversity.

A. maximize profit.

In the short run, if a monopolistically competitive firm has an average cost curve that lies above the demand curve, then the firm is: A. breaking even. B. making a loss. C. making positive economic profits. D. making zero economic profits.

B. making a loss.

In long run equilibrium, a monopolistically competitive firm is producing at a point on its average total cost curve where: A. price equals marginal cost. B. price equals average total cost. C. price equals marginal revenue. D. marginal revenue equals average total cost.

B. price equals average total cost.

As firms enter into a monopolistically competitive industry, the firm demand curve will: A. shift to the right. B. shift to the left. C. become steeper. D. become flatter.

B. shift to the left.

If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run: A. the level of profits will be unchanged. B. they will make zero economic profits. C. firms will be unable to enter the industry because of the existence of barriers to entry. D. a limited number of firms will enter the industry, and profits will be reduced but will remain positive.

B. they will make zero economic profits.

Which of the following is true for a monopolistically competitive firm in long run equilibrium, but not a perfectly competitive firm? A. P = ATC at the equilibrium level of output. B. MC = MR at the equilibrium level of output. C. The firm has excess capacity at the equilibrium level of output. D. The firm is making zero economic profits at the equilibrium level of output.

C. The firm has excess capacity at the equilibrium level of output.

Which of the following is true of monopoly but is not true of monopolistic competition? A. The firm faces a downward-sloping demand curve. B. The firm faces a downward-sloping marginal revenue curve. C. The firm will earn positive economic profits in the long run. D. The firm will produce at a point where price equals marginal cost.

C. The firm will earn positive economic profits in the long run.

Which of the following is NOT consistent with long run equilibrium in a monopolistically competitive industry? A level of production where: A. each firm earns zero economic profit. B. no firm enters or exits the industry. C. the firm demand curve is tangent to the average total cost curve. D. P = minimum of the average total cost curve.

D. P = minimum of the average total cost curve.

What is the effect in the market as more firms enter a monopolistically competitive industry? A. The market supply curve shifts to the right. B. The market supply curve shifts to the left. C. The demand curve faced by each firm shifts out and to the right. D. The demand curve faced by each firm shifts in and to the left.

D. The demand curve faced by each firm shifts in and to the left.

Which of the following is true of perfect competition but is not true of monopolistic competition? A. The firm faces a downward-sloping demand curve. B. The firm faces a downward-sloping marginal revenue curve. C. The firm will earn zero economic profit in the long run. D. The firm will produce at a point where price equals marginal cost.

D. The firm will produce at a point where price equals marginal cost.

What accounts for the fact that profit is zero in the long-run equilibrium in monopolistic competition? A. Firms have excess capacity. B. Firms spend too much on product development. C. Firms are too small relative to the market. D. There are no barriers to the entry of new firms.

D. There are no barriers to the entry of new firms.

Since a monopolistic competitor produces a product with many close substitutes, it: A. has no market power. B. faces a highly inelastic demand curve. C. has unlimited market power. D. has some degree of market power.

D. has some degree of market power.

The product diversity resulting from monopolistic competition comes at the expense of having: A. firms that will earn positive profits. B. firms that are too small to maximize profit. C. higher profit than would prevail under perfect competition. D. to operate to the left of minimum cost output level.

D. to operate to the left of minimum cost output level.

For any given firm in a monopolistically competitive market, the long run economic profit tends to be __________ and firms operate to the ____________ of the minimum point on the average total cost curve. A. positive; left B. negative; right C. negative; right D. zero; left

D. zero; left

Which of the following best describes a monopolistic competitor's demand curve? a. upward sloping b. downward sloping c. U-shaped d. horizontal e. vertical

b. downward sloping

Which of the following is a characteristic of monopolistic competition? a. a standardized product b. many sellers c. barriers to entry d. positive long-run profits e. a perfectly elastic demand curve

b. many sellers

Which of the following results is possible for a monopolistic competitor in the long run? III. positive economic profit III. normal profit III. loss a. I only b. II only c. III only d. I and II only e. I, II, and III

e. I, II, and III

Which of the following results is possible for a monopolistic competitor in the short run? I. positive economic profit II. normal profit III. loss a. I only b. II only c. III only d. I and II only e. I, II, and III

e. I, II, and III

The long-run outcome in a monopolistically competitive industry results in a. inefficiency because firms earn positive economic profits. b. efficiency due to excess capacity. c. inefficiency due to product diversity. d. efficiency because price exceeds marginal cost. e. a trade-off between higher average total cost and more product diversity.

e. a trade-off between higher average total cost and more product diversity.