Monopoly & Competition MCQs

A. Advertising manipulates people’s tastes to create a desire that otherwise would not exist
B. Advertising increase competition Which causes unnecessary bankruptcies and layoffs.
C. Advertising increases brand loyalty causes demand to be more inelastic and thus, increase mark-up over marginal cost.
All of these answers are criticisms of advertising and brand names

Correct Answer: Advertising increase competition Which causes unnecessary bankruptcies and layoffs. ✔

Option A: the producer of a highly differentiated consumer product

Option B: the manufacturer of an undifferentiated consumer commodity

Option C: a perfect competitor

Option D: The manufacturer of an industrial product

Correct Answer: the producer of a highly differentiated consumer product ✔

Option A: there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market

Option B: Monopolistically competitive firms face a downward-sloping demand curve just like competitive firms.

Option C: Monopolistically competitive firms charge prices equal to the minimum of their average total cost just like competitive firms.

Option D: The products are differentiated in a monopolistically competitive market just like in a competitive market.

Correct Answer: there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market ✔

Option A: Since price is above marginal cost surplus is redistributed from buyers to sellers

Option B: monopolistically competitive firms earn economic profits in the long run

Option C: monopolistically competitive firms produce beyond their efficient scale

Option D: excess of the cost of production and this causes a deadweight loss.

Correct Answer: excess of the cost of production and this causes a deadweight loss. ✔

Option A: a manual fracture of breakfast cereal

Option B: a wholesaler of crude oil

Option C: a restaurant

Option D: a manufacturer of home heating and air conditioning

Correct Answer: a wholesaler of crude oil ✔

Option A: losses and firms exit the market

Option B: profits and firms exit the market

Option C: losses and firms enter the market

Option D: profits and firms enter the market

Correct Answer: profits and firms enter the market ✔

Option A: breakfast

Option B: cotton

Option C: video games

Option D: beer

Correct Answer: cotton ✔

Option A: Advertising increases competition

Option B: Advertising provides information to customers about prices, new products and location of retail outlets.

Option C: Advertising provides a creative outlet for artists and writers

Option D: Advertising provides new firms with the means to attract customers from existing firms.

Correct Answer: Advertising provides a creative outlet for artists and writers ✔

A. all of these answers
B. are useful even in socialist economics such as the former Soviet Union
C. provide information about the quality of the product
give firms incentive to maintain high quality

Correct Answer: all of these answers ✔

Option A: monopolistically competitive firms charge prices equal to their marginal costs just like monopolists

Option B: a monopolistically competitive firms faces a downward-sloping demand curve for its differentiated product and so does a monopolist

Option C: monopolistically competitive markets have free entry and exit just like a monopolistic market

Option D: monopolistically competitive firms produce beyond their efficient scale and so do monopolists

Correct Answer: a monopolistically competitive firms faces a downward-sloping demand curve for its differentiated product and so does a monopolist ✔

Option A: there are too many firms in the market and market efficiency could be increased if firms exited the market

Option B: the number of firms in the market is optimal and the market is efficient

Option C: There are too few firms in the market and market efficiency could be be increased with additional entry

Option D: The only way to improve efficiency in this market is for the government to regulate it like a natural monopoly.

Correct Answer: there are too many firms in the market and market efficiency could be increased if firms exited the market ✔

Option A: at the efficient scale and charge a price equal to marginal cost

Option B: at the efficient scale and charge a price above marginal cost

Option C: With excess capacity and charge a price above marginal cost

Option D: With excess capacity and charge a price equal to marginal cost

Correct Answer: With excess capacity and charge a price above marginal cost ✔

Option A: marginal revenue and then use the demand curve to determine the price consistent with this quantity

Option B: average total cost and then use the supply curve to determine the price consistent with this quantity

Option C: marginal revenue and then use the supply curve to determine the price consistent with this quantity

Option D: average total cost and then use the demand curve to determine the price consistent with this quantity

Correct Answer: marginal revenue and then use the demand curve to determine the price consistent with this quantity ✔

Option A: the monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve

Option B: the monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost

Option C: The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run

Option D: Both the monopolist and the monopolistic competitor operate at the efficient scale

Correct Answer: The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run ✔

Option A: free entry and exit

Option B: long run economic profits

Option C: many sellers

Option D: differentiated products

Correct Answer: long run economic profits ✔