Monopolistic Competition

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CHAPTER 25
Monopolistic Competition and Oligopoly

TopicQuestion numbers
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1.Monopolistic competition: definition; characteristics1-17 2.Demand curve18-24
3.Price-output behavior25-78
4.Efficiency aspects79-88
5.Oligopoly: definition; characteristics89-112
6.Concentration ratio; Herfindahl Index113-140
7.Game theory141-156
8.Kinked-demand curve model157-176
9.Collusion; cartels; price leadership177-194
10.Advertising195-200
11.Efficiency aspects201-204
12.Review of four structures205-226
Consider This227-228
Last Word229-233
True-False234-258
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Multiple Choice Questions

Monopolistic competition: definition; characteristics

Type: D Topic: 1 E: 460 MI: 216
1.Monopolistic competition means:
A)a market situation where competition is based entirely on product differentiation and advertising. B)a large number of firms producing a standardized or homogeneous product. C)many firms producing differentiated products.

D)a few firms producing a standardized or homogeneous product. Answer: C

Type: A Topic: 1 E: 461 MI: 217
2.Monopolistic competition is characterized by a:
A)few dominant firms and low entry barriers.
B)large number of firms and substantial entry barriers. C)large number of firms and low entry barriers.
D)few dominant firms and substantial entry barriers.
Answer: C

Type: A Topic: 1 E: 461 MI: 217
3.Under monopolistic competition entry to the industry is: A)completely free of barriers.
B)more difficult than under pure competition but not nearly as difficult as under pure monopoly. C)more difficult than under pure monopoly.
D)blocked.
Answer: B

Type: A Topic: 1 E: 461 MI: 217
4.Monopolistic competition resembles pure competition because: A)both industries emphasize nonprice competition.
B)in both instances firms will operate at the minimum point on their long-run average total cost curves. C)both industries entail the production of differentiated products. D)barriers to entry are either weak or nonexistent.

Answer: D

Type: A Topic: 1 E: 460-461 MI: 216-217
5.Which of the following is not a basic characteristic of monopolistic competition? A)the use of trademarks and brand names C)product differentiation B)recognized mutual interdependence D)a relatively large number of sellers Answer: B

Type: D Topic: 1 E: 461-462 MI: 217-218
6.Nonprice competition refers to:
A)competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts. B)price increases by a firm that are ignored by its rivals. C)advertising, product promotion, and changes in the real or perceived characteristics of a product. D)reductions in production costs that are not reflected in price reductions. Answer: C

Type: A Topic: 1 E: 462-463 MI: 218-219
7.Which of the following is not characteristic of monopolistic competition? A)relatively large numbers of sellers C)production at minimum ATC in the long-run B)product differentiation D)relatively easy entry to the industry Answer: C

Type: A Topic: 1 E: 462 MI: 218
8.The book publishing, furniture, and clothing industries are each illustrations of: A)countervailing power. C)monopolistic competition.
B)homogeneous oligopoly. D)pure monopoly.
Answer: C

Type: A Topic: 1 E: 461 MI: 217
9.If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes: A)the likelihood of realizing economic profits in...
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