Question 1

What are the assumptions of the kinked demand curve model? What is its main conclusion about oligopoly behavior?

Accepted Answer

The model has two main assumptions: The

Question 2

Monopolistic competition tends to lead firms to have wasted capacity.Why?

Accepted Answer

Under monopolistic competition in the lo

Question 3

Here is an excerpt form an editorial praising capitalism in The Economist: "It is competition that delivers choice, holds prices down, encourages invention and service, and (through all these things) delivers economic growth." To what type of competition does the writer refer? Is it the sort of competition that economists study? Explain.

Accepted Answer

The competition here seems to be monopol

Question 4

Firms in a perfectly contestable market will earn higher profits than firms in markets that are not perfectly contestable.

Accepted Answer

A) True 
 B)False

Question 5

Displayed below is the payoff matrix of firm B for four different strategies, B1, B2, B3, and B4, and the potential retaliatory responses of firm A (A1, A2, A3, A4). Table 12-2   If firm B uses the maximin criterion, which strategy will it choose?
​

Accepted Answer

A) B1 
B) B2 
C) B3 
D) B4 
A) B1 
B) B2 
C) B3 
D) B4

Question 6

Monopolies can misallocate resources by restricting output in an attempt to raise prices and profits.

Accepted Answer

A) True 
 B)False

Question 7

The short-run equilibrium of the firm under monopolistic competition has excess capacity.

Accepted Answer

A) True 
 B)False

Question 8

If five firms constitute all of the producers in the wristwatch industry, we would call this market a duopoly.

Accepted Answer

A) True 
 B)False

Question 9

The key difference between oligopoly and other market structures is the interdependence among producers.

Accepted Answer

A) True 
 B)False

Question 10

Probably the simplest approach to the problem of oligopolistic interdependence is to

Accepted Answer

A) conduct market experiments. 
B) assume that rivals will pursue a course most detrimental to the firm concerned. 
C) ignore the actions of rivals. 
D) increase the firm's advertising outlay considerably. 
A) conduct market experiments. 
B) assume that rivals will pursue a course most detrimental to the firm concerned. 
C) ignore the actions of rivals. 
D) increase the firm's advertising outlay considerably.

Question 11

Monopolistic competitors and perfect competitors are alike in

Accepted Answer

A) having horizontal demand curves. 
B) zero economic profit in the short run. 
C) zero economic profit in the long run. 
D) relying on advertising to attract buyers to their products. 
A) having horizontal demand curves. 
B) zero economic profit in the short run. 
C) zero economic profit in the long run. 
D) relying on advertising to attract buyers to their products.

Question 12

Monopolistic competition is different from perfect competition in that every manufacturer

Accepted Answer

A) has a small monopoly, and differentiates the product. 
B) takes the product quality as given, and chooses price. 
C) takes output level as given, but must choose price. 
D) differentiates product, but cannot advertise successfully. 
A) has a small monopoly, and differentiates the product. 
B) takes the product quality as given, and chooses price. 
C) takes output level as given, but must choose price. 
D) differentiates product, but cannot advertise successfully.

Question 13

A market is contestable if

Accepted Answer

A) the number of firms is larger than oligopoly. 
B) firms spend a lot on advertising. 
C) there is free entry and exit. 
D) firms have kinked demand curves. 
A) the number of firms is larger than oligopoly. 
B) firms spend a lot on advertising. 
C) there is free entry and exit. 
D) firms have kinked demand curves.

Question 14

OPEC became a successful cartel in the 1970s by deciding to restrict oil production.

Accepted Answer

A) True 
 B)False

Question 15

Monopolistic competition has at least one similarity to perfect competition: firms are free to enter and leave the industry.

Accepted Answer

A) True 
 B)False

Question 16

Identify the market structure characterized by many small firms selling somewhat different products.

Accepted Answer

A) Monopoly 
B) Monopolistic competition 
C) Perfect competition 
D) Duopoly 
A) Monopoly 
B) Monopolistic competition 
C) Perfect competition 
D) Duopoly

Question 17

The development of game theory was the work of

Accepted Answer

A) Joan Robinson and Edward Chamberlin. 
B) John von Neumann and Oskar Morgenstern. 
C) Wassily Leontief and Joseph Schumpeter. 
D) John Maynard Keynes. 
A) Joan Robinson and Edward Chamberlin. 
B) John von Neumann and Oskar Morgenstern. 
C) Wassily Leontief and Joseph Schumpeter. 
D) John Maynard Keynes.

Question 18

A firm in monopolistically competitive market is producing 30 units of output.At this level of production, the firm charges $50 per unit.Its marginal cost is $24 and marginal revenue is $24, and average cost is $20 per unit.Given this information, this firm should

Accepted Answer

A) maintain its current output, since it is maximizing profits. 
B) decrease output to increase profits. 
C) increase output to increase profits. 
D) shut down. 
A) maintain its current output, since it is maximizing profits. 
B) decrease output to increase profits. 
C) increase output to increase profits. 
D) shut down.

Question 19

What are the advantages and disadvantages of resource allocation under monopolistic competition compared to perfect competition?

Accepted Answer

The disadvantage is that monopolisticall

Question 20

Is it likely that oligopolistic firms will be in both a kinked demand curve situation and also engage in price leadership? Why or why not?

Accepted Answer

No, it is not.The models are not compati

Exam 13: Between Competition and Monopoly

What are the assumptions of the kinked demand curve model? What is its main conclusion about oligopoly behavior?

Monopolistic competition tends to lead firms to have wasted capacity.Why?

Firms in a perfectly contestable market will earn higher profits than firms in markets that are not perfectly contestable.

Displayed below is the payoff matrix of firm B for four different strategies, B1, B2, B3, and B4, and the potential retaliatory responses of firm A (A1, A2, A3, A4). Table 12-2 If firm B uses the maximin criterion, which strategy will it choose? ​

Monopolies can misallocate resources by restricting output in an attempt to raise prices and profits.

The short-run equilibrium of the firm under monopolistic competition has excess capacity.

If five firms constitute all of the producers in the wristwatch industry, we would call this market a duopoly.

The key difference between oligopoly and other market structures is the interdependence among producers.

Probably the simplest approach to the problem of oligopolistic interdependence is to

Monopolistic competitors and perfect competitors are alike in

Monopolistic competition is different from perfect competition in that every manufacturer

A market is contestable if

OPEC became a successful cartel in the 1970s by deciding to restrict oil production.

Monopolistic competition has at least one similarity to perfect competition: firms are free to enter and leave the industry.

Identify the market structure characterized by many small firms selling somewhat different products.

The development of game theory was the work of

A firm in monopolistically competitive market is producing 30 units of output.At this level of production, the firm charges $50 per unit.Its marginal cost is $24 and marginal revenue is $24, and average cost is $20 per unit.Given this information, this firm should

What are the advantages and disadvantages of resource allocation under monopolistic competition compared to perfect competition?

Is it likely that oligopolistic firms will be in both a kinked demand curve situation and also engage in price leadership? Why or why not?

What Is Economics

The Economony: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Useconomy

Filters

Displayed below is the payoff matrix of firm B for four different strategies, B1, B2, B3, and B4, and the potential retaliatory responses of firm A (A1, A2, A3, A4). Table 12-2 If firm B uses the maximin criterion, which strategy will it choose?