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monopoly competition MCQs

Practise focused monopoly competition questions with marked answers for exam preparation and subject revision.

monopoly competition Mcqs

1. Which of the following products is least likely to be sold in a monopolistically competitive market ?
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A. breakfast

B. beer

C. cotton

D. video games

2. Which of the following firms has the least incentive to advertise ?
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A. a manual fracture of breakfast cereal

B. a wholesaler of crude oil

C. a manufacturer of home heating and air conditioning

D. a restaurant

3. One source of inefficiency in monopolistic competition is that since price is above marginal cost, some units are not produced that buyers value in ?
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A. monopolistically competitive firms earn economic profits in the long run

B. excess of the cost of production and this causes a deadweight loss.

C. Since price is above marginal cost surplus is redistributed from buyers to sellers

D. monopolistically competitive firms produce beyond their efficient scale

4. In the short run, if the price is above average total cost in a monopolistically competitive market, the firm makes ?
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A. losses and firms enter the market

B. profits and firms enter the market

C. profits and firms exit the market

D. losses and firms exit the market

5. The use of word competition in the name of the market structure called monopolistic competition refers to the fact that ?
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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

B. The products are differentiated in a monopolistically competitive market just like in a competitive market.

C. Monopolistically competitive firms face a downward-sloping demand curve just like competitive firms.

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

6. Which of the following firms is most likely to spend a large percentage of their revenue on advertising ?
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A. The manufacturer of an industrial product

B. the manufacturer of an undifferentiated consumer commodity

C. a perfect competitor

D. The producer of a low-quality product that costs the same to produce as a similar high-quality product

E. the producer of a highly differentiated consumer product

7. Which of the following is not put forth as a criticism of advertising and brand names ?
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A. of these answers are criticisms of advertising and brand names

B. Advertising manipulates peoples tastes to create a desire that otherwise would not exist

C. Advertising increase competition Which causes unnecessary bankruptcies and layoffs.

D. Advertising increases brand loyalty causes demand to be more inelastic and thus, increase mark-up over marginal cost.

8. When firms enter a monopolistically competitive market and the business-stealing externality is larger than the product-variety externality then ?
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A. The only way to improve efficiency in this market is for the government to regulate it like a natural monopoly.

B. There are too few firms in the market and market efficiency could be be increased with additional entry

C. the number of firms in the market is optimal and the market is efficient

D. there are too many firms in the market and market efficiency could be increased if firms exited the market

9. Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly ?
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A. the monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve

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

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

D. Both the monopolist and the monopolistic competitor operate at the efficient scale

10. Which of the following is true with regard to monopolistically competitive firms scale of production and pricing decisions Monopolistically competitive firms produce ?
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A. With excess capacity and charge a price above marginal cost

B. at the efficient scale and charge a price equal to marginal cost

C. at the efficient scale and charge a price above marginal cost

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

11. Which of the following is not an argument put forth by economists in support of the use of advertising ?
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A. Advertising increases competition

B. Advertising provides a creative outlet for artists and writers

C. Advertising provides new firms with the means to attract customers from existing firms.

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

12. Which of the following is not a characteristic of a monopolistically competitive market ?
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A. differentiated products

B. long run economic profits

C. many sellers

D. free entry and exit

13. Which of the following is true regarding the production and pricing decisions of monopolistically competitive firms? Monopolistically competitive firms choose the quantity at which marginal cost equals ?
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A. average total cost and then use the demand curve to determine the price consistent with this quantity

B. marginal revenue and then use the demand curve to determine the price consistent with this quantity

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

D. average total cost and then use the supply curve to determine the price consistent with this quantity

14. Defenders of the use of brand names argue that brand names ?
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A. provide information about the quality of the product

B. all of these answers

C. are useful even in socialist economics such as the former Soviet Union

D. e firms incentive to maintain high quality

15. The use of the word monopoly in the name of the market structure called monopolistic competition refers to the fact that ?
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A. monopolistically competitive markets have free entry and exit just like a monopolistic market

B. monopolistically competitive firms produce beyond their efficient scale and so do monopolists

C. monopolistically competitive firms charge prices equal to their marginal costs just like monopolists

D. a monopolistically competitive firms faces a downward-sloping demand curve for its differentiated product and so does a monopolist

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