Question 1

A monopolistically competitive firm produces where demand is inelastic.

Accepted Answer

A) True 
 B)False

Question 2

Fixed costs in the video rental industry are

Accepted Answer

A) high because of the extensive advertising in that industry 
B) high because of economies of scale 
C) low because of economies of scale 
D) higher in the long run than in the short run 
E) low 
A) high because of the extensive advertising in that industry 
B) high because of economies of scale 
C) low because of economies of scale 
D) higher in the long run than in the short run 
E) low

Question 3

One difference between perfect competition and monopolistic competition is that

Accepted Answer

A) in perfect competition, firms cannot earn a long-run economic profit 
B) in perfect competition, firms take full advantage of economies of scale in long-run equilibrium; in monopolistic competition, firms do not 
C) only under perfect competition is there ease of entry and exit 
D) in monopolistic competition, the firm's demand curve is horizontal; in perfect competition, the firm's demand curve slopes downward 
E) in perfect competition, there are many firms; under monopolistic competition, there are few firms 
A) in perfect competition, firms cannot earn a long-run economic profit 
B) in perfect competition, firms take full advantage of economies of scale in long-run equilibrium; in monopolistic competition, firms do not 
C) only under perfect competition is there ease of entry and exit 
D) in monopolistic competition, the firm's demand curve is horizontal; in perfect competition, the firm's demand curve slopes downward 
E) in perfect competition, there are many firms; under monopolistic competition, there are few firms

Question 4

The tit-for-tat strategy implies that the firms

Accepted Answer

A) in non-competitive industries match price increases but ignore price decreases 
B) will follow the lead of the dominant firm in making pricing decisions 
C) prices will change whenever fixed cost changes 
D) cooperate on the first round, and then follow your competitors reactions on the second round 
E) price will only change if demand changes 
A) in non-competitive industries match price increases but ignore price decreases 
B) will follow the lead of the dominant firm in making pricing decisions 
C) prices will change whenever fixed cost changes 
D) cooperate on the first round, and then follow your competitors reactions on the second round 
E) price will only change if demand changes

Question 5

Interdependent decision making on price, quality, or advertising is characteristic of

Accepted Answer

A) perfect competition 
B) monopolies 
C) oligopolies 
D) monopolistic competition 
E) both oligopolies and monopolistic competition 
A) perfect competition 
B) monopolies 
C) oligopolies 
D) monopolistic competition 
E) both oligopolies and monopolistic competition

Question 6

Exhibit 10-11   Assume that the firm in Exhibit 10-11 maximizes profit.Its total revenue is

Accepted Answer

A) $5, 200 
B) $4, 000 
C) $3, 600 
D) $5, 600 
E) $3, 200 
A) $5, 200 
B) $4, 000 
C) $3, 600 
D) $5, 600 
E) $3, 200

Question 7

Because firms in an oligopoly are interdependent, they attempt to maximize revenues rather than profits

Accepted Answer

A) True 
 B)False

Question 8

In the long run, the output of a monopolistically competitive firm

Accepted Answer

A) exceeds that of an otherwise similar perfectly competitive firm 
B) is less than that of an otherwise similar perfectly competitive firm 
C) is at the point at which LRAC is minimized 
D) equals that of an otherwise similar perfectly competitive firm 
E) is less than that of an otherwise similar monopolist 
A) exceeds that of an otherwise similar perfectly competitive firm 
B) is less than that of an otherwise similar perfectly competitive firm 
C) is at the point at which LRAC is minimized 
D) equals that of an otherwise similar perfectly competitive firm 
E) is less than that of an otherwise similar monopolist

Question 9

In economics, products are considered "differentiated" only if

Accepted Answer

A) they are physically or chemically different 
B) sellers decide that they are different 
C) buyers think that they are different 
D) the government determines that they are different 
E) they are produced by different firms 
A) they are physically or chemically different 
B) sellers decide that they are different 
C) buyers think that they are different 
D) the government determines that they are different 
E) they are produced by different firms

Question 10

Game theory provides us with a general approach to understanding the behavior of firms when their choices are interdependent

Accepted Answer

A) True 
 B)False

Question 11

A rise in demand for restaurant meals is likely to cause which of the following in the short run?

Accepted Answer

A) economic losses for each restaurant 
B) a lower price for each restaurant meal 
C) fewer restaurants in the industry 
D) more restaurants in the industry 
E) economic profit for restaurants 
A) economic losses for each restaurant 
B) a lower price for each restaurant meal 
C) fewer restaurants in the industry 
D) more restaurants in the industry 
E) economic profit for restaurants

Question 12

If the firms in a monopolistically competitive industry are earning short-run profit, which of the following is not likely to occur in the long run?

Accepted Answer

A) New firms will enter the industry. 
B) New firms in the industry will draw customers away from existing firms. 
C) Existing firms in the industry will face a decrease in demand. 
D) Firms will continue to earn profit. 
E) Firms will produce with some excess capacity. 
A) New firms will enter the industry. 
B) New firms in the industry will draw customers away from existing firms. 
C) Existing firms in the industry will face a decrease in demand. 
D) Firms will continue to earn profit. 
E) Firms will produce with some excess capacity.

Question 13

The chances of successful collusion are greatest when

Accepted Answer

A) firms are producing a differentiated product 
B) there are many firms in the industry 
C) there are tiny firms and huge firms together in the same industry 
D) demand curves and cost curves are similar among the firms in the industry 
E) demand is falling 
A) firms are producing a differentiated product 
B) there are many firms in the industry 
C) there are tiny firms and huge firms together in the same industry 
D) demand curves and cost curves are similar among the firms in the industry 
E) demand is falling

Question 14

It is harder to explain the behavior of firms in oligopoly than in other market structures because in oligopoly

Accepted Answer

A) the firms act independently of each other 
B) firms base their decisions on what their rivals do 
C) only differentiated products are produced 
D) only homogeneous products are produced 
E) the demand curve can slope upward 
A) the firms act independently of each other 
B) firms base their decisions on what their rivals do 
C) only differentiated products are produced 
D) only homogeneous products are produced 
E) the demand curve can slope upward

Question 15

Collusion is easier to achieve and maintain in oligopoly when

Accepted Answer

A) there are many firms in the industry 
B) the firms' products are homogeneous 
C) the firms' cost structures are very different 
D) there are very weak barriers to entry 
E) the industry is located in the United States 
A) there are many firms in the industry 
B) the firms' products are homogeneous 
C) the firms' cost structures are very different 
D) there are very weak barriers to entry 
E) the industry is located in the United States

Question 16

Game theory is most useful in understanding the decision making behavior of firms in which type of industry?

Accepted Answer

A) perfect competition 
B) monopoly 
C) monopolistic competition 
D) natural monopoly 
E) oligopoly 
A) perfect competition 
B) monopoly 
C) monopolistic competition 
D) natural monopoly 
E) oligopoly

Question 17

If a cartel can earn a profit, it will increase production as long as

Accepted Answer

A) MR > MC 
B) MR > ATC 
C) MC > MR 
D) MR  AVC 
A) MR > MC 
B) MR > ATC 
C) MC > MR 
D) MR  AVC

Question 18

If a monopolistically competitive firm is in long-run equilibrium and average cost equals $150, then the market price must be $150.

Accepted Answer

A) True 
 B)False

Question 19

Economies of scale yield

Accepted Answer

A) declining average cost as output increases 
B) declining marginal cost as output increases 
C) declining total cost as output increases 
D) diminishing average returns as output increases 
E) increasing marginal revenue as output increases 
A) declining average cost as output increases 
B) declining marginal cost as output increases 
C) declining total cost as output increases 
D) diminishing average returns as output increases 
E) increasing marginal revenue as output increases

Question 20

Exhibit 10-7   In the long run, the firm in Exhibit 10-7 can expect

Accepted Answer

A) to earn an economic profit of $760 
B) earn an economic profit of $950 
C) earn zero economic profit 
D) earn an economic profit of $990 
E) suffer a loss of $1, 000 
A) to earn an economic profit of $760 
B) earn an economic profit of $950 
C) earn zero economic profit 
D) earn an economic profit of $990 
E) suffer a loss of $1, 000

Exam 10: Monopolistic Competition and Oligopoly

A monopolistically competitive firm produces where demand is inelastic.

Fixed costs in the video rental industry are

One difference between perfect competition and monopolistic competition is that

The tit-for-tat strategy implies that the firms

Interdependent decision making on price, quality, or advertising is characteristic of

Exhibit 10-11 Assume that the firm in Exhibit 10-11 maximizes profit.Its total revenue is

Because firms in an oligopoly are interdependent, they attempt to maximize revenues rather than profits

In the long run, the output of a monopolistically competitive firm

In economics, products are considered "differentiated" only if

Game theory provides us with a general approach to understanding the behavior of firms when their choices are interdependent

A rise in demand for restaurant meals is likely to cause which of the following in the short run?

If the firms in a monopolistically competitive industry are earning short-run profit, which of the following is not likely to occur in the long run?

The chances of successful collusion are greatest when

It is harder to explain the behavior of firms in oligopoly than in other market structures because in oligopoly

Collusion is easier to achieve and maintain in oligopoly when

Game theory is most useful in understanding the decision making behavior of firms in which type of industry?

If a cartel can earn a profit, it will increase production as long as

If a monopolistically competitive firm is in long-run equilibrium and average cost equals $150, then the market price must be $150.

Economies of scale yield

Exhibit 10-7 In the long run, the firm in Exhibit 10-7 can expect

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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