JonnyKay

Under which type of market structure are the production and pricing alternatives of a firm most affected by the decisions of its competitors?

A) Oligopoly.

B) Monopolistic competition.

C) Perfect competition.

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An oligopoly market structure is characterized by a small number of firms producing similar or differentiated products, with a high degree of interdependence among competitors. Each firm’s optimal price and output are strongly affected by the pricing and output decisions of its competitors.

JonnyKay

Which of the following is least accurate regarding product development and marketing for firms under monopolistic competition?

A) Firms that bring new and innovative products to the market face relatively more elastic demand curves than their competitors.

B) Relative to other types of competition, product innovation is critical to the pursuit of economic profits.

C) Brand names can provide consumers with information regarding the quality of firm’s products.

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Firms under monopolistic competition face less elastic demand curves when they introduce new and innovative products. This enables them to increase price and earn economic profits. However, close substitutes and imitations will eventually erode the economic profit from a new product. So, firms must constantly seek innovative product features that make their products relatively more desirable than their competitors.

JonnyKay

One way in which monopolistic competition can be distinguished from perfect competition is that in monopolistic competition:

A) price is greater than marginal cost.

B) each firm faces a perfectly elastic demand curve.

C) marginal revenue is greater than marginal cost at the quantity produced.

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In monopolistic competition, price is greater than marginal cost (i.e., firms can realize a markup). In perfect competition, P = MC. Firms in monopolistic competition are price searchers, i.e., each firm faces a downward sloping demand curve. Regardless of the market structure, all firms produce the quantity at which marginal revenue equals marginal cost.

JonnyKay

Monopolistic competition differs from pure monopoly in that:

A) monopolists maximize profit; monopolistic competitors do not.

B) barriers to entry are high under monopoly, but low under monopolistic competition.

C) monopolistic competitors are price takers, monopolists are not.

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Monopolistic competition is characterized by the low barriers to enter its competitive markets. In contrast, a monopoly exists only where there are high barriers to market entry.

JonnyKay

The demand curves faced by monopolistic competitors is:

A) not sensitive to price due to absence of close substitutes.

B) elastic due to the availability of many close substitutes.

C) inelastic due to the availability of many complementary goods.

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The demand for products from monopolistic competitors is elastic due to the availability of many close substitutes. If a firm increases its product price, it will lose customers to firms selling substitute products.

JonnyKay

Which of the following is most likely to be considered a characteristic of an oligopolistic industry?

A) Few barriers to entry.

B) A great deal of interdependence among firms.

C) Many sellers.

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An oligopolistic industry has a great deal of interdependence among firms. One firm’s pricing decisions or advertising activities will affect the other firms' demand curves.

JonnyKay

Which of the following is least likely a characteristic of an oligopoly?

A) Relatively small economies of scale.

B) Products can either be similar or differentiated.

C) There are few sellers.

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Oligopolies have large economies of scale and interdependence among competitors.

JonnyKay

An oligopolistic industry least likely has:

A) many sellers.

B) high barriers to entry.

C) large economies of scale.

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An oligopolistic industry has a few sellers with large economies of scale, a great deal of interdependence among firms, and high barriers to entry.

JonnyKay

Characteristics of monopolistic competition include all of the following EXCEPT:

A) large numbers of independent sellers.

B) high barriers to entry.

C) differentiated products.

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Monopolistic competition has low barriers to entry.

JonnyKay

Which one of the following is least likely a characteristic of monopolistic competition?

A) Low barriers to entry and exit.

B) A single seller.

C) Differentiated products.

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There are many sellers or producers who sell differentiated products that permit firms to attract customers without reducing price; and there are low barriers to entry.