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5 Differentiated Competition and Competition Policy Online Quiz Questions

Use this free practice quiz with 20 questions to review 5 Differentiated Competition and Competition Policy, test your knowledge, and prepare for your next test or exam.

20 questions
01
Choose one
1 point

A café attracts customers with its location and atmosphere, although other cafés are available nearby. What does this suggest about the products offered by the cafés?

  1. A

    Buyers regard them as identical, so they can be exchanged without affecting preferences.

  2. B

    Buyers regard them as imperfect substitutes, so differences may influence which product they choose.

  3. C

    Buyers have no alternatives to them.

  4. D

    Their sellers must charge the same price.

02
True or false
1 point

True or false: If a firm sells a differentiated product and raises its price, all of its customers must switch to a rival.

  1. A

    True

  2. B

    False

03
Fill in the blank
1 point

In the short run, a firm in monopolistic competition chooses output where , then uses its demand curve to determine the price.

04
Choose one
1 point

A firm is described as productively efficient. Which production condition does this imply in the standard model?

  1. A

    The firm produces where price equals marginal cost.

  2. B

    The firm earns zero economic profit.

  3. C

    The firm produces at the minimum point of its average-total-cost curve.

  4. D

    The firm has the largest market share.

05
Choose all
1 point

Select all the actions that are examples of firms competing on the merits rather than agreeing with rivals to suppress competition.

  1. A

    Improving a product to make it more attractive to customers.

  2. B

    Agreeing with competitors to charge identical prices.

  3. C

    Lowering costs through more efficient operations.

  4. D

    Dividing customers with rival firms.

06
Fill in the blank
1 point

In the standard long-run model of monopolistic competition, entry and exit tend to reduce firms' to zero.

07
True or false
1 point

True or false: A firm earning zero economic profit necessarily earns zero accounting profit.

  1. A

    True

  2. B

    False

08
Written response
1 point

In the standard model, what is the name of the efficiency condition that requires price to equal marginal cost?

09
Choose one
1 point

Two close rivals propose to merge. What is the central forward-looking competition-policy question described in the material?

  1. A

    Whether the firms have identical products and currently charge identical prices.

  2. B

    Whether the transaction may substantially lessen competition or tend to create a monopoly.

  3. C

    Whether the firms' owners intend to keep both names after the merger.

  4. D

    Whether the merger guarantees that the combined firm will charge lower prices.

10
Written response
1 point

What is the shape of the demand curve faced by a firm whose differentiated product gives it some, but limited, control over its price?

11
Open ended
1 point

Explain one potential benefit and one potential cost of product differentiation. Then explain why the standard model's efficiency comparisons alone do not establish that the market should be reorganized.

12
Choose all
1 point

Select all the possible ways a merger could reduce competition that are identified in the material.

  1. A

    It may remove a close rival.

  2. B

    It may increase the risk of coordination.

  3. C

    It necessarily proves that the firms previously fixed prices.

  4. D

    It may eliminate a potential entrant.

  5. E

    It may strengthen an already dominant firm.

13
True or false
1 point

True or false: Under the distinction described for U.S. monopolization law, having monopoly power by itself is the same as unlawfully obtaining or maintaining it.

  1. A

    True

  2. B

    False

14
Choose one
1 point

A firm raises its price and loses some customers, but many stay because they prefer its product. Which conclusion best explains this response?

  1. A

    The products are identical, so the firm faces no competition.

  2. B

    The products are differentiated, so the firm has limited pricing power.

  3. C

    The firm can raise its price without losing any customers.

  4. D

    The firm must charge the same price as every rival.

15
Written response
1 point

What market structure has many firms, differentiated products, and relatively accessible entry and exit?

16
Choose one
1 point

In the short run, how does a firm in monopolistic competition choose its output and price?

  1. A

    Choose the output where price equals marginal cost, then charge average total cost.

  2. B

    Choose the output where marginal revenue equals average total cost, then charge marginal cost.

  3. C

    Choose the output where marginal revenue equals marginal cost, then use the demand curve to set the price.

  4. D

    Choose the output that minimizes average total cost, then charge marginal revenue.

17
Written response
1 point

In the standard long-run model of monopolistic competition, what economic-profit outcome does entry and exit tend to produce?

18
Choose one
1 point

Firms in a differentiated market earn sustained economic profits. In the standard long-run model, what is the likely effect of new firms entering?

  1. A

    Entry tends to shift existing firms’ demand inward, reducing their economic profit.

  2. B

    Entry tends to shift existing firms’ demand outward, increasing their economic profit.

  3. C

    Entry makes existing products identical and guarantees that price equals marginal cost.

  4. D

    Entry has no effect on existing firms’ demand because each product is differentiated.

19
Choose one
1 point

In the textbook long-run model of monopolistic competition, a typical firm charges a price above marginal cost and does not produce at the minimum of its average-total-cost curve. How does this compare with the two standard efficiency criteria?

  1. A

    It is allocatively and productively efficient because entry eliminates economic profit.

  2. B

    It is neither allocatively nor productively efficient in the textbook model.

  3. C

    It is allocatively efficient but not productively efficient.

  4. D

    It is productively efficient but not allocatively efficient.

20
Choose one
1 point

Which action is an agreement between competitors that can suppress rivalry and violate antitrust law?

  1. A

    A firm independently lowers its price to attract customers.

  2. B

    A firm improves its service to distinguish itself from competitors.

  3. C

    A firm develops a distinctive brand and markets it to consumers.

  4. D

    Competing firms agree to charge the same prices.