1. A monopolistically competitive firm has ________ power to set the price of its product because ________.
A) no; there are no barriers to entry
B) some; there are barriers to entry
C) some; of product differentiation
D) no; of product differentiation
2. One difference between perfect competition and monopolistic competition is that
A) a perfectly competitive industry has fewer firms.
B) monopolistic competition has barriers to entry.
C) firms in monopolistic competition face a downward-sloping demand curve.
D) in perfect competition, firms produce slightly differentiated products.
3. In monopolistically competitive industries,
A) firms are not sensitive to changes in consumer demand.
B) the amount of variety in products is the same as in perfectly competitive industries.
C) non-price competition through product differentiation is vigorous.
D) firms produce where marginal cost exceeds the marginal benefit to consumers.
4. Firms in monopolistic competition make products that are
A) close but not perfect substitutes.
B) perfect substitutes.
C) close but not perfect complements.
D) perfect complements.
5. A characteristic of monopolistic competition is
A) a low ratio of fixed to variable costs.
B) a high capital-output ratio.
C) product differentiation.
D) the absence of advertising.
6. Product differentiation is a defining characteristic of
A) perfectly elastic demand.
B) perfect competition.
D) monopolistic competition.
7. A monopolistically competitive industry has
A) a small number of large firms.
B) differentiated products.
C) significant barriers to entry.
D) mutually dependent firms.
8. Firms in monopolistic competition can achieve product differentiation by
A) exploiting economies of scale in production.
B) advertising special characteristics.
C) expanding plant size.
D) setting the price equal to average revenue.
9. An example of a monopolistically competitive industry is
A) phone service.
B) the restaurant industry.
C) wheat farming.
D) the automobile industry.
10. A characteristic of monopolistic competition is that each firm
A) faces perfectly elastic demand.
B) faces a downward-sloping demand curve.
C) has a perfectly inelastic supply.
D) has a perfectly elastic supply.
11. In monopolistic competition, each firm has a demand curve with
A) a slope equal to zero, and there are barriers to entry into the market.
B) a negative slope, and there are no barriers to entry into the market.
C) negative slope, and there are barriers to entry into the market.
D) a slope equal to zero, and there is are no barriers to entry into the market.
12. If an industry lacks barriers to entry and each of the many firm faces a demand curve with a negative slope, the industry is
A) monopolistically competitive.
B) a monopoly.
C) an oligopoly.
D) perfectly competitive.
13. One important difference between monopoly and monopolistic competition is the
A) greater restriction of output in monopolistic competition.
B) point there are no barriers to entry in monopolistic competition.
C) point that the marginal revenue and demand curves are the same for a monopoly.
D) slope of the demand curve that the firms faces.
14. In monopolistic competition, each firm’s marginal revenue curve lies ________ its demand curve because of ________.
A) above; barriers to entry
B) below; product differentiation
C) below ; barriers to entry
D) above; product differentiation
15. In monopolistic competition, each firm’s marginal revenue curve has
A) a negative slope, and so does its demand curve.
B) a slope equal to zero, but its demand curve has a negative slope.
C) a slope equal to zero, and so does its demand curve.
D) a negative slope, but its demand curve has zero slope.
16. A firm in monopolistic competition has some degree of price-setting power because
A) in the long run it earns a normal profit.
B) it must lower its price in order to sell a greater quantity.
C) the price it charges is never more than its marginal cost.
D) it can never earn less than normal profit.
17. For a firm in monopolistic competition, the marginal cost curve intersects the average total cost curve
A) at no point.
B) at the minimum average total cost.
C) to the left of the minimum average total cost.
D) to the right of the minimum average total cost.
18. Firms in monopolistic competition always will
A) produce at the minimum average total cost.
B) set their price equal to their marginal cost.
C) earn an economic profit.
D) set their price above their marginal cost.
19. Firms in monopolistic competition have rivals that
A) set their prices according to the demand curves they face.
B) match their price decreases.
C) agree on a common price.
D) match their price increases.
20. In the short run, a monopolistically competitive firm chooses
A) its quantity but not its price.
B) neither its price nor its quantity.
C) its price but not its quantity.
D) both its price and its quantity.