Monopolistic Competition: Characteristics, Price and Output Determination

Question 1

Which factor does NOT affect a firm's market power in monopolistic competition?

Accepted Answer

Government price controls

Answer

Number of competitors

Answer

Product differentiation

Answer

Firm's costs

Question 2

In monopolistic competition, which of the following is a key characteristic?

Accepted Answer

Products are highly differentiated.

Answer

A few sellers dominate the market.

Answer

There are high barriers to entry.

Answer

Prices are set above marginal cost.

Question 3

In monopolistic competition, the equilibrium price is:

Accepted Answer

Above marginal cost

Answer

Equal to marginal cost

Answer

Below marginal cost

Answer

Equal to average cost

Question 4

What is the profit-maximizing output level for a firm in monopolistic competition in the short run?

Accepted Answer

Where marginal revenue equals marginal cost

Answer

Where average revenue equals average cost

Answer

Where total revenue equals total cost

Answer

Where profit is maximized

Question 5

Which of the following is a potential benefit of product differentiation in monopolistic competition?

Accepted Answer

Increased consumer choice

Answer

Higher prices

Answer

Reduced competition

Answer

Lower quality products

Question 6

Which of the following government policies is most likely to increase competition in a monopolistic competitive industry?

Accepted Answer

Antitrust laws

Answer

Price controls

Answer

Subsidies

Answer

Tariffs

Question 7

Which of the following is a defining characteristic of monopolistic competition?

Accepted Answer

Many sellers offer products that are differentiated in some way, such as design, quality, or branding.

Answer

All firms offer identical products.

Answer

A small number of firms control a majority of the market share.

Answer

There is only one seller in the market.

Question 8

In a monopolistically competitive market, each firm has

Accepted Answer

Some degree of market power due to the differentiation of its product.

Answer

Complete market power, like a monopoly.

Answer

Market power only in the short run.

Answer

No market power at all.

Question 9

Which of the following is NOT a factor that contributes to product differentiation?

Accepted Answer

Price is not a factor that contributes to product differentiation.

Answer

Branding and marketing contribute to product differentiation.

Answer

Quality and durability contribute to product differentiation.

Answer

Design and appearance contribute to product differentiation.

Question 10

In the short run, firms in monopolistic competition are likely to

Accepted Answer

Make profits due to their ability to differentiate their products and charge a price above marginal cost.

Answer

Face zero demand due to the lack of product differentiation.

Answer

Typically make losses due to the intense competition.

Answer

Usually break even in the short run.

Question 11

Which of the following government policies is commonly used to promote competition in a monopolistically competitive market?

Accepted Answer

Antitrust laws, which aim to prevent anti-competitive practices and promote fair competition.

Answer

Price controls are not typically used in monopolistic competition, as they interfere with the market mechanism.

Answer

Subsidies to new entrants are not typically used in monopolistic competition, as the goal is to maintain a competitive market structure.

Question 12

Which of the following characteristics is **NOT** associated with monopolistic competition?

Accepted Answer

Few sellers

Answer

Many sellers

Answer

Free entry and exit

Answer

Differentiated products

Question 13

The downward-sloping demand curve faced by a monopolistically competitive firm is primarily due to:

Accepted Answer

Consumers can switch to substitute products at lower prices.

Answer

The government regulates prices in monopolistic competition.

Answer

Firms engage in price wars with each other.

Question 14

Which of the following is **NOT** a potential government policy to address inefficiencies in monopolistic competition?

Accepted Answer

Price controls

Answer

Antitrust laws

Answer

Product safety regulations

Answer

Subsidies for new entrants

Question 15

The primary welfare implication of monopolistic competition is:

Accepted Answer

Excess capacity and allocative inefficiency

Answer

High prices and low output

Answer

Natural monopolies and high barriers to entry

Answer

Technological progress and lower costs

Question 16

In the long-run equilibrium of a monopolistically competitive market, the prevailing price equals:

Accepted Answer

Average total cost

Answer

Below average total cost

Answer

Marginal cost

Answer

Above average total cost

Question 17

The significance of non-price competition in monopolistic competition is to:

Accepted Answer

Differentiate products and attract customers

Answer

Reduce costs and increase efficiency

Answer

Raise prices and increase profits

Answer

Eliminate competition and create a monopoly

Question 18

Which of the following is a defining characteristic of monopolistic competition?

Accepted Answer

Differentiated products

Answer

Identical products

Answer

High barriers to entry

Answer

Perfect knowledge

Question 19

In monopolistic competition, what is the primary determinant of a firm's demand curve?

Accepted Answer

Product differentiation and consumer preferences

Answer

Price elasticity

Answer

Market size

Answer

Number of competitors

Question 20

How does a firm in monopolistic competition maximize profit?

Accepted Answer

Equating marginal revenue to marginal cost

Answer

Targeting the highest possible price

Answer

Equating total revenue to total cost

Answer

Setting output at the minimum efficient scale

Question 21

What is the fundamental difference between monopolistic competition and perfect competition?

Accepted Answer

Product differentiation

Answer

Market share

Answer

Number of firms

Answer

Barriers to entry

Question 22

In monopolistic competition, how does advertising primarily affect market demand?

Accepted Answer

Shifts the demand curve to the right

Answer

Has no effect on the demand curve

Answer

Steepens the demand curve

Answer

Shifts the demand curve to the left

Question 23

What is the expected long-run equilibrium outcome for firms in monopolistic competition?

Accepted Answer

Zero economic profit

Answer

Increasing returns to scale

Answer

Positive economic profit

Answer

Negative economic profit

Question 24

Which of the following policy tools may be used to address concerns about market power in monopolistic competition?

Accepted Answer

Antitrust regulation

Answer

Tax subsidies

Answer

Minimum wage laws

Answer

Price controls

Question 25

Which of the following is a defining feature of monopolistic competition?

Accepted Answer

Many small firms producing similar but differentiated products

Answer

A single dominant firm controlling the market

Answer

Few large firms competing fiercely

Question 26

Which of the following is a key factor contributing to product differentiation in monopolistic competition?

Accepted Answer

Branding and advertising

Answer

Economies of scale

Answer

Government regulation

Answer

High fixed costs

Question 27

Which of the following describes the profit-maximizing output for a monopolistically competitive firm?

Accepted Answer

Output where marginal revenue equals marginal cost

Answer

Output where total revenue equals total cost

Answer

Output where marginal revenue is maximized

Answer

Output where marginal cost is minimized

Question 28

Which of the following is a potential welfare concern associated with monopolistic competition?

Accepted Answer

X-inefficiency

Answer

Externalities

Answer

Natural monopoly

Question 29

Which of the following strategies can a monopolistically competitive firm use to gain market share?

Accepted Answer

Increase advertising expenditure

Answer

Reduce prices below marginal cost

Answer

Merge with competitors

Answer

Increase fixed costs

Question 30

Which of the following industries is a real-world example of monopolistic competition?

Accepted Answer

Clothing retail

Answer

Banking

Answer

Oil and gas extraction

Answer

Utilities

Question 31

In monopolistic competition, firms have some degree of market power due to:

Accepted Answer

Product differentiation

Answer

Economies of scale

Answer

Barriers to entry

Answer

Government subsidies

Question 32

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

Differentiated products

Answer

Few sellers

Answer

Perfect knowledge

Answer

Identical products

Question 33

In monopolistic competition, firms have:

Accepted Answer

Limited market power due to product differentiation

Answer

Monopoly power

Answer

Perfect market power

Answer

No market power

Question 34

Price elasticity of demand in monopolistic competition is:

Accepted Answer

Typically higher than in monopoly but lower than in perfect competition

Answer

Higher than in both monopoly and perfect competition

Answer

Lower than in both monopoly and perfect competition

Question 35

Which of the following is a potential benefit of monopolistic competition?

Accepted Answer

Product variety and innovation

Answer

Reduced consumer choice

Answer

Inefficiently high prices

Answer

Barriers to entry

Question 36

Long-run equilibrium in monopolistic competition is characterized by:

Accepted Answer

Zero economic profits for representative firms

Answer

Increasing economic profits over time

Answer

Negative economic profits for all firms

Answer

Positive economic profits for all firms

Question 37

How does advertising affect the market equilibrium in monopolistic competition?

Accepted Answer

It can shift the demand curve for specific brands to the right

Answer

It has no effect on market equilibrium

Answer

It always leads to higher output and lower prices

Answer

It always leads to lower output and higher prices

Question 38

Which of the following is a defining characteristic of monopolistic competition?

Accepted Answer

Numerous sellers offer products that are differentiated in some way

Answer

Prices are set below marginal cost

Answer

A single seller controls the entire market

Answer

Firms have identical products and face no barriers to entry or exit

Question 39

How does price determination in monopolistic competition differ from perfect competition?

Accepted Answer

Firms have some market power and can set prices above marginal cost

Answer

Prices are determined solely by supply and demand

Answer

Firms are price takers and must accept the market price

Question 40

Which of the following is a source of product differentiation in monopolistic competition?

Accepted Answer

Brand recognition

Answer

Identical production processes

Answer

Government regulation

Question 41

Which of the following is a potential welfare implication of monopolistic competition?

Accepted Answer

Inefficient allocation of resources due to firms not producing at the lowest possible cost

Answer

Increased economic growth

Answer

Lower consumer prices

Question 42

How does entry and exit affect firms in monopolistic competition?

Accepted Answer

Firms can enter and exit the market relatively easily, leading to normal profits in the long run

Answer

Firms face significant barriers to entry and exit, leading to persistent supernormal profits

Answer

Entry and exit have no impact on firm profits

Question 43

Which of the following industries is an example of monopolistic competition?

Accepted Answer

Clothing retail

Answer

Utilities

Answer

Agriculture

Answer

Automobile manufacturing

Question 44

How does advertising affect firms in monopolistic competition?

Accepted Answer

It can create product differentiation and increase demand for a firm's products

Answer

It leads to increased rivalry and lower prices

Answer

It has no impact on firm sales

Question 45

What is the main distinction between monopolistic competition and perfect competition?

Accepted Answer

Product differentiation

Answer

Barriers to entry

Answer

Price-setting behavior

Answer

Number of sellers

Question 46

Which of the following is NOT a characteristic of monopolistic competition?

Accepted Answer

Homogeneous products

Answer

Easy entry and exit

Answer

Many sellers

Answer

Product differentiation

Question 47

A monopolistically competitive firm faces a __________ demand curve.

Accepted Answer

Downward sloping

Answer

Horizontal

Answer

Perfectly elastic

Answer

Perfectly inelastic

Question 48

In the long run, a monopolistically competitive firm will produce at a level where __________.

Accepted Answer

Price equals average total cost

Answer

Price exceeds average total cost

Answer

Profit is maximized

Answer

Price is minimized

Question 49

A monopolistically competitive firm can earn economic profits in the __________.

Accepted Answer

Short run

Answer

Neither short nor long run

Answer

Both short and long run

Answer

Long run

Question 50

Which of the following leads to inefficiency in monopolistic competition?

Accepted Answer

Excess capacity

Answer

Collusion

Answer

Price discrimination

Answer

Perfect competition

Question 51

Which of the following is an example of a monopolistically competitive industry?

Accepted Answer

Restaurants

Answer

Oil production

Answer

Agricultural commodities

Answer

Electricity generation

Question 52

Firms in monopolistic competition spend money on advertising to _______________.

Accepted Answer

Differentiate their products

Answer

Achieve perfect competition

Answer

Comply with government regulations

Answer

Lower production costs

Question 53

Compared to perfect competition, monopolistic competition generally results in _______________.

Accepted Answer

Higher prices and lower output

Answer

Higher prices and higher output

Answer

Lower prices and higher output

Answer

Lower prices and lower output