Question 1

Which of the following industries is the best real-world example of monopolistic competition?

Accepted Answer

A)  soft drinks 
B)  electricity generation 
C)  automobiles 
D)  computer software 
A)  soft drinks 
B)  electricity generation 
C)  automobiles 
D)  computer software

Question 2

Exhibit 25-3
  
-Refer to Exhibit 25-3.Total revenue of this profit maximizing monopolistic competitor is represented by the area

Accepted Answer

A)  0P1AQ2. 
B)  0P5EQ2. 
C)  P3P1AC. 
D)  0P4DQ3. 
A)  0P1AQ2. 
B)  0P5EQ2. 
C)  P3P1AC. 
D)  0P4DQ3.

Question 3

Unlike a perfectly competitive firm,a monopolistic competitor operates in the long run at a point at which

Accepted Answer

A)  P = ATC. 
B)  MR = MC. 
C)  unit costs are not minimized. 
D)  profits are zero. 
A)  P = ATC. 
B)  MR = MC. 
C)  unit costs are not minimized. 
D)  profits are zero.

Question 4

Does the monopolistic competitive firm exhibit resource-allocative efficiency?

Accepted Answer

A)  No, because at its chosen quantity of output, price does not equal the lowest possible average total cost. 
B)  Yes, because at its chosen quantity of output, price equals marginal cost. 
C)  No, because at its chosen quantity of output, price is greater than marginal cost. 
D)  Yes, because at its chosen quantity of output, price is less than marginal cost. 
A)  No, because at its chosen quantity of output, price does not equal the lowest possible average total cost. 
B)  Yes, because at its chosen quantity of output, price equals marginal cost. 
C)  No, because at its chosen quantity of output, price is greater than marginal cost. 
D)  Yes, because at its chosen quantity of output, price is less than marginal cost.

Question 5

The excess capacity theorem holds for a (n)__________,and states that in the long run the firm produces an output __________.

Accepted Answer

A)  perfectly competitive firm; that is resource-allocative efficient 
B)  monopoly firm; that is not resource-allocative efficient 
C)  monopolistic competitor; smaller than the one that would minimize its costs of production 
D)  oligopoly firm; larger than the one that would minimize its costs of production 
E)  none of the above 
A)  perfectly competitive firm; that is resource-allocative efficient 
B)  monopoly firm; that is not resource-allocative efficient 
C)  monopolistic competitor; smaller than the one that would minimize its costs of production 
D)  oligopoly firm; larger than the one that would minimize its costs of production 
E)  none of the above

Question 6

Grade inflation in colleges may possibly be a result of college professors being in a prisoner's dilemma setting.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is true?

Accepted Answer

A)  Concentration ratios take into account competition from substitute goods. 
B)  The four-firm concentration ratio is likely to be larger than the eight-firm concentration ratio. 
C)  There are assumed to be insignificant barriers to entry in the theory of oligopoly. 
D)  A designer label on a pair of jeans is a way of differentiating one seller's jeans from another seller's jeans. 
E)  all the above 
A)  Concentration ratios take into account competition from substitute goods. 
B)  The four-firm concentration ratio is likely to be larger than the eight-firm concentration ratio. 
C)  There are assumed to be insignificant barriers to entry in the theory of oligopoly. 
D)  A designer label on a pair of jeans is a way of differentiating one seller's jeans from another seller's jeans. 
E)  all the above

Question 8

Which of the following is an example of a monopolistic competitor?

Accepted Answer

A)  General Motors 
B)  a wheat farmer in Iowa 
C)  a long-distance telephone company 
D)  a family-owned Italian restaurant 
A)  General Motors 
B)  a wheat farmer in Iowa 
C)  a long-distance telephone company 
D)  a family-owned Italian restaurant

Question 9

The profit-maximizing oligopolist produces where

Accepted Answer

A)  price equals marginal cost. 
B)  marginal revenue equals marginal cost. 
C)  price is greater than average total cost. 
D)  a and b 
E)  b and c 
A)  price equals marginal cost. 
B)  marginal revenue equals marginal cost. 
C)  price is greater than average total cost. 
D)  a and b 
E)  b and c

Question 10

In what industry structure is the interdependence of firms a key characteristic?

Accepted Answer

A)  perfect competition 
B)  monopolistic competition 
C)  oligopoly 
D)  monopoly 
A)  perfect competition 
B)  monopolistic competition 
C)  oligopoly 
D)  monopoly

Question 11

If a perfectly competitive firm and a monopolistic competitor in long run equilibrium face exactly the same demand and cost curves,then there is high probability that

Accepted Answer

A)  the former will earn zero economic profits, but the latter will earn positive economic profits. 
B)  both will earn zero economic profits, but the former will attain lower unit costs than the latter. 
C)  both will earn zero economic profits, but the latter will attain lower unit costs than the former. 
D)  both firms will earn zero economic profits, and attain the lowest possible unit costs. 
E)  neither firm will earn zero economic profits, but both will attain the lowest possible unit costs. 
A)  the former will earn zero economic profits, but the latter will earn positive economic profits. 
B)  both will earn zero economic profits, but the former will attain lower unit costs than the latter. 
C)  both will earn zero economic profits, but the latter will attain lower unit costs than the former. 
D)  both firms will earn zero economic profits, and attain the lowest possible unit costs. 
E)  neither firm will earn zero economic profits, but both will attain the lowest possible unit costs.

Question 12

If the firms of an industry form a cartel,their goal is to

Accepted Answer

A)  collectively increase output and thereby earn higher profits. 
B)  cut back on output and raise the price of their product to earn higher profits. 
C)  maintain a constant level of output, but increase price to earn higher profits. 
D)  maintain a constant price level, but increase output to earn higher profits. 
A)  collectively increase output and thereby earn higher profits. 
B)  cut back on output and raise the price of their product to earn higher profits. 
C)  maintain a constant level of output, but increase price to earn higher profits. 
D)  maintain a constant price level, but increase output to earn higher profits.

Question 13

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

Accepted Answer

A)  There are many sellers and buyers. 
B)  Each firm produces and sells a slightly differentiated product. 
C)  There is easy entry. 
D)  There is easy exit. 
E)  All firms face the same cost conditions. 
A)  There are many sellers and buyers. 
B)  Each firm produces and sells a slightly differentiated product. 
C)  There is easy entry. 
D)  There is easy exit. 
E)  All firms face the same cost conditions.

Question 14

The profit-maximizing monopolistic competitor produces at the level of output where

Accepted Answer

A)  price equals marginal cost and marginal revenue. 
B)  marginal cost equals marginal revenue, but not price. 
C)  price equals marginal revenue, but not marginal cost. 
D)  price equals marginal cost, but not marginal revenue. 
A)  price equals marginal cost and marginal revenue. 
B)  marginal cost equals marginal revenue, but not price. 
C)  price equals marginal revenue, but not marginal cost. 
D)  price equals marginal cost, but not marginal revenue.

Question 15

Exhibit 25-8
  
-Refer to Exhibit 25-8.A profit-maximizing monopolistic competitive firm that produces the level of output where MR = MC will produce ______________ units of output and charge a price of ______________.

Accepted Answer

A)  3; $90 
B)  4; $80 
C)  5; $70 
D)  6; $60 
E)  7; $50 
A)  3; $90 
B)  4; $80 
C)  5; $70 
D)  6; $60 
E)  7; $50

Question 16

The major economic objective of cartels is to

Accepted Answer

A)  impose their political will on others. 
B)  restrict output, push up price, and increase profits. 
C)  reduce costs. 
D)  develop new ways of doing things. 
E)  b and d 
A)  impose their political will on others. 
B)  restrict output, push up price, and increase profits. 
C)  reduce costs. 
D)  develop new ways of doing things. 
E)  b and d

Question 17

"In equilibrium,a monopolistic competitor will produce an output level that is less than the level that would minimize its average total costs." This is a statement of the

Accepted Answer

A)  law of diminishing returns. 
B)  law of second best. 
C)  law of variable proportions. 
D)  excess capacity theorem. 
A)  law of diminishing returns. 
B)  law of second best. 
C)  law of variable proportions. 
D)  excess capacity theorem.

Question 18

In long run equilibrium,a monopolistic competitive firm will most likely produce a level of output for which price equals average total cost.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not a necessary condition for the contestable market theory?

Accepted Answer

A)  There are no barriers to entry. 
B)  Exit from an industry is costless. 
C)  All firms in an industry have the same costs of production. 
D)  All of the above are necessary conditions. 
A)  There are no barriers to entry. 
B)  Exit from an industry is costless. 
C)  All firms in an industry have the same costs of production. 
D)  All of the above are necessary conditions.

Question 20

One of the key characteristics of oligopoly is that

Accepted Answer

A)  firms are independent of each other. 
B)  firms face different cost conditions. 
C)  each firm is aware that its actions will influence other firms and that the actions of the other firms affect it. 
D)  it is easy to enter the industry. 
E)  none of the above 
A)  firms are independent of each other. 
B)  firms face different cost conditions. 
C)  each firm is aware that its actions will influence other firms and that the actions of the other firms affect it. 
D)  it is easy to enter the industry. 
E)  none of the above

Exam 25: Monopolistic Competition, Oligopoly, and Game Theory

Which of the following industries is the best real-world example of monopolistic competition?

Exhibit 25-3 -Refer to Exhibit 25-3.Total revenue of this profit maximizing monopolistic competitor is represented by the area

Unlike a perfectly competitive firm,a monopolistic competitor operates in the long run at a point at which

Does the monopolistic competitive firm exhibit resource-allocative efficiency?

The excess capacity theorem holds for a (n)__________,and states that in the long run the firm produces an output __________.

Grade inflation in colleges may possibly be a result of college professors being in a prisoner's dilemma setting.

Which of the following is true?

Which of the following is an example of a monopolistic competitor?

The profit-maximizing oligopolist produces where

In what industry structure is the interdependence of firms a key characteristic?

If a perfectly competitive firm and a monopolistic competitor in long run equilibrium face exactly the same demand and cost curves,then there is high probability that

If the firms of an industry form a cartel,their goal is to

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

The profit-maximizing monopolistic competitor produces at the level of output where

Exhibit 25-8 -Refer to Exhibit 25-8.A profit-maximizing monopolistic competitive firm that produces the level of output where MR = MC will produce ______________ units of output and charge a price of ______________.

The major economic objective of cartels is to

"In equilibrium,a monopolistic competitor will produce an output level that is less than the level that would minimize its average total costs." This is a statement of the

In long run equilibrium,a monopolistic competitive firm will most likely produce a level of output for which price equals average total cost.

Which of the following is not a necessary condition for the contestable market theory?

One of the key characteristics of oligopoly is that

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Filters

The excess capacity theorem holds for a (n),and states that in the long run the firm produces an output .

Exhibit 25-8 -Refer to Exhibit 25-8.A profit-maximizing monopolistic competitive firm that produces the level of output where MR = MC will produce units of output and charge a price of .