Question Bank for the test 4.
1. If the entire output of a market is produced by a SINGLE seller, the firm:
a) Is producing a new product.
b) Is a monopoly.
2. A barrier to entry is
a) An obstacle that makes it difficult for new firms to enter a market.
b) An obstacle that prevents additional workers from entering an industry, such as a union.
c) A commitment on the part of big business to allow smaller companies to compete.
3. If there are many firms in an industry producing goods that are similar but slightly different, this is an
example of
a) Monopolistic competition.
b) Monopoly
4.Product differentiation refers to
a) The selling of identical products in different markets.
b) Features that make one product appear different from competing products in the same market.
5.Which of the following usually results from colluding firms?
a) Profit decreases
b) Prices are higher
c) Less is produced
6.The characteristic of oligopolistic firms that makes them different from all other types of firms is that
oligopolistic firms:
a) Consider each other's decisions
b) Produce differentiated products
c) Advertise their products
d) Face high barriers to entry
7.Firms in monopolistic competition can leave the market easily in the long run.
a) False
b) True
8. An oligopoly is a market dominated by just a few firms.
a) True
b) False
9.How many firms are in a monopoly?
a) three
b) two
c) one
d) unlimited
10.A market structure in which a few large firms dominate a market
a) Monopolistic Competition
b) Oligopoly
c) Perfect Competition
11.Going to the Dallas Farmers Market to buy apples, you will find this type of market structure.
a) Monopoly
b) Perfect Competition
c) Monopolistic Competition
d) Oligopoly
12.Since the airline industry is controlled by only a few very big companies, which type of market
structure would best describe it.
a) Monopoly
b) Perfect Competition
c) Oligopoly
13.The above image is an example of...
a) Oligopoly
b) Pure Competition
c) Monopolistic Competition
d) Non-Price Competition
14.DeBeers used to be the only supplier of diamonds. Which terms best describes this firm?
a) Monopolistic Competition
b) Monopoly
c) Oligopoly
d) Merger
15.A price war occurs when competing sellers________ their prices _____________________.
a) raise, below the competition
b) drop, below the competition
c) raise, below the competition
d) drop, above the competition
16.Define collusion
a) a secret agreement between two competing firms to sell their similar products at the same price
b) When two cars collide on the road
17.______________ occurs when you sell the same product for different prices to different people.
a) Price discrimination
b) Bargaining
18.___________ is an agreement among competing businesses to sell products for the same or similar
prices.
a) Price gouging
b) Price fixing
c) Price discrimination
d) Price wars
19. The jeans industry would fall into what type of market structure? ( jeans are similar but there are
some differences in the product)
a) perfect competition
b) monopoly
c) monopolistic competition
d) oligopoly
20. When a major car company lowers its prices, other car makers will probably
a) lower their prices.
b) raise their prices.
c) maintain existing prices.
d) go out of business.
Answer Keys
1. b) Is a monopoly.
2.a) An obstacle that makes it difficult for new firms to enter a market.
3.a) Monopolistic competition.
4. b) Features that make one product appear different from competing products in the same market.
5. b)Prices are higher
6. a) Consider each other's decisions
7. b) True
8. a) True
9. c) one
10. b) Oligopoly
11. b) Perfect Competition
12. c) Oligopoly
13. d) Non-Price Competition
14. b) Monopoly
15. b) drop, below the competition
16. a) a secret agreement between two competing firms to sell their similar products at the same price
17. a) Price discrimination
18. b) Price fixing
19. c) monopolistic competition
20. a) lower their prices.
Answer the following Questions
Q: What effect do barriers to entry have in a monopolistically competitive market?
Ans: In a monopolistically competitive market, barriers to entry refer to obstacles that make it
difficult for new firms to enter the market and compete with existing firms. These barriers
can include factors such as high start-up costs, brand loyalty, patents, government
regulations, and economies of scale.
Q: How does differentiation help monopolistically competitive firms sell their products?
Ans: Differentiation enables these firms to profit from differences among products.
Q: If a monopolistically competitive brand-name product that you felt brand loyalty towards
raised its price by a significant amount, what would you do? Explain your answer.
Ans: Brand loyalty makes the demand curve for a monopolistically competitive firm more inelastic and
less affected by the entry of other firms.
Define the following terms
Monopolistic competition
Def.: occurs when many companies offer products that are similar but not identical.
Differentiation
Def.: is the process of distinguishing a product or service from others to make it more attractive
to a particular target market.
Non-price competition
Def.: refers to the use of non-price factors to differentiate a product or service and attract
customers.
Oligopoly
Def.: a market in which the industry is dominated by a few companies that are each influential
participants in the market.
Price war
Def.: a competitive exchange among rival companies who lower the price points on their
products, in a strategic attempt to undercut one another and capture greater market share.
