Question 1

Historically, the U.S.steel industry has been a good example of

Accepted Answer

A) monopolistic competition 
B) a cartel 
C) a pure monopoly 
D) the kinked demand curve model of oligopoly 
E) the price leadership model of oligopoly 
A) monopolistic competition 
B) a cartel 
C) a pure monopoly 
D) the kinked demand curve model of oligopoly 
E) the price leadership model of oligopoly

Question 2

The term strategy in terms of game theory refers to

Accepted Answer

A) the relationship between price and marginal cost 
B) the relationship between individual firm demand curves and the market demand curve 
C) each firm's game plan in making decisions 
D) the interrelationship between price and marginal revenue 
E) the tendency for collusive firms to generate normal profits 
A) the relationship between price and marginal cost 
B) the relationship between individual firm demand curves and the market demand curve 
C) each firm's game plan in making decisions 
D) the interrelationship between price and marginal revenue 
E) the tendency for collusive firms to generate normal profits

Question 3

Collusion and cartels are frequently legal in Europe.

Accepted Answer

A) True 
 B)False

Question 4

Firms may easily enter a monopolistically competitive market.

Accepted Answer

A) True 
 B)False

Question 5

For firms in an oligopoly to be interdependent,

Accepted Answer

A) goods must be undifferentiated 
B) goods must be differentiated 
C) firms must be small 
D) barriers to entry must be minimal 
E) goods can be either undifferentiated or differentiated 
A) goods must be undifferentiated 
B) goods must be differentiated 
C) firms must be small 
D) barriers to entry must be minimal 
E) goods can be either undifferentiated or differentiated

Question 6

In the game theory model of oligopoly,

Accepted Answer

A) firms will be successful in colluding to raise prices 
B) one firm raises its prices, and other firms follow suit 
C) firms will match other firms' price cuts but not their price increases 
D) firms may attempt to avoid the worst outcome but may achieve a less-than-optimal outcome 
E) firms never avoid the worst outcome 
A) firms will be successful in colluding to raise prices 
B) one firm raises its prices, and other firms follow suit 
C) firms will match other firms' price cuts but not their price increases 
D) firms may attempt to avoid the worst outcome but may achieve a less-than-optimal outcome 
E) firms never avoid the worst outcome

Question 7

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?

Accepted Answer

A) Economic profit is zero. 
B) A normal profit exists. 
C) Marginal cost must exceed marginal revenue. 
D) Acme has excess capacity. 
E) Firms have no incentive to enter or leave this industry. 
A) Economic profit is zero. 
B) A normal profit exists. 
C) Marginal cost must exceed marginal revenue. 
D) Acme has excess capacity. 
E) Firms have no incentive to enter or leave this industry.

Question 8

Exhibit 10-1   In Exhibit 10-1, the monopolistic competitor's total economic profit at the profit-maximizing level of output is

Accepted Answer

A) $0 
B) $4 
C) $600 
D) $6 
E) $750 
A) $0 
B) $4 
C) $600 
D) $6 
E) $750

Question 9

Exhibit 10-7   At the profit-maximizing output level, the firm in Exhibit 10-7 is

Accepted Answer

A) earning economic profit of $760 
B) earning economic profit of $950 
C) earning zero economic profit 
D) earning economic profit of $990 
E) suffering a loss of $1, 000 
A) earning economic profit of $760 
B) earning economic profit of $950 
C) earning zero economic profit 
D) earning economic profit of $990 
E) suffering a loss of $1, 000

Question 10

Collusion is most likely to occur in those oligopolies in which firms have vastly different cost structures.

Accepted Answer

A) True 
 B)False

Question 11

Three firms that are successful in colluding to raise their prices must

Accepted Answer

A) lose profits 
B) announce any price changes to the government 
C) restrict output 
D) increase advertising to earn a profit 
E) expand production 
A) lose profits 
B) announce any price changes to the government 
C) restrict output 
D) increase advertising to earn a profit 
E) expand production

Question 12

Which of the following is true of the relationship between price and marginal cost under monopolistic competition?

Accepted Answer

A) P = MC at all levels of output B) P = MC only at the profit-maximizing quantity C) P > MC at the profit-maximizing quantity D) P < MC at the profit-maximizing quantity E) P < MC at the quantities below the profit-maximizing quantity A) P = MC at all levels of output B) P = MC only at the profit-maximizing quantity C) P > MC at the profit-maximizing quantity D) P < MC at the profit-maximizing quantity E) P < MC at the quantities below the profit-maximizing quantity

Question 13

What do monopolistic competition, pure monopoly, and perfect competition have in common?

Accepted Answer

A) free entry 
B) long-run economic profits 
C) differentiated product 
D) price taking 
E) the rule of profit maximization 
A) free entry 
B) long-run economic profits 
C) differentiated product 
D) price taking 
E) the rule of profit maximization

Question 14

A cartel's marginal cost curve is the

Accepted Answer

A) highest of all the individual firms' marginal cost curves 
B) lowest of all the individual firms' marginal cost curves 
C) horizontal sum of all the individual firms' marginal cost curves 
D) average of all the individual firms' marginal cost curves 
E) product of all the individual firms' marginal cost curves 
A) highest of all the individual firms' marginal cost curves 
B) lowest of all the individual firms' marginal cost curves 
C) horizontal sum of all the individual firms' marginal cost curves 
D) average of all the individual firms' marginal cost curves 
E) product of all the individual firms' marginal cost curves

Question 15

Exhibit 10-18   In Exhibit 10-18, the monopolistic competitor will

Accepted Answer

A) lose $10 
B) lose $15 
C) break even 
D) earn $25 profit 
E) earn $30 profit 
A) lose $10 
B) lose $15 
C) break even 
D) earn $25 profit 
E) earn $30 profit

Question 16

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?

Accepted Answer

A) Rivals recognize the intent of its actions. 
B) Other firms may not necessarily follow the leader. 
C) Other firms may not follow the leader but offer better service instead. 
D) Differentiation among products allows for more variation in price. 
E) The price leader must keep costs lower than other firms'. 
A) Rivals recognize the intent of its actions. 
B) Other firms may not necessarily follow the leader. 
C) Other firms may not follow the leader but offer better service instead. 
D) Differentiation among products allows for more variation in price. 
E) The price leader must keep costs lower than other firms'.

Question 17

Monopolistically competitive firms

Accepted Answer

A) are guaranteed to earn short-run economic profit 
B) may earn short-run economic profits, although long-run economic profit is typically zero 
C) may earn economic profit both in the short run and in the long run 
D) earn zero economic profit both in the short run and in the long run 
E) can only earn an economic profit in the inelastic portion of their demand curves 
A) are guaranteed to earn short-run economic profit 
B) may earn short-run economic profits, although long-run economic profit is typically zero 
C) may earn economic profit both in the short run and in the long run 
D) earn zero economic profit both in the short run and in the long run 
E) can only earn an economic profit in the inelastic portion of their demand curves

Question 18

When firms in an industry produce differentiated products,

Accepted Answer

A) long-run economic profit will always be zero 
B) short-run economic profit will always be positive 
C) the demand curves facing firms will always be perfectly elastic 
D) the demand curves facing firms will always be downward-sloping 
E) new firms will always have an incentive to enter the industry in the long run 
A) long-run economic profit will always be zero 
B) short-run economic profit will always be positive 
C) the demand curves facing firms will always be perfectly elastic 
D) the demand curves facing firms will always be downward-sloping 
E) new firms will always have an incentive to enter the industry in the long run

Question 19

Because of easy entry, monopolistically competitive firms will

Accepted Answer

A) produce at the lowest average total cost 
B) charge a price equal to marginal cost 
C) earn no economic profit in the long run 
D) take advantage of all economies of scale 
E) earn no economic profit in the short run 
A) produce at the lowest average total cost 
B) charge a price equal to marginal cost 
C) earn no economic profit in the long run 
D) take advantage of all economies of scale 
E) earn no economic profit in the short run

Question 20

Exhibit 10-14   Which of the curves shown in Exhibit 10-14 best represents the long-run average cost curve for an oligopolist?

Accepted Answer

A) Curve a 
B) Curve b 
C) Curve c 
D) Curve d 
E) Curve e 
A) Curve a 
B) Curve b 
C) Curve c 
D) Curve d 
E) Curve e

Exam 10: Monopolistic Competition and Oligopoly

Historically, the U.S.steel industry has been a good example of

The term strategy in terms of game theory refers to

Collusion and cartels are frequently legal in Europe.

Firms may easily enter a monopolistically competitive market.

For firms in an oligopoly to be interdependent,

In the game theory model of oligopoly,

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?

Exhibit 10-1 In Exhibit 10-1, the monopolistic competitor's total economic profit at the profit-maximizing level of output is

Exhibit 10-7 At the profit-maximizing output level, the firm in Exhibit 10-7 is

Collusion is most likely to occur in those oligopolies in which firms have vastly different cost structures.

Three firms that are successful in colluding to raise their prices must

Which of the following is true of the relationship between price and marginal cost under monopolistic competition?

What do monopolistic competition, pure monopoly, and perfect competition have in common?

A cartel's marginal cost curve is the

Exhibit 10-18 In Exhibit 10-18, the monopolistic competitor will

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?

Monopolistically competitive firms

When firms in an industry produce differentiated products,

Because of easy entry, monopolistically competitive firms will

Exhibit 10-14 Which of the curves shown in Exhibit 10-14 best represents the long-run average cost curve for an oligopolist?

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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