Question 1

A monopolistically competitive firm is said to produce with excess costs in the long run because

Accepted Answer

A) the average fixed cost of production is greater than the minimum average fixed cost. 
B) the firm will incur a loss and therefore needs to bring down costs. 
C) the average total cost of production is greater than the minimum average total cost. 
D) price is greater than marginal revenue. 
E) there are too many firms in the market. 
A) the average fixed cost of production is greater than the minimum average fixed cost. 
B) the firm will incur a loss and therefore needs to bring down costs. 
C) the average total cost of production is greater than the minimum average total cost. 
D) price is greater than marginal revenue. 
E) there are too many firms in the market.

Question 2

Exhibit 11-5  
-Reputation and cooperation are more difficult to achieve when

Accepted Answer

A) firms find it difficult to observe the behavior of other firms. 
B) a game is repeated. 
C) there are only two firms as opposed to three or more firms. 
D) firms can easily observe what other firms are doing. 
E) firms act out of their own self-interest. 
A) firms find it difficult to observe the behavior of other firms. 
B) a game is repeated. 
C) there are only two firms as opposed to three or more firms. 
D) firms can easily observe what other firms are doing. 
E) firms act out of their own self-interest.

Question 3

A cartel is needed when no explicit communication between firms is made to coordinate pricing decisions.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is the least likely example of a monopolistically competitive firm?

Accepted Answer

A) A barbershop 
B) A restaurant 
C) An electric company 
D) A brewer 
E) A clothing store 
A) A barbershop 
B) A restaurant 
C) An electric company 
D) A brewer 
E) A clothing store

Question 5

Exhibit 11-6  
-Refer to Exhibit 11-6. How much more combined profit will the two firms earn if they cooperate versus a scenario in which one prices competitively and the other prices like a monopoly?

Accepted Answer

$10,000
Profit with both monopoly-pricin

Question 6

Exhibit 11-3  
-Which of the following describes an industry in which there are a few interdependent firms?

Accepted Answer

A) Monopoly 
B) Monopolistic competition 
C) Oligopoly 
D) Perfect competition 
E) A regulated industry 
A) Monopoly 
B) Monopolistic competition 
C) Oligopoly 
D) Perfect competition 
E) A regulated industry

Question 7

The theory of monopolistic competition implies that although product variety is desirable, it has its costs.

Accepted Answer

A) True 
 B)False

Question 8

Product differentiation occurs only among homogeneous products.

Accepted Answer

A) True 
 B)False

Question 9

One way in which oligopoly differs from monopolistic competition is that an oligopoly operates in an industry that

Accepted Answer

A) makes no profits. 
B) incurs losses. 
C) has fewer sellers. 
D) has more sellers. 
E) incurs higher costs. 
A) makes no profits. 
B) incurs losses. 
C) has fewer sellers. 
D) has more sellers. 
E) incurs higher costs.

Question 10

Product differentiation is important only for final consumer goods.

Accepted Answer

A) True 
 B)False

Question 11

Product differentiation is most important to

Accepted Answer

A) monopolistic competition. 
B) perfect competition. 
C) monopoly. 
D) a regulated industry. 
E) government enterprises. 
A) monopolistic competition. 
B) perfect competition. 
C) monopoly. 
D) a regulated industry. 
E) government enterprises.

Question 12

Exhibit 11-1  
-Refer to Exhibit 11-1. The profit-maximizing output is ____ units.

Accepted Answer

A) 15 
B) 10 
C) 40 
D) 45 
E) 30 
A) 15 
B) 10 
C) 40 
D) 45 
E) 30

Question 13

Which of the following conditions tends to induce collusion among producers in an industry?

Accepted Answer

A) Transactions are publicly announced. 
B) There are a lot of firms. 
C) Some firms have lower costs than other firms. 
D) The market is open for a long period of time. 
E) Firms cannot meet one another. 
A) Transactions are publicly announced. 
B) There are a lot of firms. 
C) Some firms have lower costs than other firms. 
D) The market is open for a long period of time. 
E) Firms cannot meet one another.

Question 14

In an oligopoly, there is limited entry.

Accepted Answer

A) True 
 B)False

Question 15

The term that best describes the behavior in which each firm needs to anticipate what other firms will do and develop a strategy to respond is called

Accepted Answer

A) extrapolating. 
B) strategic behavior. 
C) rationalizing. 
D) monopolizing. 
E) perfect competition. 
A) extrapolating. 
B) strategic behavior. 
C) rationalizing. 
D) monopolizing. 
E) perfect competition.

Question 16

With monopolistic competition, market demand is

Accepted Answer

A) constantly changing. 
B) horizontal. 
C) the same as firm demand. 
D) nonexistent. 
E) like any other market demand. 
A) constantly changing. 
B) horizontal. 
C) the same as firm demand. 
D) nonexistent. 
E) like any other market demand.

Question 17

In oligopoly, the number of firms is such that

Accepted Answer

A) oligopoly typically results in competition. 
B) oligopoly is essentially the same as monopoly. 
C) most are quickly eliminated and a monopoly results. 
D) product differentiation is not possible. 
E) each firm recognizes its own and others' market power. 
A) oligopoly typically results in competition. 
B) oligopoly is essentially the same as monopoly. 
C) most are quickly eliminated and a monopoly results. 
D) product differentiation is not possible. 
E) each firm recognizes its own and others' market power.

Question 18

Product differentiation refers to

Accepted Answer

A) sellers' price differences for the same product. 
B) at least slightly-different products offered by sellers. 
C) quality differences in products under perfect competition. 
D) unique products that have no close substitutes. 
E) firms' unethical practice of deception. 
A) sellers' price differences for the same product. 
B) at least slightly-different products offered by sellers. 
C) quality differences in products under perfect competition. 
D) unique products that have no close substitutes. 
E) firms' unethical practice of deception.

Question 19

In the long run, economic profits in a monopolistically competitive market are zero.

Accepted Answer

A) True 
 B)False

Question 20

Exhibit 11-1  
-Refer to Exhibit 11-1. The firm will maximize profits at the price of

Accepted Answer

A) $60 per unit. 
B) $65 per unit. 
C) $100 per unit. 
D) $75 per unit. 
E) $95 per unit. 
A) $60 per unit. 
B) $65 per unit. 
C) $100 per unit. 
D) $75 per unit. 
E) $95 per unit.

Exam 11: Product Differentiation, Monopolistic Competition, and Oligopoly

A monopolistically competitive firm is said to produce with excess costs in the long run because

Exhibit 11-5 -Reputation and cooperation are more difficult to achieve when

A cartel is needed when no explicit communication between firms is made to coordinate pricing decisions.

Which of the following is the least likely example of a monopolistically competitive firm?

Exhibit 11-6 -Refer to Exhibit 11-6. How much more combined profit will the two firms earn if they cooperate versus a scenario in which one prices competitively and the other prices like a monopoly?

Exhibit 11-3 -Which of the following describes an industry in which there are a few interdependent firms?

The theory of monopolistic competition implies that although product variety is desirable, it has its costs.

Product differentiation occurs only among homogeneous products.

One way in which oligopoly differs from monopolistic competition is that an oligopoly operates in an industry that

Product differentiation is important only for final consumer goods.

Product differentiation is most important to

Exhibit 11-1 -Refer to Exhibit 11-1. The profit-maximizing output is ____ units.

Which of the following conditions tends to induce collusion among producers in an industry?

In an oligopoly, there is limited entry.

The term that best describes the behavior in which each firm needs to anticipate what other firms will do and develop a strategy to respond is called

With monopolistic competition, market demand is

In oligopoly, the number of firms is such that

Product differentiation refers to

In the long run, economic profits in a monopolistically competitive market are zero.

Exhibit 11-1 -Refer to Exhibit 11-1. The firm will maximize profits at the price of

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

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The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

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Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

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Economic Growth Around the World

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