Monopolistic Competition and Monopoly

Questions for BA 201 Class

Questions and Answers

Don and Jen

1. There are laws to regulate Pure Monopoly.
A. True *
B. False
2. What are the characteristics of a Pure Monopoly?
A. Only one firm in the market (no competition).
B. Significant barriers to entry by other firms exist.
C. Lack of substitute good for the monopolist's good.
D. Firm is a price-maker.
E. All of the above. *
3. What is Pure Monopoly?
A. A board game.
B. A movie about economy.
C. When a company holds such dominance in a market that no effective competition can
take place.*
D. All of the above.
4. Pure Monopoly causes the economy to fail.
A. True
B. False *
5. A Pure Monopoly occurs when?
A. Someone loses a game.
B. When two people fight over an item in a store.
C. Another market competes to sell the same items as you, but can't compete.*
D. All of the above.

Maila

1. Q: How are monopolies controlled to ensure that prices do not rise too high?
A: *Through government regulations by coming up with laws, regulating the behavior of
the monopolists and by public ownership.
2. Q: Enumerate the attributes of monopolistic competition and describe briefly:
Answers:
Many sellers: There are many firms competing for the same customers
Product differentiation: Each firm produces a product that is at least slightly different
from those of other firms.
Free entry and exit - Firms can enter or exit the market without restriction.

3. Q: What is the difference between monopoly and monopolistic competition?

A: *Monopoly only has a sole seller of its product and its product does not have close
substitutes while monopolistic competition can have many firms selling the same product
that compete for the same customers but each firm has the monopoly over the product it
makes
Regeville

1. Who is the founding father of the theory of monopolistic competition?

a. John Chamberlin
b. Bella Hastings Chamberlin
c. Edward Hastings Chamberlin*
d. John Hastings Chamberlin

2. Identify some of the major characteristics of monopolistic competition:

a. Many Firms
b. free entry and exit in the long run
c. all of the above*
d. none of the above

Maeren
1. In monopolistic competition there are no barriers to entry. Therefore, in the long run, the
market will be competitive, with firms making normal profit.
a. True*
b. False

2. In general, we will see that the monopolist will raise prices and reduce
production relative to the competitive market.
a. True*
b. False

Arra

What prevents firm from entering a monopoly?

a. Barriers*
b. technology
c. government
d. price

One of the requirements for a monopoly is that

a. the product cannot be produced by small firms.
b. there are several close substitutes for the product.
c. there is a unique product with no close substitutes.*
d. products are high priced.

Which of the following statements is correct?

a. The market demand and the firm's demand are the same for a monopoly.*
b. Monopolies have perfectly inelastic demand for the product sold.
c. Monopolies are guaranteed to earn an economic profit.
d. All of the above are correct

In monopolistic competition, each firm supplies a small part of the market. This occurs because
a. there are barriers to entry.
b. firms produce differentiated products.
c. there are no barriers to entry.
d. there are a large number of firms*

Rose

If a monopolistically
competitive firm is earning economic profits in the short run, entry of new firms will eliminate
those
profits in the long run. (True)

Monopolistically competitive firms produce

where price is less than marginal cost and below minimum average total cost. (False)

Sam

Question 1:

A natural monopolist will shut down in the long-run when forced by regulation to set price at the
socially optimum price (where P = MC) because at the output level where P = MC:
A. the firm's average fixed costs are high.
B. the firm may have substantial excess productive capacity.
C. marginal revenue may be greater than marginal cost.
D. average total cost will be greater than price.

Answer: A

Question 2:

When a monopoly firm is operating in a range of output where total revenue is rising as output
rises, then marginal revenue:
A. is also rising.
B. is constant.
C. is falling but is greater than zero.
D. is falling but is less than zero.

Answer: C

Question 3:

Monopolistic competition is a type of imperfect competition such that many producers sell
products that are differentiated from one another and ____________.

A. are perfect substitutes.

B. are not perfect substitutes.
C. either perfect or not perfect substitutes.
D. cannot be determined

Answer: B