Question 1

List and describe the three assumptions upon which oligopoly behavior are based.

Accepted Answer

The three assumptions of oligopoly are:

Question 2

The percentage of sales accounted for by X number of firms in the industry is called the

Accepted Answer

A)  concentration ratio. 
B)  oligopoly rate. 
C)  interdependence rate. 
D)  market power index. 
A)  concentration ratio. 
B)  oligopoly rate. 
C)  interdependence rate. 
D)  market power index.

Question 3

Suppose an industry is made up of 16 firms.Three firms each sell 12 percent of the industry's total output; another three firms each sell 8 percent; another five firms each sell 5 percent; and the last five firms each sell 3 percent.What is the eight-firm concentration ratio in this industry?

Accepted Answer

A)  0.85 
B)  0.50 
C)  0.40 
D)  0.70 
E)  1.40 
A)  0.85 
B)  0.50 
C)  0.40 
D)  0.70 
E)  1.40

Question 4

Which of the following assumptions applies to both perfect competition and monopolistic competition?

Accepted Answer

A)  many buyers and sellers 
B)  easy entry into and exit from the market 
C)  profit-maximizing behavior by firms in both market structures 
D)  a and c 
E)  all of the above 
A)  many buyers and sellers 
B)  easy entry into and exit from the market 
C)  profit-maximizing behavior by firms in both market structures 
D)  a and c 
E)  all of the above

Question 5

According to the contestable markets theory,

Accepted Answer

A)  even if an industry is comprised of a small number of firms, this is not sufficient evidence that the firms perform in a noncompetitive way. 
B)  profits cannot be zero in an industry if the number of sellers in the industry is small. 
C)  if a market is contestable, inefficient producers are more likely to survive than if the market is not contestable. 
D)  b and c 
E)  a, b, and c 
A)  even if an industry is comprised of a small number of firms, this is not sufficient evidence that the firms perform in a noncompetitive way. 
B)  profits cannot be zero in an industry if the number of sellers in the industry is small. 
C)  if a market is contestable, inefficient producers are more likely to survive than if the market is not contestable. 
D)  b and c 
E)  a, b, and c

Question 6

____________________ constitute(s)perhaps the most significant barrier to entry into an oligopolistic market is

Accepted Answer

A)  Patent rights 
B)  Exclusive ownership of essential resources 
C)  Legal barriers 
D)  Economies of scale 
E)  Copyrights 
A)  Patent rights 
B)  Exclusive ownership of essential resources 
C)  Legal barriers 
D)  Economies of scale 
E)  Copyrights

Question 7

In a monopolistic competitive market,which of the following factors probably does not give rise to product differentiation?

Accepted Answer

A)  packaging of the product 
B)  brand names 
C)  loyalty of customers to a particular producer 
D)  quality difference 
E)  the small number of sellers 
A)  packaging of the product 
B)  brand names 
C)  loyalty of customers to a particular producer 
D)  quality difference 
E)  the small number of sellers

Question 8

Excess capacity results from a

Accepted Answer

A)  downward-sloping demand curve and a U-shaped ATC curve. 
B)  downward-sloping demand curve and no fixed costs. 
C)  horizontal demand curve and an upward-sloping marginal cost curve. 
D)  perfectly inelastic demand curve and a downward-sloping ATC curve. 
E)  none of the above 
A)  downward-sloping demand curve and a U-shaped ATC curve. 
B)  downward-sloping demand curve and no fixed costs. 
C)  horizontal demand curve and an upward-sloping marginal cost curve. 
D)  perfectly inelastic demand curve and a downward-sloping ATC curve. 
E)  none of the above

Question 9

The perfectly competitive firm charges a price equal to __________ while the monopolistic competitor firm charges a price __________.

Accepted Answer

A)  marginal revenue; equal to marginal cost 
B)  marginal cost; greater than marginal cost 
C)  marginal revenue; greater than marginal revenue 
D)  average fixed cost; greater than average total cost 
E)  b and c 
A)  marginal revenue; equal to marginal cost 
B)  marginal cost; greater than marginal cost 
C)  marginal revenue; greater than marginal revenue 
D)  average fixed cost; greater than average total cost 
E)  b and c

Question 10

A significant difference between perfect competition and monopolistic competition is that

Accepted Answer

A)  a perfectly competitive firm is a price searcher, while a monopolistic competitive firm is a price taker. 
B)  a perfectly competitive firm faces a downward-sloping demand curve, while a monopolistic competitive firm faces a perfectly elastic demand curve. 
C)  a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product. 
D)  a perfectly competitive firm sets price above marginal cost, while a monopolistic competitive firm sets price equal to marginal cost. 
A)  a perfectly competitive firm is a price searcher, while a monopolistic competitive firm is a price taker. 
B)  a perfectly competitive firm faces a downward-sloping demand curve, while a monopolistic competitive firm faces a perfectly elastic demand curve. 
C)  a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product. 
D)  a perfectly competitive firm sets price above marginal cost, while a monopolistic competitive firm sets price equal to marginal cost.

Question 11

Which of the following is not an assumption of the theory of monopolistic competition?

Accepted Answer

A)  There are high barriers to entry. 
B)  There are many sellers and few buyers. 
C)  Each firm in the industry produces and sells a homogeneous product. 
D)  a and b 
E)  all of the above 
A)  There are high barriers to entry. 
B)  There are many sellers and few buyers. 
C)  Each firm in the industry produces and sells a homogeneous product. 
D)  a and b 
E)  all of the above

Question 12

Which of the following is an assumption of the theory of oligopoly?

Accepted Answer

A)  There are barriers to entry. 
B)  There are many sellers and many buyers. 
C)  Firms produce and sell either homogeneous or differentiated products. 
D)  a and c 
E)  none of the above 
A)  There are barriers to entry. 
B)  There are many sellers and many buyers. 
C)  Firms produce and sell either homogeneous or differentiated products. 
D)  a and c 
E)  none of the above

Question 13

Unlike a monopoly,a monopolistic competitive firm in long run equilibrium is likely to produce a level of output at which

Accepted Answer

A)  MR = MC. 
B)  P > MC. 
C)  P = ATC. 
D)  resource-allocative efficiency is achieved. 
A)  MR = MC. 
B)  P > MC. 
C)  P = ATC. 
D)  resource-allocative efficiency is achieved.

Question 14

How does contestable markets theory challenge orthodox market structure theory?

Accepted Answer

A)  Contestable markets theory argues that firms do not maximize sales; orthodox market structure theory argues that they do. 
B)  Orthodox market structure theory places much greater weight than contestable markets theory on the number of firms in an industry as a major factor in determining a firm's behavior. 
C)  Contestable markets theory emphasizes product differentiation; orthodox market structure theory does not. 
D)  Contestable markets theory emphasizes nonprice competition; orthodox market structure theory does not. 
A)  Contestable markets theory argues that firms do not maximize sales; orthodox market structure theory argues that they do. 
B)  Orthodox market structure theory places much greater weight than contestable markets theory on the number of firms in an industry as a major factor in determining a firm's behavior. 
C)  Contestable markets theory emphasizes product differentiation; orthodox market structure theory does not. 
D)  Contestable markets theory emphasizes nonprice competition; orthodox market structure theory does not.

Question 15

A firm in a monopolistic competitive market will produce a level of output at which

Accepted Answer

A)  P  MR. 
D)  P = MC. 
A)  P  MR. 
D)  P = MC.

Question 16

Generally,the monopolistic competitor is in long run equilibrium when

Accepted Answer

A)  MR = MC and P = ATC. 
B)  P = MC = ATC. 
C)  P = MC and P > ATC. 
D)  MR = MC = ATC. 
E)  b and d 
A)  MR = MC and P = ATC. 
B)  P = MC = ATC. 
C)  P = MC and P > ATC. 
D)  MR = MC = ATC. 
E)  b and d

Question 17

Which of the following statements is false?

Accepted Answer

A)  The monopolistic competitor is a price searcher. 
B)  The monopolistic competitor produces a product that differs slightly from the products of the other firms in the industry. 
C)  The monopolistic competitor faces a horizontal demand curve. 
D)  The monopolistic competitor produces an output at which price is greater than marginal cost. 
A)  The monopolistic competitor is a price searcher. 
B)  The monopolistic competitor produces a product that differs slightly from the products of the other firms in the industry. 
C)  The monopolistic competitor faces a horizontal demand curve. 
D)  The monopolistic competitor produces an output at which price is greater than marginal cost.

Question 18

The concentration ratio provides a measure of the extent to which an industry

Accepted Answer

A)  produces a useful product. 
B)  is dominated by a small number of firms. 
C)  is earning economic profits. 
D)  is earning accounting profits. 
A)  produces a useful product. 
B)  is dominated by a small number of firms. 
C)  is earning economic profits. 
D)  is earning accounting profits.

Question 19

The relationship between a monopolistic competitor's marginal revenue curve and its demand curve is that the

Accepted Answer

A)  two curves coincide and are horizontal at the market price. 
B)  marginal revenue curve lies above the demand curve and the demand curve is horizontal at the market price. 
C)  marginal revenue curve lies below the demand curve and both are downward sloping. 
D)  two curves coincide and are downward sloping to the right. 
E)  marginal revenue curve lies above the demand curve and both are downward sloping. 
A)  two curves coincide and are horizontal at the market price. 
B)  marginal revenue curve lies above the demand curve and the demand curve is horizontal at the market price. 
C)  marginal revenue curve lies below the demand curve and both are downward sloping. 
D)  two curves coincide and are downward sloping to the right. 
E)  marginal revenue curve lies above the demand curve and both are downward sloping.

Question 20

Some monopolistic competitive firms earn positive economic profits in the long run because

Accepted Answer

A)  there are high barriers to entry in monopolistic competition. 
B)  they have successfully differentiated their products from their competitors' products. 
C)  there is easy entry and exit. 
D)  b and c 
E)  none of the above 
A)  there are high barriers to entry in monopolistic competition. 
B)  they have successfully differentiated their products from their competitors' products. 
C)  there is easy entry and exit. 
D)  b and c 
E)  none of the above

Exam 25: Monopolistic Competition, Oligopoly, and Game Theory

List and describe the three assumptions upon which oligopoly behavior are based.

The percentage of sales accounted for by X number of firms in the industry is called the

Suppose an industry is made up of 16 firms.Three firms each sell 12 percent of the industry's total output; another three firms each sell 8 percent; another five firms each sell 5 percent; and the last five firms each sell 3 percent.What is the eight-firm concentration ratio in this industry?

Which of the following assumptions applies to both perfect competition and monopolistic competition?

According to the contestable markets theory,

____________________ constitute(s)perhaps the most significant barrier to entry into an oligopolistic market is

In a monopolistic competitive market,which of the following factors probably does not give rise to product differentiation?

Excess capacity results from a

The perfectly competitive firm charges a price equal to __________ while the monopolistic competitor firm charges a price __________.

A significant difference between perfect competition and monopolistic competition is that

Which of the following is not an assumption of the theory of monopolistic competition?

Which of the following is an assumption of the theory of oligopoly?

Unlike a monopoly,a monopolistic competitive firm in long run equilibrium is likely to produce a level of output at which

How does contestable markets theory challenge orthodox market structure theory?

A firm in a monopolistic competitive market will produce a level of output at which

Generally,the monopolistic competitor is in long run equilibrium when

Which of the following statements is false?

The concentration ratio provides a measure of the extent to which an industry

The relationship between a monopolistic competitor's marginal revenue curve and its demand curve is that the

Some monopolistic competitive firms earn positive economic profits in the long run because

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