Question 1

Some economists say that advertising is wasteful because they believe that

Accepted Answer

A) most advertising is deceiving and, therefore, the resources used to advertise are not used for productive purposes. 
B) efforts to persuade use resources, but persuasion is not a useful product. 
C) it takes advantage of gullible people. 
D) people who make commercials are already rich and do not need the money. 
E) it creates a perception of product differences when products are not really different at all. 
A) most advertising is deceiving and, therefore, the resources used to advertise are not used for productive purposes. 
B) efforts to persuade use resources, but persuasion is not a useful product. 
C) it takes advantage of gullible people. 
D) people who make commercials are already rich and do not need the money. 
E) it creates a perception of product differences when products are not really different at all.

Question 2

A monopolistic competitor behaves like a monopoly in the short run.

Accepted Answer

A) True 
 B)False

Question 3

The deadweight loss from monopolistic competition includes the cost consumers pay for differentiated products.

Accepted Answer

A) True 
 B)False

Question 4

Exhibit 11-6  
-Refer to Exhibit 11-6. If the game is played for one period, explain why both firms will choose the competitive price.

Accepted Answer

If one firm prices as a monopo

Question 5

In the long run, a monopolistically competitive firm sets output so that

Accepted Answer

A) P = MC. 
B) MR = MC. 
C) MR = P. 
D) P = AVC. 
E) MR = AVC. 
A) P = MC. 
B) MR = MC. 
C) MR = P. 
D) P = AVC. 
E) MR = AVC.

Question 6

Exhibit 11-5  
-Refer to Exhibit 11-5, which illustrates the profits in a duopoly game between firm A and firm B that is played only once. When the game reaches a Nash equilibrium, the profits are

Accepted Answer

A) $2,750 for firm A and $1,300 for firm B. 
B) $50 for firm A and $1,400 for firm B. 
C) $750 for firm A and $650 for firm B. 
D) $2,850 for firm A and $350 for firm B. 
E) $0 for both firm A and firm B. 
A) $2,750 for firm A and $1,300 for firm B. 
B) $50 for firm A and $1,400 for firm B. 
C) $750 for firm A and $650 for firm B. 
D) $2,850 for firm A and $350 for firm B. 
E) $0 for both firm A and firm B.

Question 7

A monopolistically competitive firm can increase its price without losing all its market share because

Accepted Answer

A) of product differentiation. 
B) of the small number of firms in the industry. 
C) the demand curve is very inelastic. 
D) of the unavailability of close substitutes. 
E) the products are homogeneous. 
A) of product differentiation. 
B) of the small number of firms in the industry. 
C) the demand curve is very inelastic. 
D) of the unavailability of close substitutes. 
E) the products are homogeneous.

Question 8

Exhibit 11-1  
-Refer to Exhibit 11-1. In the long run,

Accepted Answer

A) firms will enter the market. 
B) the firm's demand curve will get steeper. 
C) economic profits will increase. 
D) firm output will increase. 
E) nothing will change, given that the firm is in long-run equilibrium. 
A) firms will enter the market. 
B) the firm's demand curve will get steeper. 
C) economic profits will increase. 
D) firm output will increase. 
E) nothing will change, given that the firm is in long-run equilibrium.

Question 9

Product differentiation exists when producers perceive the products to be different.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 11-6  
-Match the following characteristics with the appropriate model of firm behavior, and explain how efficient each firms is in the long run.

Accepted Answer

The answer of Exhibit 11-6  
-Match the following characteristics...

Question 11

Firms engage in product differentiation

Accepted Answer

A) to gain market power. 
B) to gain entry into a market of pure competition. 
C) to minimize average total cost. 
D) to maximize total revenue. 
E) to be classified as price-takers. 
A) to gain market power. 
B) to gain entry into a market of pure competition. 
C) to minimize average total cost. 
D) to maximize total revenue. 
E) to be classified as price-takers.

Question 12

The difference between explicit and tacit collusion is the degree to which

Accepted Answer

A) the two firms are alike. 
B) the two firms serve the same markets. 
C) the products of the two firms are alike. 
D) the two firms consult each other. 
E) outside influences affect the firms. 
A) the two firms are alike. 
B) the two firms serve the same markets. 
C) the products of the two firms are alike. 
D) the two firms consult each other. 
E) outside influences affect the firms.

Question 13

Which is more important, product differentiation as perceived by firms producing the product, or product differentiation as perceived by consumers of the product? Explain.

Accepted Answer

Product differentiation as perceived by

Question 14

A cartel

Accepted Answer

A) is a form of price leadership. 
B) occurs through tacit collusion. 
C) always involves price leadership. 
D) is the most extreme form of explicit collusion. 
E) is a synonym for explicit collusion. 
A) is a form of price leadership. 
B) occurs through tacit collusion. 
C) always involves price leadership. 
D) is the most extreme form of explicit collusion. 
E) is a synonym for explicit collusion.

Question 15

Consider a McDonald's restaurant that sells hamburgers in a small town alongside a few other fast-food restaurants.

Accepted Answer

The answer of Consider a McDonald's restaurant that sells hamburgers...

Question 16

A Nash equilibrium occurs when

Accepted Answer

A) supply equals demand. 
B) no firm expects an increase in profits by changing its business strategy unilaterally. 
C) all firms maximize profits. 
D) all firms minimize costs. 
E) no one is better off without making another individual worse off. 
A) supply equals demand. 
B) no firm expects an increase in profits by changing its business strategy unilaterally. 
C) all firms maximize profits. 
D) all firms minimize costs. 
E) no one is better off without making another individual worse off.

Question 17

The prisoner's dilemma

Accepted Answer

A) describes the results of a prisoner's decision regarding whether to confess or not confess. 
B) is best applied to the analysis of competition. 
C) illustrates how two individuals with similar interests come to form a monopoly. 
D) describes the results of a prisoner's decision regarding whether to display good behavior while serving his sentence. 
E) is best applied to the analysis of monopolistic competition. 
A) describes the results of a prisoner's decision regarding whether to confess or not confess. 
B) is best applied to the analysis of competition. 
C) illustrates how two individuals with similar interests come to form a monopoly. 
D) describes the results of a prisoner's decision regarding whether to display good behavior while serving his sentence. 
E) is best applied to the analysis of monopolistic competition.

Question 18

For a monopolistically competitive firm, the demand curve is more elastic in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 19

Specialized magazines that give product reviews on such products as cameras, stereo equipment, cars, and computers exist because of

Accepted Answer

A) single-minded people. 
B) poor-quality products. 
C) product differentiation. 
D) greed. 
E) hobbyists. 
A) single-minded people. 
B) poor-quality products. 
C) product differentiation. 
D) greed. 
E) hobbyists.

Question 20

When oligopolists compete in quantities, they are in

Accepted Answer

A) collusion. 
B) perfect competition. 
C) cooperation. 
D) Cournot competition. 
E) Bertrand competition. 
A) collusion. 
B) perfect competition. 
C) cooperation. 
D) Cournot competition. 
E) Bertrand competition.

Exam 11: Product Differentiation, Monopolistic Competition, and Oligopoly

Some economists say that advertising is wasteful because they believe that

A monopolistic competitor behaves like a monopoly in the short run.

The deadweight loss from monopolistic competition includes the cost consumers pay for differentiated products.

Exhibit 11-6 -Refer to Exhibit 11-6. If the game is played for one period, explain why both firms will choose the competitive price.

In the long run, a monopolistically competitive firm sets output so that

Exhibit 11-5 -Refer to Exhibit 11-5, which illustrates the profits in a duopoly game between firm A and firm B that is played only once. When the game reaches a Nash equilibrium, the profits are

A monopolistically competitive firm can increase its price without losing all its market share because

Exhibit 11-1 -Refer to Exhibit 11-1. In the long run,

Product differentiation exists when producers perceive the products to be different.

Exhibit 11-6 -Match the following characteristics with the appropriate model of firm behavior, and explain how efficient each firms is in the long run.

Firms engage in product differentiation

The difference between explicit and tacit collusion is the degree to which

Which is more important, product differentiation as perceived by firms producing the product, or product differentiation as perceived by consumers of the product? Explain.

A cartel

Consider a McDonald's restaurant that sells hamburgers in a small town alongside a few other fast-food restaurants.

A Nash equilibrium occurs when

The prisoner's dilemma

For a monopolistically competitive firm, the demand curve is more elastic in the long run than in the short run.

Specialized magazines that give product reviews on such products as cameras, stereo equipment, cars, and computers exist because of

When oligopolists compete in quantities, they are in

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

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

International Trade

International Finance

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