Question 1

When one firm in a cartel defects, which of the following benefits?

Accepted Answer

A) The government 
B) Consumers 
C) Firms that do not defect 
D) Firms outside the industry 
E) The whole cartel 
A) The government 
B) Consumers 
C) Firms that do not defect 
D) Firms outside the industry 
E) The whole cartel

Question 2

In a repeated game, the best option for a firm is to price competitively, regardless of what action the other firm takes.

Accepted Answer

A) True 
 B)False

Question 3

Use a diagram to explain why a monopolistically competitive industry is not as efficient as a competitive industry, even though firms do not earn an economic profit when their industries are in long-run equilibrium.

Accepted Answer

For a typical monopolistically competiti

Question 4

The chance a firm takes in defecting from a cooperative solution to a game is that

Accepted Answer

A) the firm will immediately suffer lower profits as a result of defecting. 
B) the noncooperative solution causes profits to fall. 
C) cooperation will result in lower profits in the future. 
D) cooperation will be difficult to reestablish and profits will be sacrificed. 
E) all firms know the actions of each other. 
A) the firm will immediately suffer lower profits as a result of defecting. 
B) the noncooperative solution causes profits to fall. 
C) cooperation will result in lower profits in the future. 
D) cooperation will be difficult to reestablish and profits will be sacrificed. 
E) all firms know the actions of each other.

Question 5

Exhibit 11-1  
-When firms leave a monopolistically competitive industry, remaining firms' demands increase because

Accepted Answer

A) consumers who were buying from the exiting firms add to the demand of those remaining. 
B) those firms that are left become monopolies, and consumers have no choice but to buy from them. 
C) the remaining firms improve their product in order to avoid the same fate as those that failed. 
D) costs of production fall as there is not as much demand for inputs. 
E) remaining firms increase production capacity and can serve wider markets. 
A) consumers who were buying from the exiting firms add to the demand of those remaining. 
B) those firms that are left become monopolies, and consumers have no choice but to buy from them. 
C) the remaining firms improve their product in order to avoid the same fate as those that failed. 
D) costs of production fall as there is not as much demand for inputs. 
E) remaining firms increase production capacity and can serve wider markets.

Question 6

Consumer information services are demanded only when product differentiation exists.

Accepted Answer

A) True 
 B)False

Question 7

In the prisoner's dilemma, each of the two prisoners will be better off if neither confesses than if they both confess.

Accepted Answer

A) True 
 B)False

Question 8

Draw a diagram of a monopolistic competitor in long-run equilibrium.

Accepted Answer

The answer of Draw a diagram of a monopolistic competitor...

Question 9

A monopolistically competitive firm can increase its price without losing all its market share because of product differentiation.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 11-4  
-Refer to Exhibit 11-4. If both firms price at the monopoly price,

Accepted Answer

A) combined profits would increase if one firm charged the competitive price. 
B) both firms will be tempted to charge the competitive price. 
C) only one firm will be tempted to charge the competitive price. 
D) neither firm will want to deviate from the monopoly price. 
E) combined profits will be lower than if both firms charged the competitive price. 
A) combined profits would increase if one firm charged the competitive price. 
B) both firms will be tempted to charge the competitive price. 
C) only one firm will be tempted to charge the competitive price. 
D) neither firm will want to deviate from the monopoly price. 
E) combined profits will be lower than if both firms charged the competitive price.

Question 11

Product differentiation is a common feature of monopolistic competition and oligopoly.

Accepted Answer

A) True 
 B)False

Question 12

To say that game theory assumes people make purposeful choices with limited resources implies that players in a game seek to

Accepted Answer

A) maximize their payoffs. 
B) stop the game. 
C) maximize their total revenue. 
D) defeat their opponents. 
E) cooperate with other players. 
A) maximize their payoffs. 
B) stop the game. 
C) maximize their total revenue. 
D) defeat their opponents. 
E) cooperate with other players.

Question 13

In the short run, the profits for firms in monopolistic competition tend to be

Accepted Answer

A) equal to those of monopoly and competition. 
B) higher than those of monopoly and competition. 
C) lower than those of competition. 
D) higher than those of competition. 
E) lower than those of monopoly and those of competition. 
A) equal to those of monopoly and competition. 
B) higher than those of monopoly and competition. 
C) lower than those of competition. 
D) higher than those of competition. 
E) lower than those of monopoly and those of competition.

Question 14

Exhibit 11-2  
-Refer to Exhibit 11-2 for a profit-maximizing firm in a monopolistically competitive market. In the long run, the firm

Accepted Answer

A) sells 120 units at a unit price of $20. 
B) sells 70 units at a unit price of $30. 
C) sells 70 units at a unit price of 20. 
D) sells 90 units at a unit price of $13. 
E) sells 90 units at a unit price of $30. 
A) sells 120 units at a unit price of $20. 
B) sells 70 units at a unit price of $30. 
C) sells 70 units at a unit price of 20. 
D) sells 90 units at a unit price of $13. 
E) sells 90 units at a unit price of $30.

Question 15

The main objective of product differentiation is to increase market demand for the product.

Accepted Answer

A) True 
 B)False

Question 16

Products may be differentiated in all of the following ways except

Accepted Answer

A) physical characteristics. 
B) method of production. 
C) time. 
D) convenience. 
E) service after the sale. 
A) physical characteristics. 
B) method of production. 
C) time. 
D) convenience. 
E) service after the sale.

Question 17

As new firms enter a monopolistically competitive industry, the demand curve facing a typical firm will most likely

Accepted Answer

A) become horizontal. 
B) become vertical. 
C) not change. 
D) shift to the right. 
E) shift to the left. 
A) become horizontal. 
B) become vertical. 
C) not change. 
D) shift to the right. 
E) shift to the left.

Question 18

Compared with a monopoly, long-run equilibrium in a monopolistically competitive industry results in

Accepted Answer

A) lower prices and greater output. 
B) higher prices and lower output. 
C) lower prices and lower output. 
D) higher prices and greater output. 
E) prices and output that can be higher or lower. 
A) lower prices and greater output. 
B) higher prices and lower output. 
C) lower prices and lower output. 
D) higher prices and greater output. 
E) prices and output that can be higher or lower.

Question 19

Which of the following statements is false?

Accepted Answer

A) Like a competitive firm, a monopolistically competitive firm makes a normal profit in the long run. 
B) Monopoly and competition are alike in that there is little or no product variety in either type of market. 
C) Monopoly and monopolistic competition result in average total cost above the minimum. 
D) Monopolistic competition and competition both produce a variety of products as a result of many firms. 
E) A monopoly and a monopolistically competitive firm both result in a deadweight loss. 
A) Like a competitive firm, a monopolistically competitive firm makes a normal profit in the long run. 
B) Monopoly and competition are alike in that there is little or no product variety in either type of market. 
C) Monopoly and monopolistic competition result in average total cost above the minimum. 
D) Monopolistic competition and competition both produce a variety of products as a result of many firms. 
E) A monopoly and a monopolistically competitive firm both result in a deadweight loss.

Question 20

Suppose two small-town video stores, store A and store B, compete. The two stores collude and agree to share the market equally. If neither store cheats on the agreement, each store will make $2,500 a day in economic profits. If only one store cheats, the cheater will increase its economic profits to $4,000 and the store that abides by the agreement will incur an economic loss of $1,000. If both firms cheat, they both will earn zero economic profits. Neither store has any way of policing the actions of the other.

Accepted Answer

The answer of Suppose two small-town video stores, store A...

Exam 11: Product Differentiation, Monopolistic Competition, and Oligopoly

When one firm in a cartel defects, which of the following benefits?

In a repeated game, the best option for a firm is to price competitively, regardless of what action the other firm takes.

Use a diagram to explain why a monopolistically competitive industry is not as efficient as a competitive industry, even though firms do not earn an economic profit when their industries are in long-run equilibrium.

The chance a firm takes in defecting from a cooperative solution to a game is that

Exhibit 11-1 -When firms leave a monopolistically competitive industry, remaining firms' demands increase because

Consumer information services are demanded only when product differentiation exists.

In the prisoner's dilemma, each of the two prisoners will be better off if neither confesses than if they both confess.

Draw a diagram of a monopolistic competitor in long-run equilibrium.

A monopolistically competitive firm can increase its price without losing all its market share because of product differentiation.

Exhibit 11-4 -Refer to Exhibit 11-4. If both firms price at the monopoly price,

Product differentiation is a common feature of monopolistic competition and oligopoly.

To say that game theory assumes people make purposeful choices with limited resources implies that players in a game seek to

In the short run, the profits for firms in monopolistic competition tend to be

Exhibit 11-2 -Refer to Exhibit 11-2 for a profit-maximizing firm in a monopolistically competitive market. In the long run, the firm

The main objective of product differentiation is to increase market demand for the product.

Products may be differentiated in all of the following ways except

As new firms enter a monopolistically competitive industry, the demand curve facing a typical firm will most likely

Compared with a monopoly, long-run equilibrium in a monopolistically competitive industry results in

Which of the following statements is false?

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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