CHAPTER 17 - Chapter17 MonopolisticCompetition 1.

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Chapter 17 Monopolistic Competition 1. Because monopolistically competitive firms produce differentiated products, each firm a. faces a demand curve that is horizontal. b. faces a demand curve that is vertical. c. has no control over product price. d. has some control over product price. ANSWER: d has some control over product price. SECTION: 1 OBJECTIVE: 1 2. Which of the following conditions distinguishes monopolistic competition from perfect competition? a. number of sellers b. freedom of entry and exit c. small size firms d. differentiation of product ANSWER: d differentiation of product SECTION: 1 OBJECTIVE: 1 3. If existing fast-food firms realize sizable economic profits in the short run, the demand curves of existing  firms will a. decrease and become more elastic. b. decrease and become less elastic. c. increase and become more elastic. d. increase and become less elastic. ANSWER: a decrease and become more elastic.  SECTION: 1 OBJECTIVE: 1 4. When a monopolistically competitive firm raises its price, a. quantity demanded falls to zero. b. quantity demanded declines, but not to zero. c. the market supply curve shifts outward. d. quantity demanded remains constant. ANSWER: b quantity demanded declines, but not to zero. SECTION: 1 OBJECTIVE: 1 5. There are several reasons why demand curves may become more elastic. Among them are  a. the market becomes more monopolistic and cross elasticities approach zero. b. the goods become less differentiated and more firms enter the industry. c. consumers have fewer substitutes and firms drop out of the industry. d. industry demand increases and consumers increase spending. ANSWER: b the goods become less differentiated and more firms enter the industry. SECTION: 1 OBJECTIVE: 1 99
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100 Chapter 17/Monopolistic Competition 6. Which of the following is a characteristic of oligopoly or monopolistic competition, but  not  perfect  competition? a. advertising and sales promotion b. profit maximization according to the MR = MC rule c. firms being price takers rather than price makers d. horizontal demand and marginal revenue curves ANSWER: a advertising and sales promotion SECTION: 1 OBJECTIVE: 2 7. Product differentiation allows the firm to a. raise price and lower quantity demanded. b.
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CHAPTER 17 - Chapter17 MonopolisticCompetition 1.

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