In the short-run, a profit-maximizing monopolistically competitive firm sets its price: |
above marginal cost. |
Concentration ratios may be inaccurate indicators of the degree of monopoly power in an industry because: |
foreign competition is not considered. |
The more elastic a monopolistic competitor’s long-run demand curve, the: |
lower its average total cost at its profit maximizing level of output. |
As a general rule, oligopoly exists when the four-firm concentration ratio: |
is 40 percent or more. |
Inefficiencies occur under monopolistic competition because: |
each firm’s downsloping demand curve is tangent to the ATC curve in the long run. |
Nonprice competition refers to: |
advertising, product promotion, and changes in the real or perceived characteristics of a product. |
The mutual interdependence that characterizes oligopoly arises because: |
a small number of firms produce a large proportion of industry output. |
A significant benefit of monopolistic competition compared with pure competition is: |
greater product variety. |
Clear-cut mutual interdependence with respect to the price-output policies exists in: |
oligopoly. |
The kinked-demand curve of an oligopolist is based on the assumption that: |
competitors will follow a price cut but ignore a price increase. |
In the short-run, the price charged by a monopolistically competitive firm attempting to maximize profits: |
may be either equal to ATC, less than ATC, or more than ATC. |
For a monopolistically competitive firm in long-run equilibrium: |
price will equal average total cost. |
T/F: Homogenous oligopolists tend to advertise more than do differentiated oligopolists. |
false |
The monopolistic competition model assumes that: |
firms will engage in nonprice competition. |
T/F: The excess capacity problem associated with monopolistic competition implies that fewer firms could produce the same industry output at a lower total cost. |
true |
The four-firm sales concentration ratio for an industry measures the: |
extent to which the four largest firms dominate the production of a good. |
Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor? |
Subway Sandwiches |
T/F: The demand curve of a monopolistically competitive firm is more elastic than that of a pure monopolist. |
True |
The restaurant, legal assistance, and clothing industries are each illustrations of: |
monopolistic competition. |
The monopolistically competitive seller’s demand curve will become more elastic the: |
larger the number of competitors. |
T/F: Mutual interdependence means that oligopolistic producers rely on price competition in determining their shares of the total market for their product. |
false |
If an oligopolist is faced with a marginal revenue curve that has a gap in it, we may assume that: |
its demand curve is kinked. |
T/F: Oligopolists use limit pricing to maximize short-run profits. |
False |
Oligopoly is difficult to analyze primarily because: |
the price and output decisions of any one firm depend on the reactions of its rivals |
The price elasticity of a monopolistically competitive firm’s demand curve varies: |
directly with the number of competitors, but inversely with the degree of product differentiation. |
Aluminum competes with copper in the market for power transmission lines. This illustrates: |
interindustry competition. |
T/F: Generally speaking, the larger the number of firms in an oligopolistic industry, the more difficult it is for those firms to collude. |
True |
If competing oligopolists completely ignore oligopolist X’s price changes, then X’s: |
demand curve will be more elastic than if the other oligopolists matched X’s price changes. |
Nonprice competition refers to: |
product development, advertising, and product packaging. |
In long-run equilibrium monopolistic competition entails: |
an underallocation of resources. |
If an oligopoly is faced with a kinked-demand curve that is relatively elastic above, and relatively inelastic below, the going price, then it will: |
decrease total revenue by either increasing or decreasing price. |
T/F: Firms are more likely to collude when the economy is in a recession. |
False |
Which of the following industries is an illustration of homogeneous oligopoly? |
aluminum |
In which of these continuums of degrees of competition (highest to lowest) is oligopoly properly placed? |
pure competition, monopolistic competition, oligopoly, pure monopoly |
T/F: The larger the number of firms and the less the degree of product differentiation, the greater will be the elasticity of a monopolistically competitive seller’s demand curve. |
True |
Monopolistic competition means: |
many firms producing differentiated products. |
Concentration ratios: |
may understate the degree of competition because they ignore imported products. |
Which of the following statements is correct? |
In the long run purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits. |
Homogeneous oligopoly exists where a small number of firms are: |
producing virtually identical products. |
T/F: Monopolistically competitive sellers produce efficiently because they obtain only normal profits in the long run. |
false |
The economic inefficiencies of monopolistic competition may be offset by the fact that: |
consumers have a number of variations of the product from which to choose. |
T/F: The monopolistically competitive seller maximizes profits by equating price and marginal cost. |
False |
Which of the following is the best example of oligopoly? |
automobile manufacturing |
Prices are likely to be least flexible: |
in oligopoly. |
In the long run, new firms will enter a monopolistically competitive industry: |
until economic profits are zero. |
T/F: Two industries that have the same 4-firm concentration ratio can have significantly different Herfindahl indexes. |
True |
In the long-run, economic theory predicts that a monopolistically competitive firm will: |
have excess production capacity. |
Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry? |
Ford Motor Company |
In monopolistically competitive markets resources are: |
underallocated because long-run equilibrium occurs where price exceeds marginal cost. |
Monopolistically competitive and purely competitive industries are similar in that: |
there are few, if any, barriers to entry. |
Monopolistic Competition and Oligopoly
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