Chapter 9 - Chapter 9—Monopolistic Competition,...

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Chapter 9—Monopolistic Competition, Oligopoly, and Game Theory MULTIPLE CHOICE 1. Which of the following is not an assumption of the theory of monopolistic competition? a. There are high barriers to entry. b. There are many sellers and few buyers. c. Each firm in the industry produces and sells a homogeneous product. d. a and b e. all of the above ANS: E DIF: Easy 2. Which of the following is one of the assumptions upon which the theory of monopolistic competition is built? a. There are many sellers. b. There are few buyers. c. It is difficult to enter the industry. d. Each firm in the industry produces a homogeneous product. ANS: A DIF: Easy 3. In a monopolistically competitive industry, a. each firm in the industry produces a slightly differentiated product. b. there are barriers to entry. c. there are barriers to exit. d. there are few sellers. ANS: A DIF: Easy 4. In a monopolistically competitive market, which of the following factors probably does not give rise to product differentiation? a. packaging of the product b. brand names c. loyalty of customers to a particular producer d. quality difference e. the small number of sellers ANS: E DIF: Moderate 5. Which of the following industries is the best example of monopolistic competition? a. cotton b. electricity generation c. automobiles d. service stations ANS: D DIF: Moderate 6. The monopolistic competitor faces a __________ demand curve. a. horizontal b. vertical c. downward-sloping d. upward-sloping 20
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ANS: C DIF: Easy 7. The monopolistic competitor faces a __________ demand curve and therefore is a price __________. a. downward-sloping; searcher. b. horizontal; taker. c. downward-sloping; taker. d. horizontal; searcher. ANS: A DIF: Easy 8. If a monopolistically competitive firm raises its price, then a. it should expect to lose all of its customers because there are many other sellers of the product. b. this is a trick question because the firm does not have the ability to change its price. c. it should expect to lose some, but not all, of its customers. d. it will be able to increase its profits. e. it can sell all it wants because it faces a horizontal demand curve. ANS: C DIF: Moderate 9. Compared to a monopolistic competitor, a monopolist produces a good with __________ substitutes and so has a __________ elastic demand curve. a. fewer; more b. fewer; less c. more; more d. more; less ANS: B DIF: Moderate 10. Some monopolistic competitors earn positive economic profits in the long run because a. there are high barriers to entry in monopolistic competition. b. they have successfully differentiated their products from their competitors' products. c. there is easy entry and exit. d. b and c e. none of the above ANS: B DIF: Moderate 11. Which of the following is an example of a monopolistic competitor? a.
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