Question 1

The assumption that precludes economic profits in monopolistic competition in the long run is that

Accepted Answer

A)  there are many buyers and sellers. 
B)  the firms produce a homogeneous product. 
C)  there is easy entry and exit in this market structure. 
D)  buyers and sellers have all relevant information. 
A)  there are many buyers and sellers. 
B)  the firms produce a homogeneous product. 
C)  there is easy entry and exit in this market structure. 
D)  buyers and sellers have all relevant information. C

Question 2

List and describe the three defining assumptions of the theory of monopolistic competition.

Accepted Answer

The three assumptions upon which the theory of monopolistic competition are: 1)There are many sellers and buyers; 2)Each firm in the industry produces and sells a slightly differentiated product; and 3)There is easy entry into the market and exit from the market.

Question 3

If the four-firm concentration ratio is 0.45,and the top four firms account for $10 million in sales,it follows that total industry sales equal

Accepted Answer

A)  $28.57 million. 
B)  $12.00 million. 
C)  $35.00 million. 
D)  $15.00 million. 
E)  $22.22 million. 
A)  $28.57 million. 
B)  $12.00 million. 
C)  $35.00 million. 
D)  $15.00 million. 
E)  $22.22 million. E

Question 4

In the prisoner's dilemma,each prisoner would be best off if

Accepted Answer

A)  both confess. 
B)  one confesses but the other does not. 
C)  one confesses, regardless of what the other does. 
D)  neither confesses. 
A)  both confess. 
B)  one confesses but the other does not. 
C)  one confesses, regardless of what the other does. 
D)  neither confesses.

Question 5

Which of the following is not a condition of a contestable market?

Accepted Answer

A)  There is easy entry into and costless exit from the market. 
B)  New firms entering the market can produce the product at the same cost as current firms. 
C)  Firms exiting the market can easily dispose of their fixed assets by selling them elsewhere. 
D)  New firms entering the market produce a higher-quality product than existing firms. 
A)  There is easy entry into and costless exit from the market. 
B)  New firms entering the market can produce the product at the same cost as current firms. 
C)  Firms exiting the market can easily dispose of their fixed assets by selling them elsewhere. 
D)  New firms entering the market produce a higher-quality product than existing firms.

Question 6

In the prisoner's dilemma,both prisoners end up __________,which turns out to be __________ confessed.

Accepted Answer

A)  confessing; better for them than if they had both not 
B)  confessing; worse for them than if they had both not 
C)  not confessing; better for them than if they had both 
D)  not confessing; worse for them than if they had both 
A)  confessing; better for them than if they had both not 
B)  confessing; worse for them than if they had both not 
C)  not confessing; better for them than if they had both 
D)  not confessing; worse for them than if they had both

Question 7

It has been argued that because the monopolistic competitive firm faces a downward-sloping demand curve,in long run equilibrium it

Accepted Answer

A)  underutilizes its plant size. 
B)  has excess capacity. 
C)  produces an output smaller than the one that would minimize its costs of production. 
D)  a and b 
E)  all of the above 
A)  underutilizes its plant size. 
B)  has excess capacity. 
C)  produces an output smaller than the one that would minimize its costs of production. 
D)  a and b 
E)  all of the above

Question 8

The theory of contestable markets places more emphasis than orthodox market structure theories on

Accepted Answer

A)  the number of sellers in an industry. 
B)  the type of product produced in an industry. 
C)  the issue of entry into and exit from an industry. 
D)  who has access to relevant information. 
A)  the number of sellers in an industry. 
B)  the type of product produced in an industry. 
C)  the issue of entry into and exit from an industry. 
D)  who has access to relevant information.

Question 9

Which of the following statements is false?

Accepted Answer

A)  The monopolistic competitor is a price searcher. 
B)  The monopolistic competitor produces an output at which price is greater than marginal cost. 
C)  The demand curve facing a monopolistic competitor is less elastic than the demand curve facing a monopolist. 
D)  There are many substitutes in a monopolistic competitive industry. 
A)  The monopolistic competitor is a price searcher. 
B)  The monopolistic competitor produces an output at which price is greater than marginal cost. 
C)  The demand curve facing a monopolistic competitor is less elastic than the demand curve facing a monopolist. 
D)  There are many substitutes in a monopolistic competitive industry.

Question 10

Some economists contend that a monopolistic competitor tends to produce too __________ output,charges a price that is too __________ and __________ its present plant size.

Accepted Answer

A)  little; low; underutilizes 
B)  little; high; underutilizes 
C)  much; low; overutilizes 
D)  much; high; overutilizes 
E)  much; low; underutilizes 
A)  little; low; underutilizes 
B)  little; high; underutilizes 
C)  much; low; overutilizes 
D)  much; high; overutilizes 
E)  much; low; underutilizes

Question 11

A monopolistic competitor faces a __________ demand curve and its price is __________ marginal revenue.

Accepted Answer

A)  horizontal; equal to 
B)  downward-sloping; equal to 
C)  horizontal; greater than 
D)  downward-sloping; greater than 
A)  horizontal; equal to 
B)  downward-sloping; equal to 
C)  horizontal; greater than 
D)  downward-sloping; greater than

Question 12

The monopolistic competitive firm faces a(n)__________ demand curve.

Accepted Answer

A)  horizontal 
B)  vertical 
C)  downward-sloping 
D)  upward-sloping 
A)  horizontal 
B)  vertical 
C)  downward-sloping 
D)  upward-sloping

Question 13

It has been argued that as a result of not producing the quantity of output where unit cost is minimized,the monopolistic competitive firm charges too __________ a price and produces too __________ output.

Accepted Answer

A)  high; little 
B)  low; little 
C)  high; much 
D)  low; much 
A)  high; little 
B)  low; little 
C)  high; much 
D)  low; much

Question 14

The excess capacity theorem states that a monopolistic competitor

Accepted Answer

A)  will produce an output level smaller than the one that would minimize its unit costs. 
B)  will produce an output level where MR > MC. 
C)  generally does not attain long run equilibrium, and thus charges a higher price than it should. 
D)  typically produces too much of a good at too low a quality. 
A)  will produce an output level smaller than the one that would minimize its unit costs. 
B)  will produce an output level where MR > MC. 
C)  generally does not attain long run equilibrium, and thus charges a higher price than it should. 
D)  typically produces too much of a good at too low a quality.

Question 15

Exhibit 25-3
  
-Refer to Exhibit 25-3.What level of output is productively efficient?

Accepted Answer

A)  Q1 
B)  Q2 
C)  Q3 
D)  It is not labeled on the diagram. 
E)  It is not determinable without more information. 
A)  Q1 
B)  Q2 
C)  Q3 
D)  It is not labeled on the diagram. 
E)  It is not determinable without more information.

Question 16

Because of one assumption in the theory of monopolistic competition,the excess capacity theorem exists.What is the assumption?

Accepted Answer

A)  There are many sellers and buyers. 
B)  Each firm produces and sells a slightly differentiated product. 
C)  There is easy entry into the industry. 
D)  There is easy exit from the industry. 
A)  There are many sellers and buyers. 
B)  Each firm produces and sells a slightly differentiated product. 
C)  There is easy entry into the industry. 
D)  There is easy exit from the industry.

Question 17

An industry is composed of 10 firms,all with equal sales.The four-firm concentration ratio in this industry is

Accepted Answer

A)  0.40. 
B)  0.80. 
C)  10.00. 
D)  There is not enough information provided to answer this question. 
A)  0.40. 
B)  0.80. 
C)  10.00. 
D)  There is not enough information provided to answer this question.

Question 18

Exhibit 25-8
  
-Refer to Exhibit 25-8.The maximum profits earned by a monopolistic competitive firm will be

Accepted Answer

A)  $115. 
B)  $75. 
C)  $140. 
D)  $100. 
A)  $115. 
B)  $75. 
C)  $140. 
D)  $100.

Question 19

The key behavioral assumption of the cartel theory is that oligopolists in the industry act as if

Accepted Answer

A)  all firms in the industry are the same size. 
B)  all firms in the industry are price takers. 
C)  there is a dominant firm in the industry and many fringe firms. 
D)  there is only one firm in the industry. 
E)  none of the above 
A)  all firms in the industry are the same size. 
B)  all firms in the industry are price takers. 
C)  there is a dominant firm in the industry and many fringe firms. 
D)  there is only one firm in the industry. 
E)  none of the above

Question 20

Exhibit 25-10
   
Suppose that the letter grade earned on a test for each student in a class depends upon how well he/she does relative to other students in the class. This exhibit shows a prisoner's dilemma setting for two representative students in the class, George and Gina.
-Refer to Exhibit 25-10. If George studies for two hours and Gina studies for four hours,George's letter grade on the test will be a ___________ and Gina's letter grade on the test will be a __________________.

Accepted Answer

A)  C; A 
B)  C; C 
C)  B; B 
D)  A; C 
A)  C; A 
B)  C; C 
C)  B; B 
D)  A; C

Exam 25: Monopolistic Competition, Oligopoly, and Game Theory

The assumption that precludes economic profits in monopolistic competition in the long run is that

List and describe the three defining assumptions of the theory of monopolistic competition.

If the four-firm concentration ratio is 0.45,and the top four firms account for $10 million in sales,it follows that total industry sales equal

In the prisoner's dilemma,each prisoner would be best off if

Which of the following is not a condition of a contestable market?

In the prisoner's dilemma,both prisoners end up __________,which turns out to be __________ confessed.

It has been argued that because the monopolistic competitive firm faces a downward-sloping demand curve,in long run equilibrium it

The theory of contestable markets places more emphasis than orthodox market structure theories on

Which of the following statements is false?

Some economists contend that a monopolistic competitor tends to produce too __________ output,charges a price that is too __________ and __________ its present plant size.

A monopolistic competitor faces a __________ demand curve and its price is __________ marginal revenue.

The monopolistic competitive firm faces a(n)__________ demand curve.

It has been argued that as a result of not producing the quantity of output where unit cost is minimized,the monopolistic competitive firm charges too __________ a price and produces too __________ output.

The excess capacity theorem states that a monopolistic competitor

Exhibit 25-3 -Refer to Exhibit 25-3.What level of output is productively efficient?

Because of one assumption in the theory of monopolistic competition,the excess capacity theorem exists.What is the assumption?

An industry is composed of 10 firms,all with equal sales.The four-firm concentration ratio in this industry is

Exhibit 25-8 -Refer to Exhibit 25-8.The maximum profits earned by a monopolistic competitive firm will be

The key behavioral assumption of the cartel theory is that oligopolists in the industry act as if

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

In the prisoner's dilemma,both prisoners end up ,which turns out to be confessed.

Some economists contend that a monopolistic competitor tends to produce too output,charges a price that is too and __ its present plant size.

A monopolistic competitor faces a demand curve and its price is marginal revenue.

It has been argued that as a result of not producing the quantity of output where unit cost is minimized,the monopolistic competitive firm charges too a price and produces too output.