Question

1. In the short run, monopolistically competitive firms:

	a)	will earn zero economic profits by acting like a monopolist.
	b)	can earn positive economic profits by acting like a monopolist.
	c)	will earn zero economic profits by acting like a perfectly competitive firm.
	d)	can earn positive economic profits by acting like a perfectly competitive firm.

2. Product differentiation refers to:

	a)	the process of informing the public of differences in products as a result of error.
	b)	firms who offer similar products to their competitors' products, but that are more attractive in some way.
	C)	the process of creating a standardized product with a lower-cost method than the competitors' method.
	d)	consumers who sort and group goods based on similar characteristics.

3. In the short run, product differentiation enables firms in monopolistically competitive markets to:

	a)	produce a good for which there are exact substitutes.
	b)	act like price takers.
	c)	produce a good for which there are no close substitutes.
	d)	act like monopolists.

4. If equilibrium quantity for a monopolistic competitive firm is 80 while quantity at minimum efficient scale is 100, then excess capacity is equal to

	a)	100
	b)	20
	C)	80
	d)	10

5. Knowing that Coke controls 80 percent of the cola market and Pepsi controls 20 percent, we can conclude the cola market is:

	a)	perfectly competitive.
	b)	monopolistically competitive.
	c)	an oligopoly.
	d)	a monopoly.

6. A defining characteristic of an oligopoly is:

	a)	firms in the industry know they are competing with a few large firms with market power.
	b)	barriers to entry prevent newcomers to such an industry.
	c)	easy entry and exit prevent long-run profits from being possible.
	d)	all firms sell a standardized product.

7. Competition between oligopolists drives:

	a)	some firms out until the market becomes a monopoly.
	b)	collusion to happen frequently.
	c)	price and profits down to below the monopoly level.
	d)	price and profits down to the perfect competition level.

Answer 1

1- can earn positive economic profits by acting like a monopolist.

2- firms who offer similar products to their competitors' products, but that are more attractive in some way.

3- act like monopolists.

4- 20

5- an oligopoly.

6-barriers to entry prevent newcomers to such an industry.

7- price and profits down to the perfect competition level.