Econ 201 Final Exam Chapter 16

Front 1

26. Which of the following statements is not correct?
a. Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs.
b. Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry.
c. Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry.
d. Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers.

Back 1

c. Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry

Front 2

27. A concentration ratio
a. measures the percentage of total sales of the top firm in the industry.
b. reflects the level of competition in an industry.
c. is inversely related to the price charged by the top firm in the industry.
d. All of the above are correct.

Back 2

b. reflects the level of competition in an industry.

Front 3

28. The higher the concentration ratio, the
a. more control an individual firm has to set prices.
b. more competitive the industry.
c. less competitive the industry.
d. Both a and c are correct.

Back 3

d. Both a and c are correct.

Front 4

29. Which of the following goods are not likely to be sold in monopolistically competitive markets?
a. jeans
b. books
c. tap water
d. clocks

Back 4

c. tap water

Front 5

30. Of the following market structures, which are considered imperfectly competitive?
I. Perfect competition
II. Monopoly
III. Monopolistic competition
IV. Oligopoly
a. III only
b. II and III
c. III and IV
d. II, III, and IV

Back 5

c. III and IV

Front 6

31. Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because
a. there are many other sellers in the market.
b. there are very few other sellers in the market.
c. the firm's product is different from those offered by other firms in the market.
d. the firm faces the threat of entry into the market by new firms.

Back 6

c. the firm's product is different from those offered by other firms in the market.

Front 7

32. In the short run, a firm in a monopolistically competitive market operates much like a
a. firm in a perfectly competitive market.
b. firm in an oligopoly.
c. monopolist.
d. monopsonist.

Back 7

c. monopolist.

Front 8

33. In a monopolistically competitive industry, firms set price
a. equal to marginal cost since each firm is a price taker.
b. below marginal cost since each firm is a price taker.
c. above marginal cost since each firm is a price setter.
d. always a fraction of marginal cost since each firm is a price setter.

Back 8

c. above marginal cost since each firm is a price setter.

Front 9

34. Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?
a. P = AR
b. MR = MC
c. P > MC
d. All of the above are correct.

Back 9

d. All of the above are correct.

Front 10

41. If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?
a. an increase in demand for each firm
b. a decrease in demand for each firm
c. a downward shift in the marginal cost curve for each firm
d. an upward shift in the marginal cost curve for each firm

Back 10

b. a decrease in demand for each firm

Front 11

42. When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,
a. its average revenue will equal its marginal cost.
b. its marginal revenue will exceed its marginal cost.
c. it will be earning positive economic profits.
d. its demand curve will be tangent to its average total cost curve.

Back 11

d. its demand curve will be tangent to its average total cost curve.

Front 12

43. In a long-run equilibrium,
a. excess capacity applies to monopolistically competitive firms but not to competitive firms.
b. zero economic profit applies to competitive firms but not to monopolistically competitive firms.
c. markup over marginal cost applies to both monopolistically competitive and competitive firms.
d. product variety externalities apply to both perfectly competitive firms and monopolistically competitive firms.

Back 12

a. excess capacity applies to monopolistically competitive firms but not to competitive firms.

Front 13

44. The deadweight loss that is associated with a monopolistically competitive market is a result of
a. price falling short of marginal cost in order to increase market share.
b. price exceeding marginal cost.
c. the firm operating in a regulated industry.
d. excessive advertising costs.

Back 13

b. price exceeding marginal cost.

Front 14

45. A monopolistically competitive market
a. usually has too many firms, reducing the economic profit of each firm to zero.
b. usually has too few firms, reducing the product variety for consumers.
c. may have too many or too few firms, and the government can intervene to achieve the optimal number of firms.
d. may have too many or too few firms, but the government can do little to rectify the situation.

Back 14

d. may have too many or too few firms, but the government can do little to rectify the situation.

Front 15

46. Regulation of a firm in a monopolistically competitive market
a. usually implies a very small administrative burden.
b. will lower the firm's costs.
c. is commonly used to enhance market efficiency.
d. is unlikely to improve market efficiency.

Back 15

d. is unlikely to improve market efficiency.

Front 16

47. With respect to monopolistic competition,
a. both the business-stealing externality and the product-variety externality are positive externalities.
b. the business-stealing externality is a positive externality, while the product-variety externality is a negative externality.
c. the business-stealing externality is a negative externality, while the product-variety externality is a positive externality.
d. both the business-stealing externality and the product-variety externality are negative externalities.

Back 16

c. the business-stealing externality is a negative externality, while the product-variety externality is a positive externality.

Front 17

48. The product-variety externality arises in monopolistically competitive markets because
a. firms produce with excess capacity.
b. firms try to differentiate their products.
c. firms would like to produce homogeneous products, but the large number of firms prohibits it.
d. entry and exit is restricted.

Back 17

b. firms try to differentiate their products.