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Economics 101 Practice Test: Monopolistic Competition
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Avg score: 2% • Most missed: “Excess capacity arises under conditions of monopolistic competition because:”
In economics, monopolistic competition is a market structure that combines the characteristics of a monopoly and perfect competition. It's a market structure where many companies compete to sell similar but differentiated products.  Here are some characteristics of monopolistic competition: - Low barriers to entry - Companies differentiate themselves based on pricing and marketing decisions - Companies compete on quality, price, and marketing - None of the companies enjoy a monopoly - Each company operates independently without regard to the actions of other companies  In a... Show more
Economics 101 Practice Test: Monopolistic Competition
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25 Questions

1. When a monopolistically competitive firm is in long-run equilibrium
2. The number of firms in a monopolistically competitive market is likely to be too small
3. Brand loyalty may
4. In the long run profit-maximizing monopolistically competitive firms charge a price
5. A monopolistically competitive firm chooses
6. A monopolistically competitive firm maximizes profits by setting quantity and/or price according to the same rule as
7. Product differentiation causes the seller of a good to face what type of demand curve?
8. A monopolistically competitive firm maximizes profits at the quantity where
9. Viola uses only Log Cabin® brand maple syrup on her pancakes. She claims that even though generic maple syrups are cheaper, that they often seem watery. In a blind taste test Viola prefers a generic maple syrup. Her behavior is consistently explained by which of the following?
10. The administrative burden of regulating price in a monopolistically competitive market is
11. If advertising decreases the elasticity of demand for a firm’s product, the firm is likely to
12. Defenders of advertising argue that it is not rational for profit-maximizing firms to spend money on advertising for products that have
13. In some countries, brand name fast-food restaurants are not allowed to operate. Such restrictions are likely to
14. Consider the following two sentences.
Both perfectly competitive and monopolistically competitive firms produce at the efficient scale.
Perfectly competitive firms produce where price equals marginal cost, while monopolistically competitive firms produce where price is greater than marginal cost.
15. Results of the study done by Lee Benham on advertising for eyeglasses suggests that
16. When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,
17. If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,
18. Consider the following two sentences.
Because the demand curve of a monopolistically competitive firm is downward sloping, its marginal revenue is less than price.
Because there is free entry into monopolistically competitive markets, in the long-run economic profits are driven to zero.
19. Since a firm in a monopolistically competitive market faces a
20. If firms in a monopolistically competitive market are earning negative economic profits, which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?
21. Requiring monopolistic competitors to set price equal to marginal cost would
22. As new firms enter a monopolistically competitive market, profits of existing firms
23. Suppose that by advertising, fast food places are able to increase the perception that their products are unique and so foster brand loyalty. The demand curves for the products of these firms become
24. In the long run, a firm in a perfectly competitive market operates at
25. Monopolistically competitive firms operate at

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