Professional Documents
Culture Documents
1
Firms may easily enter a monopolistically competitive market.
True
False
2
Product differentiation helps determine the slope of the demand curve
facing a firm in monopolistic competition.
True
False
3
Monopolistic competitors are protected by barriers to entry.
True
False
4
The forces that determine the cost of production are largely independent of
the forces that shape demand.
True
False
5
The term monopolistic competition
6
Monopolistically competitive industries consist of
7
Collusion among firms to raise price is rare in monopolistically competitive
markets because
8
Monopolistically competitive firms ignore the effect of their decisions upon
other firms in the industry because
9
Monopolistic competition is different from perfect competition because
monopolistic competitors produce
a homogeneous product
a homogeneous but unique product
identical products
differentiated products
products similar to those produced by a monopoly
10
If Family Travel Agency, a monopolistic competitor, offers services that
are differentiated from the services of other producers in the industry, it
11
A monopolistically competitive firm can raise price somewhat due to
product differentiation
barriers to entry
product similarity
its homogeneous product
high tariffs
12
The demand curve facing Imelda's Shoe Boutique, a monopolistically
competitive firm,
13
Monopolistically competitive firms use product differentiation to increase
the price elasticity of demand.
True
False
14
Monopolistic competition is best described as
15
If a monopolistically competitive firm raises its price, it
16
Which of the following is most likely produced in a monopolistically
competitive market?
soybeans
autos
fast food
oil
local phone service
17
Which of the following is most likely produced in a monopolistically
competitive market?
restaurant meals
computer chips
firewood
motorcycles
soft drink
18
A firm could differentiate its product by all of the following means except
one. Which is the exception?
19
All of the following are examples of product differentiation except one.
Which is the exception?
20
Economic analysis of product differentiation leads to all of the following
conclusions except one. Which is the exception?
21
When firms differentiate their products, they
22
When firms in an industry produce differentiated products,
23
Monopolistic competitors are
price takers
price searchers
price maximizers
price ignorers
collusive price fixers
24
In economics, products are considered "differentiated" only if
25
Compared to regular grocery stores, convenience stores have
higher prices and a more limited selection of goods
higher prices and a greater selection of goods
lower prices and a more limited selection of goods
lower prices and a greater selection of goods
equal prices and an equal selection of goods
26
A monopolistically competitive firm produces where demand is inelastic.
True
False
27
Firms in monopoly or monopolistically competitive market structures do not
have traditional supply curves as firms in perfect competition do.
True
False
28
A monopolistic competitor's demand curve is
perfectly elastic
less elastic than a monopolist's or oligopolist's but
more elastic than a perfect competitor's
as elastic as an oligopolist's
more elastic than a monopolist's or oligopolist's but
less elastic than a perfect competitor's
perfectly inelastic
29
The demand curve facing a firm will be more elastic,
30
What do monopolistic competition, pure monopoly, and perfect competition
have in common?
free entry
longrun economic profits
differentiated product
price taking
the rule of profit maximization
31 Exhibit 101
75 units
100 units
125 units
150 units
137.5 units
32
Exhibit 101
In Exhibit 101, the price that the monopolistic competitor will charge at the
profitmaximizing level of output is
$2
$4
$8
$9
$10
33
Exhibit 101
34
Exhibit 101
$0
$4
$600
$6
$750
35
Exhibit 102
Consider Exhibit 102. If the firm is charging price P* for output q*, then in
order to minimize loss in the short run, the firm should
36
Exhibit 103
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
The profitmaximizing output for the firm in Exhibit 103 is
0 units
1 unit
3 units
5 units
impossible to determine because MC and MR are not
known
37
Exhibit 103
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
$0
$27
$21
$15
impossible to determine because MR and MC are not
known
38
Exhibit 103
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
39
Exhibit 103
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
41
Exhibit 104
In the short run, which of the following should the firm in Exhibit 104 do?
42
Exhibit 104
For the situation depicted in Exhibit 104, what will happen in the longrun?
New technology will lower average total costs and
increase profits for the firm.
Firms will exit this market causing economic profit
to increase.
Product differentiation will lead to an increase in
profitablility.
New firms will enter the market driving economic
profit to zero.
Nothing, the situation will remain the same.
43
Exhibit 105
shut down
produce 8 units at a price of $11 per unit
produce 8 units at a price of $10 per unit
produce 8 units at a price of $9 per unit
produce 10 units at a price of $9 per unit
44
Exhibit 105
45
Exhibit 106
P Q TC
$7 0 $10
6 4 20
5 8 32
4 12 48
3 16 66
$7
$6
$5
$4
$3
46
Exhibit 106
P Q TC
$7 0 $10
6 4 20
5 8 32
4 12 48
3 16 66
$40
$4
$48
$8
$0
47
If a monopolistically competitive firm can earn a profit, it will adjust
production until
MR > AVC
MR = ATC
MC > MR
MR = AR
MR = MC
48
Exhibit 107
Assume that the firm in Exhibit 107 is maximizing profit. Its total revenue
is
$5,320
$5,700
$4,750
$8,120
$8,100
49
Exhibit 107
At the profitmaximizing output level, total cost for the firm in Exhibit 107
is approximately
$5,700
$5,320
$4,750
$4,940
$8,100
50
Exhibit 107
51
Exhibit 107
52
Assume a monopolistically competitive firm is earning an economic profit.
The marginal revenue from selling an additional unit is $30 and the marginal
cost of producing that additional unit is $23. The firm should
53
A rise in demand for restaurant meals is likely to cause which of the
following in the short run?
54
A rise in demand for restaurant meals is likely to cause which of the
following in the long run?
55
In both monopolistic competition and nonpricediscriminating monopoly,
56
A monopolistically competitive firm is producing an output level at which
marginal revenue is greater than marginal cost. This firm should
__________ quantity and __________ price to increase profit or reduce
losses.
increase, increase
increase; decrease
decrease; increase
decrease; decrease
increase; not change
57
A monopolistically competitive firm is producing an output level at which
marginal revenue is less than marginal cost. This firm should __________
quantity and __________ price to increase profit or reduce losses.
increase, increase
increase; decrease
decrease; increase
decrease; decrease
increase; not change
58
Exhibit 108
Assume the firm in Exhibit 108 is currently charging price P and producing
output level Q. In order to maximize profit (or minimize loss), the firm
should
59
Exhibit 109
In order to maximize profit or minimize loss, the firm in Exhibit 109 should
If the firm in Exhibit 109 produces 100 units of output, it will have
both d and e
variable cost of slightly less than $800
fixed cost of slightly more than $700
total cost of $1,500
total revenue of $800
61
Which of the following describes the relationship among market price (P),
average revenue (AR), and marginal revenue (MR) for a firm in
monopolistic competition.
P = AR = MR
P > AR = MR
P = AR > MR
P > AR > MR
P = AR < MR
62
A profitmaximizing firm in monopolistic competition should shut down in
the short run
63
In the long run in monopolistic competition, firms earn zero economic profit.
True
False
64
If a monopolistically competitive firm is in longrun equilibrium and average
cost equals $150, then the market price must be $150.
True
False
65
Monopolistic competition is similar to
66
In the long run, a monopolistically competitive firm will
67
Suppose that a monopolistically competitive firm is in longrun equilibrium.
The firm's demand curve is tangent to its average cost curve at Q = 25.
Average cost is minimized at Q = 35, where average cost is $50. Which of
the following is true?
68
Suppose that a monopolistically competitive firm is in longrun equilibrium.
The firm's demand curve is tangent to its average cost curve at Q = 25.
Average cost is minimized at Q = 35, where average cost is $50. Which of
the following is true?
69
Because of easy entry, monopolistically competitive firms will
70
Exhibit 1010
P Q TC
$7 0 $10
6 4 20
5 8 32
4 12 48
3 16 66
$40
$4
$48
$8
$0
71
Exhibit 1011
Assume that the firm in Exhibit 1011 maximizes profit. Its total revenue is
$5,200
$4,000
$3,600
$5,600
$3,200
72
Exhibit 1011
At the profitmaximizing output level, total cost for the firm in Exhibit 1011
is
$5,200
$4,000
$3,600
$5,600
impossible to determine
73
Exhibit 1011
74
A firm will only earn normal profit in the long run
75
In the long run, Bubba's Baby Boutique, a monopolistically competitive
firm,
76
In the long run, the economic profit of Hoot's Pump Chicken 'n' Ribs, a
monopolistic competitor,
77
A permanent decrease in demand for convenience store services is likely to
cause which of the following in the long run?
78
If the firms in a monopolistically competitive industry are suffering short
run losses, which of the following will occur in the long run?
79
If the firms in a monopolistically competitive industry are earning shortrun
profit, which of the following is not likely to occur in the long run?
80
In the long run in monopolistic competition, the demand curve facing the
typical firm
is perfectly elastic
slopes upward
is tangent to the firm's average total cost curve
lies above the firm's average total cost curve
is the same as the portion of the firm's marginal
cost curve above average variable cost
81
As new monopolistically competitive firms enter the market, the demand
facing each firm __________, causing the price charged by each firm to
__________. In the long run, each firm will earn a __________ profit.
82
If the demand curve facing the Acme Awl Company is tangent to its
average total cost curve, all of the following statements are true except one.
Which is the exception?
83
In the long run in monopolistic competition, a firm will not produce the
output level that minimizes average cost because
84
Which of the following characteristics does perfect competition share with
monopolistic competition?
pricetaking firms
zero longrun economic profit
homogeneous product
some barriers to entry
economies of scale in production
85
Monopolistically competitive firms
86
In the long run, economic profit for a monopolistically competitive firm
87
Exhibit 1012
The profitmaximizing (or lossminimizing) output for the firm in Exhibit 10
12 is
88
Exhibit 1012
The profitmaximizing (or lossminimizing) price the firm would charge in
Exhibit 1012 is
89
Exhibit 1012
90
In the long run, a monopolistically competitive firm will find
91
Suppose that firms in a monopolistically competitive industry are earning
shortrun economic profits. In the long run, the demand curve facing each
individual firm can be expected to
92
In the shortrun, firms in a monopolistically competitive market will earn
zero economic profit.
True
False
93
The video rental market can be described as a monopolistically competitive
market. As a result of the economic profit earned by the first video rental
outlets,
True
False
95
In the longrun, both perfectly competitive and monopolistically competitive
firms will produce at minimum average cost.
True
False
96
In the long run in monopolistic competition, all economies of scale are
exhausted.
True
False
97
Excess capacity is defined as the difference between a firm's maximum
possible output and its actual output.
True
False
98
Which of the following is inconsistent with the model of perfect
competition?
99
In which of the following market structures is a firm most likely to advertise
extensively and fear entry of new firms?
perfect competition
pure monopoly
monopolistic competition
oligopoly
both perfect competition and monopolistic
competition
100 Which of the following is true of the relationship between price and
marginal cost under monopolistic competition?
101
In longrun equilibrium, a monopolistically competitive firm will produce
102
At the profitmaximizing output, price is greater than marginal cost
103
In the long run, the output of a monopolistically competitive firm
104
A monopolistically competitive firm
105
Although both perfectly competitive and monopolistically competitive
firms earn normal profits in the long run, monopolistically competitive
firms will not
106
Which of the following is true of firms in both monopolistic competition
and perfect competition?
107
One difference between perfect competition and monopolistic competition
is that
pricetaking firms
homogeneous products
no barriers to entry
horizontal demand curve
neither market advertises
109
Compared to a firm in perfect competition, the monopolistically
competitive firm tends to
110
Excess capacity typically occurs
111
Which of the following is unique to perfect competition?
112
Monopolistically competitive firms do not achieve allocative efficiency in
the long run because
114
Firms in monopolistic competition and perfect competition typically
115
Monopolistic competition is similar to
116
If marginal revenue is less than price for a firm, it must be true that the
firm
is a monopoly
is in perfect competition
is in monopolistic competition
faces a perfectly elastic demand curve
faces a downwardsloping demand curve
117
Which of the following characteristics distinguishes oligopoly from other
market structures?
118
Oligopolistic industries consist of
119
The automobile, breakfast cereal, and tobacco industries are examples of
monopolistic competition
oligopoly
perfect competition
monopoly
monopsony
120
The defining characteristic of oligopoly is that each firm
121
An intersection known as Four Corners lies 300 miles from the nearest
town. At this intersection are three independently owned gas stations and
one small pharmacy. Which of the following is true?
122
Which of the following is unique to oligopoly among all the market
structures?
product differentiation
profit maximization
mutual interdependence
advertising
longrun economic profits
123
Oligopolists are more sensitive to the pricing and output policies of their
rivals when
124
The defining characteristic of oligopoly is product differentiation.
True
False
125
Something is called a barrier to entry only if it makes entry into an
industry absolutely impossible.
True
False
126
When there are barriers to entry, a profitmaximizing firm already in the
industry can charge any price it wants, even in the long run.
True
False
127
It is harder to explain the behavior of firms in oligopoly than in other
market structures because in oligopoly
128
Which of the following is not considered a barrier to entry?
economies of scale
patents
control of a scarce resource
licensing
perfect price discrimination
129
For firms in an oligopoly to be interdependent,
130
An oligopoly is characterized by
131
In which market structure(s) might firms produce an undifferentiated
product?
132
If Ford raises the price of its automobiles, the demand curve for GM
automobiles
134
Interdependent decision making on price, quality, or advertising is
characteristic of
perfect competition
monopolies
oligopolies
monopolistic competition
both oligopolies and monopolistic competition
135
There are multiple models of pricing behavior in oligopolistic markets
because
136
In oligopoly, minimum efficient scale is large relative to the market.
True
False
137
Economies of scale yield
138
Exhibit 1013
All of the following statements regarding Exhibit 1013 are true except
one. Which is the exception?
139
Exhibit 1013
Consider Exhibit 1013. If two firms each produced 500 units, the total
cost of supplying 1,000 units would be
$6
$4,000
$4
$3,000
$6,000
140 Exhibit 1014
Which of the curves shown in Exhibit 1014 best represents the longrun average
cost curve for an oligopolist?
Curve a
Curve b
Curve c
Curve d
Curve e
141
The automobile industry is
142
If a firm must produce a significant share of market output before low
average costs can be achieved, the structure of this industry will tend to be
monopolistic competition
perfect competition
oligopoly
either monopolistic competition or oligopoly
either perfect competition or monopolistic
competition
143
Which of the following is not an example of an oligopolistic barrier to
entry?
diseconomies of scale
legal restrictions
advertising and brand proliferation
high startup costs
control over an essential resource
144
Oligopolists often sacrifice economies of scale as they expand product
variety.
True
False
145
A brand name may contribute to oligopolists' economic profit by
146
The various models of oligopoly explain observed behavior in different
industries, but none is satisfactory as a general theory of oligopoly.
True
False
147
Which of the following is an example of an actual cartel?
148
Collusion is most likely to occur in those oligopolies in which firms have
vastly different cost structures.
True
False
149
Cartels are inherently unstable.
True
False
150
Collusion and cartels are frequently legal in Europe.
True
False
151
An oligopolist that cheats on a collusive agreement by reducing price will
quickly be forced out of the industry by its competitors.
True
False
152
The incentives for oligopolists to cheat on collusive agreements are
strongest during periods of increasing industry sales.
True
False
153
If a cartel can earn a profit, it will increase production as long as
MR > MC
MR > ATC
MC > MR
MR < AR
MR > AVC
154
Two heavy equipment manufacturers might collude in an effort to do all of
the following except one. Which is the exception?
155
A cartel's marginal cost curve is the
156
A cartel's profitmaximizing quantity occurs where the cartel's
157
A cartel's profitmaximizing price is
158
Collusion occurs when
159
A cartel is
160
Three firms that are successful in colluding to raise their prices must
lose profits
announce any price changes to the government
restrict output
increase advertising to earn a profit
expand production
161
In a cartel,
162
Under which of the following market conditions is it most difficult to
maintain a cartel agreement?
163
If all six suppliers of cement to Metropolis all agree to establishes a price
of $45 per ton, this would be
a legal contract
price discrimination
costplus pricing
a cartel
beneficial to consumers
164
The chances of successful collusion are greatest when
165
If zinc suppliers are successful in forming an international zinc cartel,
they will experience
166
Which of the following helps to make a cartel successful?
167
An oligopoly model that describes formal collusion is the
168
A formal agreement among the firms in an industry to coordinate their
production and pricing decisions in order to earn monopoly profits is
known as
price discrimination
the kinked demand curve
monopolistic competition
a cartel
joint competition
169 Each member of a cartel
170
A cartel is
explicit collusion
a conglomerate merger
a horizontal merger
legal in the United States
implicit collusion
171
Collusion is easier to achieve and maintain in oligopoly when
172
Suppose a firm that sells a variety of athletic shoes is trying to start a
pattern of price leadership in its market. Which of the following is not a
problem this firm might have to face?
174
Which of the following does not hinder successful price leadership?
175
Historically, the U.S. steel industry has been a good example of
monopolistic competition
a cartel
a pure monopoly
the kinked demand curve model of oligopoly
the price leadership model of oligopoly
176
During certain periods in the past few decades, if one of the three major
breakfast cereal producers in the United States announced a price
increase, the other two announced a similar price increase. This is a good
example of
monopolistic competition
a cartel
a pure monopoly
the kinked demand curve model of oligopoly
the price leadership model of oligopoly
177
Costplus pricing
178
Price wars occur more often in monopolistic competition than in other
market structures.
True
False
179
A payoff matrix is a table listing the expected economic profit resulting
from different possible strategies.
True
False
180
In the game theory model of oligopoly,
181
In game theory, if two rivals in an oligopoly can avoid a large loss by
cutting price from $40 to $35,
182
One common assumption in game theory is that firms
183
Game theory is a separate model of oligopoly therefore it is of limited
value when trying to generally understand firm level behavior
True
False
184
Game theory provides us with a general approach to understanding the
behavior of firms when their choices are interdependent
True
False
185
The prisoner's dilemma is applicable only when considering the illegal
behavior that firms in a noncompetitive market may pursue
True
False
186
A player's strategy is a game plan when decisions are interdependent
True
False
187
Because firms in an oligopoly are interdependent, they attempt to
maximize revenues rather than profits
True
False
188
Game theory is most useful in understanding the decision making behavior
of firms in which type of industry?
perfect competition
monopoly
monopolistic competition
natural monopoly
oligopoly
189
Game theory focuses on
190
Game theory is used in a number of areas in economics. What is the
primary reason that it is used in analyzing oligopoly type market
structures?
191
Game theory is the study of which of the following?
192
The solution of a game is dependent upon
193
Which of the following is likely to occur when it is known that a two
person game is to be played only once?
Collusion
The demand curve becomes perfectly inelastic for
this time period
The prisoner's dilemma
The pursuit of profit maximization for the entire
industry
An attempt to equate marginal revenue with
marginal cost
194
A prisoner's dilemma is a situation in which
195
Which of the following is likely to occur when a twoperson game can be
played repeatedly?
196
A prisoner's dilemma can be described as a situation in which
197
The principal advantage of the game theory approach is that it allows us to
198
The advantage of game theory is that it allows us to focus on the
199
The term strategy in terms of game theory refers to
200
The payoff matrix refers to
201
The solution in the prisoner's dilemma is called the
203
The prisoner's dilemma provides an explanation for
204
The titfortat strategy implies that the firms
205
Which oligopoly model was developed to explain price wars in an
industry?
natural oligopolies
cartels
price leadership by a dominant firm
game theory
costplus theory
206
In a game that can be repeated, the optimal solution is
207
Firms with market power offer a differentiated product in order to
208
When using game theory to analyze oligopoly, firms will always have a
dominant strategy.
True
False
209
Zara is the largest fashion retailer in Europe. Which of the following
would not a barrier to entry that protects Zara's market power?
210
A unique feature of oligopoly markets is
market power
mutual interdependence
barriers to entry
product heterogeneity
pricing power
211
A group of firms that agree to coordinate their production and pricing
decisions to reap monopoly profit is called an oligopoly.
True
False
212 As a real estate agent, Krista Otavi prides herself on her good training,
availability to clients, and hard work to make a sale. Which one of the
basic ways of product differentiation does Krista emphasize?
services
product image
location
commission rate
physical differences
213
The retail market for video rentals is a monopolistically competitive
market. A greater supply of video rental outlets along with the increased
availability of substitutes like cable channels would likely make rental
rates
decrease slightly
remain unchanged
crash
fluctuate wildly up and down
increase
214
Which of the following is not a threat to bricksandmortar video rental
stores?
215
In regards to monopolistic competition, some economists argue that
consumers are willing to pay a higher price in order to enjoy a wider
selection of goods and services.
True
False
216
If the leading canned soup company introduces dozens of new flavors in
order to dominate shelf space, the company is most likely trying to create
a barrier to entry by
identical
unequal
negative
equal to the firm's average total cost
maximized
218
Consensus becomes easier to achieve as the number of firms in a cartel
grows
True
False
219
In the prisoner's dilemma game, the sentence that each player receives
depends on
220
In a coordination game, a Nash equilibrium occurs when
221
If oligopolists engaged in some sort of collusion, industry output would be
__________ and the price would be __________ than under perfect
competition.
smaller, lower
smaller, higher
smaller, no different
greater, lower
greater, higher
222 Exhibit 1015
Exhibit 1015 depicts the payoff matrix facing Eagle Tobacco and Dan'l
Boone Tobacco with respect to their decisions to advertise or not. What
strategies will maximize their joint profit?
223
Exhibit 1015
Exhibit 1015 depicts the payoff matrix facing Eagle Tobacco and Dan'l
Boone Tobacco with respect to their decisions to advertise or not. What
strategies will most likely result?
Exhibit 1015 depicts the payoff matrix facing Eagle Tobacco and Dan'l
Boone Tobacco with respect to their decisions to advertise or not. Eagle
Tobacco has a dominant strategy.
True
False
225
Exhibit 1015
Exhibit 1015 depicts the payoff matrix facing Eagle Tobacco and Dan'l
Boone Tobacco with respect to their decisions to advertise or not. Eagle
Tobacco's dominant strategy is not to advertise.
True
False
226
Exhibit 1015
Exhibit 1015 depicts the payoff matrix facing Eagle Tobacco and Dan'l
Boone Tobacco with respect to their decisions to advertise or not. Eagle
Tobacco and Dan'l Boone Tobacco have the same dominant strategy.
True
False