ECON 101 Study Guide - Midterm Guide: Oligopoly

1. A monopoly market structure is characterized by

a. large number of firms, standardized products, easy entry and exit.

b. large number of firms, differentiated products, easy entry and exit.

C. small number of firms, standardized or differentiated products, difficult entry.

d. one firm, a unique product without close substitutes, and impossible entry.

e. one firm, differentiated product, impossible entry.

2. Which of the following is not a characteristic of monopolistic competition?

a. Differentiated products

b. A downward-sloping demand curve for individual firms

c. Firms that are price makers

d. Impeded entry into the industry

e. A large number of firms

3. One factor that distinguishes oligopoly from other market structures is

a. the ease of entry into the market.

b. the interdependence of firms.

c. the slope of the demand curve.

d. the degree of product differentiation.

e. the amount of advertising expenditures.

13. If a monopolistic competitor is producing an output for which marginal revenue is $40 and the marginal cost is $32, to maximize profits the firm should
A. decrease the level of output.
B. keep the level of output constant.
C. continue to make $8 per unit.
D. increase the level of output.

14. A monopolistic competitor will not make an economic profit unless
A. it engages in price discrimination.
B. its marginal revenue is greater than its marginal cost.
C. it faces an inelastic demand curve.
D. its price is greater than its average total cost.

15. The definition of monopolistic competition includes
A. few firms and ease of entry and exit.
B. few firms and barriers to entry and exit.
C. many firms and barriers to entry and exit.
D. many firms and ease of entry and exit.

16. Characteristics of monopolistic competition include all of the following except
A. significant barriers to entry.
B. a relatively large number of sellers and buyers.
C. small market share for each seller.
D. differentiated products.

A. A competitive firm

1. can consider only its location in setting the price.
2. must base its competitive price on product differentiation.
3. has the ability to set its own price.
4. must accept the price determined by the intersection of the market supply and demand curves.
5. has no supply curve.

B. If a firm is making an economic profit, then

1. the factors of production are being paid their opportunity costs.
2. there will be no change in the number of firms if the industry is perfectly competitive.
3. the factors of production are being paid less than their opportunity costs.
4. the factors of production are being paid more than their opportunity costs.
5. the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

1. marginal revenue is greater than price.
2. the elasticity of demand is constant.
3. marginal revenue decreases when the price decreases.
4. marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

1. shut down because economic profits are negative.
2. continue to produce as long as P > AVC.
3. continue to produce because accounting profits are positive.
4. set a higher price for its output.
5. set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

1. the marginal revenue curve.
2. perfectly inelastic.
3. always equal to marginal cost.
4. the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

1. monopolistic
2. oligopolistic
3. monopolistically competitive
4. perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

1. total revenue will fall if the price increases.
2. total revenue will be unchanged if the price increases.
3. total revenue will rise if the price increases.
4. the total supply will increase by an equal amount if demand increases.
5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

1. monopoly.
2. perfect competition.
3. theories of consumer behavior.
4. imperfect competition.
5. the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

1. perfect competition
2. monopolistic competition
3. oligopoly
4. monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

1. economic profits are zero.
2. TR > TC.
3. TR < TC.
4. P = AVC.
5. normal profits are zero.