Monopolistic competition is a market structure characterized by
A One seller and many buyers
B Few sellers with interdependence
C Many sellers with differentiated products
D Many sellers with homogeneous products
Monopolistic competition has a large number of firms selling similar but differentiated products.
Product differentiation means
A Different prices for same product
B Physical and non-physical differences in products
C Different cost structures
D Different production techniques
Products differ in quality, brand, packaging, or services, though they serve similar purposes.
Because of product differentiation, firms under monopolistic competition face
A Perfectly elastic demand
B Vertical demand curve
C Downward sloping demand curve
D Perfectly inelastic demand
Each firm has some control over price due to brand loyalty, so its demand curve slopes downward.
In monopolistic competition, the demand curve faced by a firm is also its
A Supply curve
B Average revenue curve
C Marginal cost curve
D Long-run cost curve
The firm’s demand curve shows price at each output level, hence it is the AR curve.
In the short run, a firm under monopolistic competition can earn
A Only normal profit
B Only loss
C Supernormal profit, normal profit, or loss
D Zero profit always
Like monopoly, short-run outcomes vary depending on demand and cost conditions.
Short-run equilibrium of a monopolistic competitor occurs where
A AR = AC
B MR = MC
C Price = MC
D TR = TC
Profit maximization condition MR = MC applies to all market forms.
In the short run, a monopolistically competitive firm earns supernormal profit when
A AR = AC
B AR > AC
C AR < AC
D MR = 0
Price exceeding average cost results in abnormal profit.
In the long run, monopolistic competition leads to
A Supernormal profit
B Monopoly profit
C Normal profit only
D Continuous loss
Entry of new firms erodes short-run profits, leading to normal profit in the long run.
Long-run equilibrium under monopolistic competition is characterized by
A AR = MC
B AR = minimum AC
C AR is tangent to AC
D MR = AR
Tangency of AR and AC ensures normal profit with excess capacity.
Excess capacity under monopolistic competition means
A Firms operate at minimum AC
B Firms operate below minimum AC
C Firms operate above minimum AC
D Firms operate at maximum output
Firms do not produce at minimum AC due to downward sloping demand.
Excess capacity arises mainly because of
A Government regulation
B Free entry
C Product differentiation
D Price discrimination
Differentiation reduces demand for each firm, preventing production at minimum AC.
A key difference between monopoly and monopolistic competition is that
A Monopoly has downward sloping demand
B Monopolistic competition has many sellers
C Monopoly has MR below AR
D Both restrict output
Monopoly has a single seller, while monopolistic competition has many firms.
Selling costs are most significant in
A Perfect competition
B Monopoly
C Monopolistic competition
D Oligopoly
Advertising and sales promotion are used to differentiate products.
Selling costs mainly aim to
A Reduce cost of production
B Increase demand for the firm’s product
C Reduce market supply
D Increase marginal cost
Selling costs shift the firm’s demand curve to the right.
In monopolistic competition, selling costs are considered
A Pure waste
B Productive cost
C Price-determining factor
D Investment cost
Advertising affects demand and therefore price and output.
Which feature brings monopolistic competition closer to monopoly?
A Free entry
B Product differentiation
C Many sellers
D Price competition
Differentiation gives each firm some monopoly power over its product.
Which feature brings monopolistic competition closer to perfect competition?
A Product differentiation
B Selling costs
C Free entry and exit
D Downward sloping demand
Free entry ensures only normal profit in long run, like perfect competition.
Oligopoly is a market structure with
A One seller
B Two sellers only
C Few dominant firms
D Many small firms
Oligopoly consists of a small number of large firms dominating the market.
A distinguishing feature of oligopoly is
A Perfect information
B Interdependence among firms
C Product homogeneity only
D Free entry
Each firm’s decisions affect rivals, leading to strategic behavior.
Which industry is a typical example of oligopoly?
A Wheat farming
B Small retail shops
C Automobile industry
D Street vendors
Automobile market has a few large firms with significant market shares.
Oligopoly may be classified into
A Pure and perfect
B Simple and complex
C Collusive and non-collusive
D Legal and illegal
Firms may collude or compete independently in oligopoly.
In collusive oligopoly, firms
A Act independently
B Compete aggressively
C Cooperate to fix prices/output
D Always engage in price wars
Collusion involves agreement among firms to maximize joint profits.
A cartel is
A A government agency
B A buyers’ association
C A formal agreement among oligopolists
D A monopolistic competitor
Cartel members coordinate output and price decisions.
Non-collusive oligopoly refers to
A Monopoly behavior
B Independent decision-making by firms
C Government-regulated pricing
D Perfect competition
Firms do not cooperate but consider rivals’ reactions.
The kinked demand curve model explains
A Price determination in monopoly
B Price rigidity in oligopoly
C Price discrimination
D Excess capacity
The model shows why prices tend to remain stable despite cost changes.
According to the kinked demand curve, demand is more elastic
A Above the kink
B Below the kink
C At the kink
D At zero output
Rivals do not follow price increases, making demand highly elastic above current price.
Below the kink, demand is relatively inelastic because
A Rivals ignore price cuts
B Rivals follow price cuts
C Demand is perfectly elastic
D Costs are fixed
Price cuts are matched by rivals, so demand expands little.
The kinked demand curve implies that marginal revenue curve has
A A smooth shape
B A discontinuous gap
C A vertical straight line
D Constant slope
Different elasticities above and below kink cause a discontinuity in MR.
Price rigidity in oligopoly occurs when
A Demand shifts frequently
B Cost changes fall within MR gap
C Firms collude perfectly
D Entry is free
As long as MC shifts within the MR gap, equilibrium price remains unchanged.
The kinked demand curve theory was developed by
A Marshall
B Cournot
C Sweezy
D Chamberlin
Paul Sweezy proposed the kinked demand curve model.
A major limitation of kinked demand curve theory is that it
A Explains price wars
B Explains price rigidity only
C Does not explain initial price determination
D Explains collusion
The theory assumes an existing price but does not explain how it was set initially.
In oligopoly, price leadership refers to
A Government fixing prices
B One firm setting price and others following
C Joint profit maximization
D Perfect competition
A dominant firm sets price which others accept.
Which firm usually becomes price leader?
A Smallest firm
B Firm with highest cost
C Dominant or low-cost firm
D New entrant
Efficient or dominant firms can lead price decisions.
Price leadership is a form of
A Perfect competition
B Explicit collusion
C Implicit collusion
D Monopoly pricing
Firms tacitly follow a leader without formal agreement.
In oligopoly, uncertainty arises mainly because
A Demand is perfectly elastic
B Firms are interdependent
C Costs are fixed
D Government controls price
Each firm is unsure how rivals will react to its decisions.
Which curve is generally indeterminate in oligopoly?
A Demand curve
B Supply curve
C Cost curve
D Revenue curve
Due to strategic behavior, no definite supply curve exists.
Game theory is often used to analyze
A Perfect competition
B Monopoly
C Oligopoly behavior
D Consumer equilibrium
Game theory models strategic interaction among oligopolists.
A price war is most likely under
A Perfect competition
B Monopoly
C Oligopoly
D Monopolistic competition
Rivalry among few firms can trigger aggressive price cuts.
Oligopolistic firms may avoid price competition by competing through
A Advertising
B Innovation
C Product quality
D All of the above
Non-price competition helps avoid destructive price wars.
Collusive oligopoly aims to achieve
A Competitive price
B Monopoly-like profit
C Zero profit
D Perfect efficiency
Collusion attempts joint profit maximization.
A cartel breaks down mainly due to
A Homogeneous products
B Cheating by members
C Government support
D Free entry
Individual firms may secretly cut prices to increase sales.
Which market form shows the greatest interdependence?
A Perfect competition
B Monopoly
C Monopolistic competition
D Oligopoly
Few firms mean each one’s actions affect others.
Under oligopoly, firms are often reluctant to change price because
A Costs never change
B Demand is fixed
C Rival reactions are uncertain
D Entry is free
Fear of price wars or loss of market share leads to price rigidity.
Which feature distinguishes oligopoly from monopolistic competition?
A Many sellers
B Product differentiation
C Few sellers
D Selling costs
Number of firms is the key distinguishing factor.
In oligopoly, price determination is best described as
A Automatic
B Indeterminate
C Fixed by government
D Perfectly predictable
Strategic interaction makes price determination uncertain.
The kinked demand curve explains rigidity at
A Very low prices
B Very high prices
C Prevailing market price
D Zero output
The kink exists at the current price level.
If marginal cost increases but remains within MR gap, oligopoly price
A Increases
B Decreases
C Remains unchanged
D Becomes zero
MR gap ensures price rigidity despite cost changes.
A firm in oligopoly considers rivals’ reactions mainly due to
A Many sellers
B Homogeneous products
C Strategic interdependence
D Perfect information
Each firm’s decisions affect competitors’ profits.
The main weakness of oligopoly models is that they
A Ignore demand
B Assume costless production
C Fail to give a single price theory
D Ignore profit
No single general theory explains oligopoly pricing fully.
Monopolistic competition and oligopoly both involve
A Homogeneous products
B Many firms always
C Downward sloping demand curves
D Perfect information
Firms in both structures face downward sloping demand due to product differentiation or market power.