Monopolistic Competition

01: In the short run, monopolistically competitive firms will

(a) realize normal profits

(b) realize excess profits
(c) lose money
(d) either lose money, make money or break even, depending on the particular firm and
industry.
02: The tendency of monopolistically competitive firms to make normal profit in the long
run arises from
(a) the counteracting effects of advertising
(b) the perfectly elastic demand curve
(c) the relative absence of barriers to entry
(d) product differentia-tion and development.
03: Monopolistic competition consists of
(a) a few firms selling differentiated products
(b) a few firms selling a uniform product
(c) many firms selling differentiated pro-ducts
(d) many firms selling a uniform product.

04: Consider monopolistically competitive firm’s demand curve; the degree of elasticity
depends on:
(a) the number of rivals and non-rivals
(b) the number of rivals and the degree of product differentiation
(c) product differentiation and development
(d) the level of profit in the firm
05: Monopolistic competition is less efficient than pure competition because
(a) of misleading advertizing
(b) of price-fixing by sellers
(c) there is too high a turnover of firms
(d) none of the above.
06: The profit-maximizing condition of a monopo-listically competitive firm is producing
at the point where
(a) marginal revenue equals marginal cost
(b) marginal cost equals price
(c) marginal revenue equals average cost
(d) total revenue is at a maximum.
07: Product differentiation refers to
(a) entirely different products produced by the same firm
(b) entirely different products produced by different firms
(c) consumer preferences
(d) any differences perceived by consumers between products.
08: In monopolistic competition, as opposed to perfect competition,
(a) price are higher, but so is output
(b) both prices and output are lower
(c) output is higher because prices are lower
(d) output is lower and prices are higher.
09: Multi-priced industries tend to be characteris-tic of
(a) pure competition
(b) monopolis-tic competition
(c) pure monopoly
(d) no particular market structure.
10: In monopolistic competition, marginal revenue is
(a) less than price
(b) equal to price
(c) equal to demand
(d) always greater than zero.
 Oligopolistic Competition
11: Which of the following is a characteristic of oligopoly?
(a) A market situation with only a few competing buyers
(b) A market situation with only a few competing sellers
(c) A mar-ket situation with only one seller
(d) An open market for the best interests of the con-sumer
(e) Government control of prices.
12: Mr. Bill owns numerous shoestores on the north side of town. Mr. Mike owns numerous
shoestores on the south side of town. If the two men com-bine operation into Bill & Mike
Shoes, this type of merger is called:
(a) collusion (b) vertical combination
(c) horizontal combination (d) holding company.
13: Galbraith has focused the attention of econo-mists on:

(a) the large corporation's staff of technocrats who may often move with ease be-tween
corporate decisions and political deci-sions
(b) the kinked demand curve as an ex-planation for rigid price
(c) the need for oligopoly in a Veblenian world
(d) the great technological achievements of American industry.
14: Price discrimination means:
(a) selling below cost
(b) selling above cost
(c) charging dif-ferent prices to different buyers
(d) making all buyers pay the same price.
15: High concentration in most individual industries is:
(a) desirable because it leads to more in-tense competition

(b) desirable because it better enables firms to coordinate policies and activities to best serve
the consumer

(c) un-desirable because it is thought to lead to less effective competition and inefficient
resource allocation
d) cannot be deemed desirable or undesirable on the grounds listed above.
16: Ceteris paribus, high barriers to entry into an industry are likely to be:
(a) associated with a high degree of economic competition
(b) as-sociated with a low degree of economic competi-tion
(c) unrelated to competition
(d) impos-sible to evaluate in relation to competition.
17: In the accompanying diagram, the oligopolist is
(a) making a profit (b) breaking even
(c) losing money, and should close (d) losing money, but should stay in business.
18: In the most standard usage, the term "price leadership" refers to
(a) pre-emptive pricing made possible by the learning curve
(b) a form, in effect, of price collusion
(c) the mainten-ance of a monopolistic price
(d) cutthroat competition.
19: Markup pricing:

(a) refers to the practice of setting a product’s price by adding some con-stant percentage
markup to an estimate of mar-ginal cost
(b) is equivalent to profit maximi-zation under imperfect competition
(c) exists exclusively in the agricultural sector of the economy

(d) is adopted, in part, because of the difficulty of estimating marginal revenue and marginal
cost.

20: The kinked demand curve and the preceding broken marginal-revenue curve, under
non-collusive oligopoly, explain that within a certain range, high cost changes will have no
effect on:
(a) price and marginal revenue
(b) output and marginal cost
(c) marginal revenue and marginal cost
(d) price and mar-ginal cost
(e) output and price
21: Of the fallowing which is an outstanding fea-ture of oligopoly?
(a) many firms (b) small firms (c) few firms (d) medium firms
22: Prices are likely to be least flexible under:
(a) pure competition (b) oligopoly (c) monopolistic competition (d) monopoly.

23: Economists are not very interested in non-collusive oligopoly as they are in collusive
oligopoly because:
(a) gentlemen's agreements are not widespread in the economy
(b) there is no intra-industry competition
(c) it does not provide a more satisfactory explanation of price and output behavior
(d) of the uncer-tainties about the behavior of other firms in the Industry

24: Countervailing power is ineffective as a competitive force during periods of inflation

because:
(a) with excess demand, buyers are no longer able to restrain sellers
(b) oli-gopolies tend to evolve into pure monopolies
(c) with excess supply buyers are no longer able to restrain sellers
(d) oligopolies tend to evolve into pure competition

25: In a situation where the demand and cost are given under oligopoly, it will pay for the
oligopolist to be:
(a) expansionary (b) sales-conscious (c) restrictive (d) profit-maximizing