Question 1

Bertrand competition occurs when oligopolists compete with regard to

Accepted Answer

A) prices. 
B) quantities. 
C) both prices and quantities. 
D) neither prices nor quantities. 
E) product differentiation. 
A) prices. 
B) quantities. 
C) both prices and quantities. 
D) neither prices nor quantities. 
E) product differentiation.

Question 2

Exhibit 11-5  
-Refer to Exhibit 11-5, which illustrates the payoff matrix for a duopoly game between firm A and firm B that is played only once. The table indicates that

Accepted Answer

A) both firms would have been worse off than those in the Nash equilibrium if both did not advertise. 
B) both firms would have been better off than those in the Nash equilibrium if both did not advertise. 
C) both firms would have been better off than those in the Nash equilibrium if only one advertised. 
D) the Nash equilibrium contains the best strategies for both firms. 
E) neither firm A nor firm B can take any action. 
A) both firms would have been worse off than those in the Nash equilibrium if both did not advertise. 
B) both firms would have been better off than those in the Nash equilibrium if both did not advertise. 
C) both firms would have been better off than those in the Nash equilibrium if only one advertised. 
D) the Nash equilibrium contains the best strategies for both firms. 
E) neither firm A nor firm B can take any action.

Question 3

In the long run, which of the following most likely results in positive economic profits?

Accepted Answer

A) Competition 
B) Pure competition 
C) Monopoly 
D) Monopolistic competition 
E) A price-taker 
A) Competition 
B) Pure competition 
C) Monopoly 
D) Monopolistic competition 
E) A price-taker

Question 4

Product differentiation can be of value to a firm because

Accepted Answer

A) no other firm will be able to meet the same consumer need. 
B) the product will always be patented. 
C) some consumers with certain tastes will likely buy the product. 
D) money is often spent to develop a differentiated product. 
E) product differentiation lowers product prices for consumers. 
A) no other firm will be able to meet the same consumer need. 
B) the product will always be patented. 
C) some consumers with certain tastes will likely buy the product. 
D) money is often spent to develop a differentiated product. 
E) product differentiation lowers product prices for consumers.

Question 5

Exhibit 11-4  
-Refer to Exhibit 11-4. Which of the following statements is false?

Accepted Answer

A) If combined profits fall, if one firm charges the monopoly price the other will charge the competitive price, if the game is played only once. 
B) The two firms would do best if they charged the price they have the least incentive to charge. 
C) If both firms charge the competitive price, neither makes any economic profit. 
D) If firm A prices at the monopoly price and firm B prices at the competitive price, firm B will make an economic profit of $15,000. 
E) Regardless of which price firm A chooses, the best alternative for firm B is the monopoly price. 
A) If combined profits fall, if one firm charges the monopoly price the other will charge the competitive price, if the game is played only once. 
B) The two firms would do best if they charged the price they have the least incentive to charge. 
C) If both firms charge the competitive price, neither makes any economic profit. 
D) If firm A prices at the monopoly price and firm B prices at the competitive price, firm B will make an economic profit of $15,000. 
E) Regardless of which price firm A chooses, the best alternative for firm B is the monopoly price.

Question 6

In the long run, a monopolistically competitive firm produces with excess capacity because the

Accepted Answer

A) firm is producing too much output to maximize profit. 
B) firm does not produce at the point at which marginal cost is minimized. 
C) long-run output level occurs at the point at which average total cost is falling. 
D) firm could produce more and reduce average fixed cost. 
E) firm fails to minimize average fixed costs. 
A) firm is producing too much output to maximize profit. 
B) firm does not produce at the point at which marginal cost is minimized. 
C) long-run output level occurs at the point at which average total cost is falling. 
D) firm could produce more and reduce average fixed cost. 
E) firm fails to minimize average fixed costs.

Question 7

Interindustry trade occurs mostly because of product differentiation.

Accepted Answer

A) True 
 B)False

Question 8

Advertising can help a monopolistically competitive firm differentiate its products.

Accepted Answer

A) True 
 B)False

Question 9

Exhibit 11-3  
-Refer to Exhibit 11-3. Calculate the total cost when the firm is maximizing profit.

Accepted Answer

$1,800
Profit-maximizing price

Question 10

A cartel most likely occurs in which type of industry?

Accepted Answer

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

Question 11

A firm seeks to differentiate its products from others so as to

Accepted Answer

A) motivate employees by producing a unique product. 
B) maximize profits. 
C) sell more than its competitors. 
D) be proud of its product. 
E) minimize production costs. 
A) motivate employees by producing a unique product. 
B) maximize profits. 
C) sell more than its competitors. 
D) be proud of its product. 
E) minimize production costs.

Question 12

The difference between a repeated game and one that is played only once is that

Accepted Answer

A) fewer firms exist in a one-time game. 
B) more information is available in the repeated game. 
C) firms have different reasons for existing. 
D) the payoffs per period of time are different. 
E) firms act out of their own self-interest only in a one-time game. 
A) fewer firms exist in a one-time game. 
B) more information is available in the repeated game. 
C) firms have different reasons for existing. 
D) the payoffs per period of time are different. 
E) firms act out of their own self-interest only in a one-time game.

Question 13

A Nash equilibrium always leads to the prisoner's dilemma.

Accepted Answer

A) True 
 B)False

Question 14

Because of the large number of firms in a monopolistically competitive market, each firm faces a horizontal demand curve.

Accepted Answer

A) True 
 B)False

Question 15

In the long run, a monopolistically competitive firm charges a price that is

Accepted Answer

A) equal to marginal cost. 
B) less than marginal cost. 
C) greater than the minimum average total cost. 
D) equal to the minimum average total cost. 
E) equal to marginal revenue. 
A) equal to marginal cost. 
B) less than marginal cost. 
C) greater than the minimum average total cost. 
D) equal to the minimum average total cost. 
E) equal to marginal revenue.

Question 16

Exhibit 11-3  
-Refer to Exhibit 11-3. Calculate the economic profit, if any, earned by the firm.

Accepted Answer

$450
Profit-maximizing price i

Question 17

Which of the following statements is true?

Accepted Answer

A) Economists do not know if optimal product differentiation is achieved. 
B) According to the theory of monopolistic competition, the cost of product differentiation is that firms often suffer losses. 
C) Methods to measure the benefits of product differentiation are well developed. 
D) Product differentiation has its costs, but it does not result in any benefit. 
E) Product differentiation is always desirable for consumers. 
A) Economists do not know if optimal product differentiation is achieved. 
B) According to the theory of monopolistic competition, the cost of product differentiation is that firms often suffer losses. 
C) Methods to measure the benefits of product differentiation are well developed. 
D) Product differentiation has its costs, but it does not result in any benefit. 
E) Product differentiation is always desirable for consumers.

Question 18

Collusion is most likely to occur when

Accepted Answer

A) there are many firms in an industry. 
B) firms participate in a market sporadically. 
C) firms compete and interact over a long period of time. 
D) it is difficult to obtain information about other firms. 
E) firms have very little information about each other. 
A) there are many firms in an industry. 
B) firms participate in a market sporadically. 
C) firms compete and interact over a long period of time. 
D) it is difficult to obtain information about other firms. 
E) firms have very little information about each other.

Question 19

Which of the following statements is not true regarding a monopolistically competitive firm in the short run?

Accepted Answer

A) Advertising may enable the firm to charge a higher price than that charged by rival firms. 
B) The firm may be able to earn a normal profit, earn an economic profit, or incur an economic loss. 
C) Entry into the market is fairly easy. 
D) Profits will be maximized at the point at which price equals marginal cost. 
E) It faces a negatively-sloped demand curve. 
A) Advertising may enable the firm to charge a higher price than that charged by rival firms. 
B) The firm may be able to earn a normal profit, earn an economic profit, or incur an economic loss. 
C) Entry into the market is fairly easy. 
D) Profits will be maximized at the point at which price equals marginal cost. 
E) It faces a negatively-sloped demand curve.

Question 20

The reason both prisoners confess in the prisoner's dilemma game is that

Accepted Answer

A) the option of both confessing yields the most desirable result for the prisoners. 
B) criminals are not intelligent enough to know their best interests. 
C) they each serve the least amount of time if they confess. 
D) confession is the best option given either choice of the other prisoner. 
E) decisions in real life are based on society's best interests. 
A) the option of both confessing yields the most desirable result for the prisoners. 
B) criminals are not intelligent enough to know their best interests. 
C) they each serve the least amount of time if they confess. 
D) confession is the best option given either choice of the other prisoner. 
E) decisions in real life are based on society's best interests.

Exam 11: Product Differentiation, Monopolistic Competition, and Oligopoly

Bertrand competition occurs when oligopolists compete with regard to

Exhibit 11-5 -Refer to Exhibit 11-5, which illustrates the payoff matrix for a duopoly game between firm A and firm B that is played only once. The table indicates that

In the long run, which of the following most likely results in positive economic profits?

Product differentiation can be of value to a firm because

Exhibit 11-4 -Refer to Exhibit 11-4. Which of the following statements is false?

In the long run, a monopolistically competitive firm produces with excess capacity because the

Interindustry trade occurs mostly because of product differentiation.

Advertising can help a monopolistically competitive firm differentiate its products.

Exhibit 11-3 -Refer to Exhibit 11-3. Calculate the total cost when the firm is maximizing profit.

A cartel most likely occurs in which type of industry?

A firm seeks to differentiate its products from others so as to

The difference between a repeated game and one that is played only once is that

A Nash equilibrium always leads to the prisoner's dilemma.

Because of the large number of firms in a monopolistically competitive market, each firm faces a horizontal demand curve.

In the long run, a monopolistically competitive firm charges a price that is

Exhibit 11-3 -Refer to Exhibit 11-3. Calculate the economic profit, if any, earned by the firm.

Which of the following statements is true?

Collusion is most likely to occur when

Which of the following statements is not true regarding a monopolistically competitive firm in the short run?

The reason both prisoners confess in the prisoner's dilemma game is that

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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

The Supply Curve and the Behavior of Firms

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

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

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