Quiz
Monopolistic Competition and Oligopoly
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1. Which of the following is NOT a characteristic of the monopolistic competition market structure?

a. Many sellers, each small in size relative to the overall market.
b. Few sellers.
c. Differentiated product.
d. Easy, low-cost entry and exit.

2. Which of the following is true about the demand curve for a monopolistically competitive firm?

a. It is less elastic (steeper) than for monopoly, but more elastic (flatter) than for a perfectly competitive firm.
b. It is less elastic (steeper) than the demand curves for either a monopoly firm or a perfectly competitive firm.
c. It is more elastic (flatter) than the demand curves for either a monopoly firm or a perfectly competitive firm.
d. It is less elastic (steeper) than for a perfectly competitive firm, but more elastic (flatter) than for a monopoly firm.

3. TRUE OR FALSE: A key feature distinguishing a monopolistically competitive firm from a perfectly competitive firm is that the former engages in non-price competition by using expensive advertising to differentiate its product.

a. True.
b. False.

4. Which of the following is a likely outcome of advertising for a monopolistically competitive firm?

a. Long-run average costs shift downward.
b. The firm's demand curve becomes flatter and shifts inward.
c. The firm's demand curve keeps the same slope and shifts inward.
d. Long-run average costs shift upward.

5. Which of the following is true about advertising?

a. If monopolistically competitive firms compete through advertising, and if advertising requires sunk-cost investment and creates brand loyalty, then advertising can be an effective entry cost.
b. Advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms.
c. Advertising has no impact on entry costs or market structure.
d. Both a. and b. above are correct.

6. Which of the following is true about long-run equilibrium in a monopolistically competitive market?

a. Firms earn zero economic profit because price equals long-run average cost, but the equilibrium is not allocatively efficient because price exceeds the marginal cost of the last unit produced.
b. They may earn negative, zero, or positive economic profit because monopolistically competitive firms are price-takers.
c. Each firm faces a perfectly elastic demand curve and earn zero economic profit because price equals long-run average cost, and are allocatively efficient because price equals marginal cost for the last unit sold.
d. None of the above are correct.

7. TRUE OR FALSE: The long-run equilibrium under monopolistic competition will usually feature a lower price and a higher quantity than under otherwise identical conditions under perfect competition.

a. True.
b. False.

8. Which of the following is usually true in the long-run equilibrium under monopolistic competition?

a. Each firm is producing at maximum capacity at the lowest point on their long-run average cost curve.
b. Each firm is producing with excess capacity at a higher than minimum level of long-run average cost.
c. Each firm is earning positive economic profits and prevent entry through protective government regulation.
d. Each firm is earning negative economic profits and receive a subsidy from the federal government.

9. Which of the following is always a characteristic of the oligopoly market structure?

a. Many sellers, each small in size relative to the overall market.
b. Few sellers.
c. All sellers produce identical products.
d. Easy, low-cost entry and exit.

10. TRUE OR FALSE: A kinked demand curve facing an oligopolist is based on the notion that rival firms will be forced to match a price decrease, but not a price increase.

a. True.
b. False.

11. Which of the following best describes a cartel?

a. A group of monopolistically competitive firms that jointly reduce output and raise price in imitation of a monopolist. When entry is very costly, these high prices can persist.
b. A group of cooperating oligopolists that jointly reduce output and raise price in imitation of a monopolist. When entry is very costly, these high prices can persist.
c. A monopolist that reduces output and raises price. When entry is very costly, these high prices can persist.
d. A group of identical non-cooperative oligopolists that are able to reproduce a monopoly equilibrium through price rivalry.

12. Which of the following explains how a cartel with 100 percent control might raise price to monopoly-like levels?

a. By setting a group output level equal to what a profit-maximizing monopolist would set, and then assigning binding quota shares to cartel members.
b. By setting an official price that members can secretly undercut.
c. By forbidding price competition, but allowing non-cooperative rivalry in output levels.
d. None of the above.

13. TRUE OR FALSE: A cartel member can only raise profit by undercutting the cartel price if they produce less then their official quota share.

a. True.
b. False.

14. Which of the following is true about an oligopoly equilibrium in comparison with equilibrium under similar circumstances but with perfect competition?

a. Output is larger and price is lower than under perfect competition.
b. Output is larger but price is higher than under perfect competition.
c. Output is smaller and price is higher than under perfect competition.
d. Output is smaller and price is lower than under perfect competition.

15. Which of the following represents an example of a major cartel in global markets?

a. The Organization of Wheat and Corn Exporting Countries (OWCEC).
b. The Organization of Petroleum Exporting Countries (OPEC).
c. The Brotherhood of Scrap Iron Exporting Countries (BSIEC).
d. The Amalgamated Association of Alfalfa Producing Countries (AAAPC).




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