Question 1

Which of the following characteristics does perfect competition have in common with monopolistic competition?

Accepted Answer

A) price-taking firms 
B) homogeneous products 
C) no barriers to entry 
D) horizontal demand curve 
E) neither market advertises 
A) price-taking firms 
B) homogeneous products 
C) no barriers to entry 
D) horizontal demand curve 
E) neither market advertises

Question 2

A cartel's profit-maximizing quantity occurs where the cartel's

Accepted Answer

A) marginal cost equals marginal revenue 
B) marginal cost equals demand 
C) price is highest 
D) cost is lowest 
E) demand curve has a kink 
A) marginal cost equals marginal revenue 
B) marginal cost equals demand 
C) price is highest 
D) cost is lowest 
E) demand curve has a kink

Question 3

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?

Accepted Answer

A) The firms are producing a similar product 
B) The firms are producing differentiated products 
C) The demand curve facing the oligopolistic firms is perfectly inelastic 
D) The mutual interdependence of firms in industries with a small number of firms 
E) The demand curve the oligopolistic firm faces is downward sloping 
A) The firms are producing a similar product 
B) The firms are producing differentiated products 
C) The demand curve facing the oligopolistic firms is perfectly inelastic 
D) The mutual interdependence of firms in industries with a small number of firms 
E) The demand curve the oligopolistic firm faces is downward sloping

Question 4

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.

Accepted Answer

A) increase, increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
E) increase; not change 
A) increase, increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
E) increase; not change

Question 5

Exhibit 10-15   Exhibit 10-15 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?

Accepted Answer

A) Eagle advertise and Dan'l Boone doesn't 
B) both advertise 
C) Eagle doesn't advertise and Dan'l Boone does 
D) neither advertises 
E) can't tell 
A) Eagle advertise and Dan'l Boone doesn't 
B) both advertise 
C) Eagle doesn't advertise and Dan'l Boone does 
D) neither advertises 
E) can't tell

Question 6

When there are barriers to entry, a profit-maximizing firm already in the industry can charge any price it wants, even in the long run.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) increase, increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
E) increase; not change 
A) increase, increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
E) increase; not change

Question 8

Collusion among firms to raise price is rare in monopolistically competitive markets because

Accepted Answer

A) there are too many firms 
B) there are too few firms 
C) there is only one firm 
D) products are homogeneous 
E) price leadership is used instead 
A) there are too many firms 
B) there are too few firms 
C) there is only one firm 
D) products are homogeneous 
E) price leadership is used instead

Question 9

A permanent decrease in demand for convenience store services is likely to cause which of the following in the long run?

Accepted Answer

A) an economic loss for each firm 
B) a higher price for each firm's output 
C) fewer firms in the industry 
D) more firms in the industry 
E) economic profit for each firm 
A) an economic loss for each firm 
B) a higher price for each firm's output 
C) fewer firms in the industry 
D) more firms in the industry 
E) economic profit for each firm

Question 10

In which of the following market structures is a firm most likely to advertise extensively and fear entry of new firms?

Accepted Answer

A) perfect competition 
B) pure monopoly 
C) monopolistic competition 
D) oligopoly 
E) both perfect competition and monopolistic competition 
A) perfect competition 
B) pure monopoly 
C) monopolistic competition 
D) oligopoly 
E) both perfect competition and monopolistic competition

Question 11

Exhibit 10-18   In Exhibit 10-18, the monopolistic competitor's profit-maximizing price is

Accepted Answer

A) $10 
B) $15 
C) $20 
D) $25 
E) $30 
A) $10 
B) $15 
C) $20 
D) $25 
E) $30

Question 12

All of the following are examples of product differentiation except one.Which is the exception?

Accepted Answer

A) developing a new video game or a computer program called "How to Teach Your New Dog Old Tricks" 
B) manufacturing a car that minimizes outside noise relative to other cars 
C) lowering the price of a good in a special sale 
D) providing movies and special meals on airline flights 
E) making sodium-free, caffeine-free colas 
A) developing a new video game or a computer program called "How to Teach Your New Dog Old Tricks" 
B) manufacturing a car that minimizes outside noise relative to other cars 
C) lowering the price of a good in a special sale 
D) providing movies and special meals on airline flights 
E) making sodium-free, caffeine-free colas

Question 13

In game theory, if two rivals in an oligopoly can avoid a large loss by cutting price from $40 to $35,

Accepted Answer

A) neither will cut its price 
B) one will charge $40 and the other will charge $35 
C) their actions will depend on their respective strategies 
D) each will cut price but not all the way to $35 
E) they will collude to do what's best for both of them 
A) neither will cut its price 
B) one will charge $40 and the other will charge $35 
C) their actions will depend on their respective strategies 
D) each will cut price but not all the way to $35 
E) they will collude to do what's best for both of them

Question 14

Each member of a cartel

Accepted Answer

A) faces a temptation to cheat on the agreement because lowering its price slightly below the established price will usually increase the firm's sales and profit 
B) faces a temptation to cheat on the agreement because raising its price slightly above the established price will usually increase the firm's sales and profit 
C) has no temptation to cheat on the agreement because lowering its price slightly below the established price will usually have no impact on the firm's sales and profit 
D) has no temptation to cheat on the agreement because raising its price slightly above the established price will usually decrease the firm's sales and profit 
E) has no temptation to cheat on the agreement because lowering its price slightly below the established price will usually lower the firm's sales and profit 
A) faces a temptation to cheat on the agreement because lowering its price slightly below the established price will usually increase the firm's sales and profit 
B) faces a temptation to cheat on the agreement because raising its price slightly above the established price will usually increase the firm's sales and profit 
C) has no temptation to cheat on the agreement because lowering its price slightly below the established price will usually have no impact on the firm's sales and profit 
D) has no temptation to cheat on the agreement because raising its price slightly above the established price will usually decrease the firm's sales and profit 
E) has no temptation to cheat on the agreement because lowering its price slightly below the established price will usually lower the firm's sales and profit

Question 15

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

Accepted Answer

A) change neither its price nor its output level 
B) reduce its price and increase its output level 
C) increase its price and reduce its output level 
D) reduce both its price and its output level 
E) increase both its price and its output level 
A) change neither its price nor its output level 
B) reduce its price and increase its output level 
C) increase its price and reduce its output level 
D) reduce both its price and its output level 
E) increase both its price and its output level

Question 16

Game theory is a separate model of oligopoly therefore it is of limited value when trying to generally understand firm level behavior

Accepted Answer

A) True 
 B)False

Question 17

Exhibit 10-15
   Exhibit 10-15 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.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not considered a barrier to entry?

Accepted Answer

A) economies of scale 
B) patents 
C) control of a scarce resource 
D) licensing 
E) perfect price discrimination 
A) economies of scale 
B) patents 
C) control of a scarce resource 
D) licensing 
E) perfect price discrimination

Question 19

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

Accepted Answer

A) 75 units 
B) 100 units 
C) 125 units 
D) 150 units 
E) 137.5 units 
A) 75 units 
B) 100 units 
C) 125 units 
D) 150 units 
E) 137.5 units

Question 20

A brand name may contribute to oligopolists' economic profit by

Accepted Answer

A) shifting the demand curve leftward 
B) shifting the supply curve leftward 
C) overcoming economies of scale 
D) acting as a barrier to entry 
E) reducing advertising costs 
A) shifting the demand curve leftward 
B) shifting the supply curve leftward 
C) overcoming economies of scale 
D) acting as a barrier to entry 
E) reducing advertising costs

Exam 10: Monopolistic Competition and Oligopoly

Which of the following characteristics does perfect competition have in common with monopolistic competition?

A cartel's profit-maximizing quantity occurs where the cartel's

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?

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.

Exhibit 10-15 Exhibit 10-15 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?

When there are barriers to entry, a profit-maximizing firm already in the industry can charge any price it wants, even in the long run.

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.

Collusion among firms to raise price is rare in monopolistically competitive markets because

A permanent decrease in demand for convenience store services is likely to cause which of the following in the long run?

In which of the following market structures is a firm most likely to advertise extensively and fear entry of new firms?

Exhibit 10-18 In Exhibit 10-18, the monopolistic competitor's profit-maximizing price is

All of the following are examples of product differentiation except one.Which is the exception?

In game theory, if two rivals in an oligopoly can avoid a large loss by cutting price from $40 to $35,

Each member of a cartel

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

Game theory is a separate model of oligopoly therefore it is of limited value when trying to generally understand firm level behavior

Exhibit 10-15 Exhibit 10-15 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.

Which of the following is not considered a barrier to entry?

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

A brand name may contribute to oligopolists' economic profit by

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

Filters

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.

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.