MCQs of Economics - Monopoly & Competition – Multiple Choice Question

Question 1 of 15

1. Question

Which of the following is not a characteristic of a monopolistically competitive market?

free entry and exit
long run economic profits
many sellers
differentiated products

Question 2 of 15

2. Question

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

breakfast
cotton
video games
beer

Question 3 of 15

3. Question

Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly?

the monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve
the monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost
The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run
Both the monopolist and the monopolistic competitor operate at the efficient scale

Question 4 of 15

4. Question

In the short run, if the price is above average total cost in a monopolistically competitive market, the firm makes

losses and firms exit the market
profits and firms exit the market
losses and firms enter the market
profits and firms enter the market

Question 5 of 15

5. Question

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

marginal revenue and then use the demand curve to determine the price consistent with this quantity
average total cost and then use the supply curve to determine the price consistent with this quantity
marginal revenue and then use the supply curve to determine the price consistent with this quantity
average total cost and then use the demand curve to determine the price consistent with this quantity

Question 6 of 15

6. Question

Which of the following firms has the least incentive to advertise?

a manualfracture of breakfast cereal
a wholesaler of crude oil
a restaurant
a manufacturer of home heating and air conditioning

Question 7 of 15

7. Question

Which of the following is true with regard to monopolistically competitive firms scale of production and pricing decisions Monopolistically competitive firms produce

at the efficient scale and charge a price equal to marginal cost
at the efficient scale and charge a price above marginal cost
With excess capacity and charge a price above marginal cost
With excess capacity and charge a price equal to marginal cost

Question 8 of 15

8. Question

One source of inefficiency in monopolistic competition is that since price is above marginal cost, some units are not produced that buyers value in

Since price is above marginal cost surplus is redistributed from buyers to sellers
monopolistically competitive firms earn economic profits in the long run
monopolistically competitive firms produce beyond their efficient scale
excess of the cost of production and this causes a deadweight loss.

Question 9 of 15

9. Question

When firms enter a monopolistically competitive market and the business-stealing externality is larger than the product-variety externality then

there are too many firms in the market and market efficiency could be increased if firms exited the market
the number of firms in the market is optimal and the market is efficient
There are too few firms in the market and market efficiency could be be increased with additional entry
The only way to improve efficiency in this market is for the government to regulate it like a natural monopoly.

Question 10 of 15

10. Question

The use of word “competition” in the name of the market structure called “monopolistic competition” refers to the fact that

there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market
Monopolistically competitive firms face a downward-sloping demand curve just like competitive firms.
Monopolistically competitive firms charge prices equal to the minimum of their average total cost just like competitive firms.
The products are differentiated in a monopolistically competitive market just like in a competitive market.

Question 11 of 15

11. Question

The use of the word “monopoly” in the name of the market structure called “monopolistic competition” refers to the fact that

monopolistically competitive firms charge prices equal to their marginal costs just like monopolists
a monopolistically competitive firms faces a downward-sloping demand curve for its differentiated product and so does a monopolist
monopolistically competitive markets have free entry and exit just like a monopolistic market
monopolistically competitive firms produce beyond their efficient scale and so do monopolists

Question 12 of 15

12. Question

Which of the following firms is most likely to spend a large percentage of their revenue on advertising?

the producer of a highly differentiated consumer product
the manufacturer of an undifferentiated consumer commodity
a perfect competitor
The manufacturer of an industrial product
The producer of a low quality product that costs the same to produce as a similar high quality product

Question 13 of 15

13. Question

Defenders of the use of brand names argue that brand names

all of these answers
are useful even in socialist economics such as the former soviet union
provide information about the quality of the product
give firms incentive to maintain high quality

Question 14 of 15

14. Question

Which of the following is not put forth as a criticism of advertising and brand names?

Advertising manipulates people's tastes to create a desire that otherwise would not exist
Advertising increase competition Which causes unnecessary bankruptcies and layoffs.
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

Question 15 of 15

15. Question

Which of the following is not an argument put forth by economists in support of the use of advertising?

Advertising increases competition
Advertising provides information to customers about prices, new products and location of retail outlets.
Advertising provides a creative outlet for artists and writers
Advertising provides new firms with the means to attract customers from existing firms.

MCQs of Economics – Monopoly & Competition

Economics - Monopoly & Competition

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