Question 1

What is the deadweight loss of monopolistic competition a result of?

Accepted Answer

A)  barriers to entry 
B)  productive inefficiency 
C)  inelastic product demand 
D)  allocative inefficiency 
A)  barriers to entry 
B)  productive inefficiency 
C)  inelastic product demand 
D)  allocative inefficiency

Question 2

Why do oligopolists tend to change their price less frequently than perfect competitors?

Accepted Answer

A)  because their demand curves are inelastic 
B)  because they often are subject to government price controls 
C)  because they are uncertain as to how their competitors will react 
D)  because the demand curve for their product is not as volatile 
A)  because their demand curves are inelastic 
B)  because they often are subject to government price controls 
C)  because they are uncertain as to how their competitors will react 
D)  because the demand curve for their product is not as volatile

Question 3

When does excess capacity in an industry occur?

Accepted Answer

A)  when quantity supplied exceeds quantity demanded 
B)  when quantity demanded exceeds quantity supplied 
C)  when economic profits are negative 
D)  when production occurs to the left of minimum average total cost 
A)  when quantity supplied exceeds quantity demanded 
B)  when quantity demanded exceeds quantity supplied 
C)  when economic profits are negative 
D)  when production occurs to the left of minimum average total cost

Question 4

Prisoner's Dilemma is the classic game with a dominant strategy that demonstrates the basic problem faced by noncolluding oligopolists.

Accepted Answer

A) True 
 B)False

Question 5

What are oligopolists said to be doing when they determine price and output decisions jointly?

Accepted Answer

A)  corroborating 
B)  combining 
C)  coexisting 
D)  colluding 
A)  corroborating 
B)  combining 
C)  coexisting 
D)  colluding

Question 6

Monopolistically competitive firms set price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 7

Under what circumstances might advertising lead to a reduction in prices?

Accepted Answer

A)  if marginal revenue increases faster than marginal costs 
B)  if it leads to increased awareness of substitutes and increased elasticity 
C)  if increased production leads to lower average costs 
D)  if it leads to increased differentiation and decreased elasticity 
A)  if marginal revenue increases faster than marginal costs 
B)  if it leads to increased awareness of substitutes and increased elasticity 
C)  if increased production leads to lower average costs 
D)  if it leads to increased differentiation and decreased elasticity

Question 8

What is it referred to when two firms collude to improve their profit maximizations?

Accepted Answer

A)  a cooperative game 
B)  a strategic game 
C)  an interdependent policy 
D)  a defensive policy 
A)  a cooperative game 
B)  a strategic game 
C)  an interdependent policy 
D)  a defensive policy

Question 9

Two restaurants, in a small town, compete in the market for pizza. Each restaurant must decide whether to charge a high price or a low price. The potential monthly profits for these firms are shown below (in thousands of dollars).
FIGURE 10-4
  
-Referring to Figure 10-4, what is the cooperative outcome?

Accepted Answer

A)  Restaurant A charges a high price and Restaurant B charges a low price. 
B)  Restaurant A charges a low price and Restaurant B charges a high price. 
C)  Restaurant A charges a high price and Restaurant B charges a high price. 
D)  Restaurant A charges a low price and Restaurant B charges a low price. 
A)  Restaurant A charges a high price and Restaurant B charges a low price. 
B)  Restaurant A charges a low price and Restaurant B charges a high price. 
C)  Restaurant A charges a high price and Restaurant B charges a high price. 
D)  Restaurant A charges a low price and Restaurant B charges a low price.

Question 10

FIGURE 10-1
  
-The profit-maximizing firm illustrated in Figure 10-1 operates in a monopolistically competitive industry. What is this firm's total fixed cost equal to?

Accepted Answer

A)  FGAB 
B)  OFBD 
C)  OECD 
D)  EFBC 
A)  FGAB 
B)  OFBD 
C)  OECD 
D)  EFBC

Question 11

Advertising always leads to a cost of production.

Accepted Answer

A) True 
 B)False

Question 12

How do firms in monopolistically competitive industries maximize profits?

Accepted Answer

A)  by producing at a level where marginal cost equals marginal revenue 
B)  by producing at a level where average variable cost equals average revenue 
C)  by producing at a level where average total cost equals average revenue 
D)  by producing at a level where average variable cost equals marginal cost 
A)  by producing at a level where marginal cost equals marginal revenue 
B)  by producing at a level where average variable cost equals average revenue 
C)  by producing at a level where average total cost equals average revenue 
D)  by producing at a level where average variable cost equals marginal cost

Question 13

Why do firms in monopolistically competitive industries have some degree of market power?

Accepted Answer

A)  as a result of barriers to entry 
B)  as a result of economies of scale 
C)  as a result of specialization and division of labour 
D)  as a result of product differentiation 
A)  as a result of barriers to entry 
B)  as a result of economies of scale 
C)  as a result of specialization and division of labour 
D)  as a result of product differentiation

Question 14

FIGURE 10-2
  
-The profit-maximizing firm illustrated in Figure 10-2 operates in a monopolistically competitive industry. What is this firm's total profit equal to?

Accepted Answer

A)  OFBD - OGAD 
B)  OGAD - OFBD 
C)  OFBD 
D)  FGAB 
A)  OFBD - OGAD 
B)  OGAD - OFBD 
C)  OFBD 
D)  FGAB

Question 15

Game theory examines how firms try to maximize their profits by making decisions based on the actions of their competitors.

Accepted Answer

A) True 
 B)False

Question 16

Under what circumstances might advertising benefit society?

Accepted Answer

A)  if it provides information 
B)  if it decreases the deadweight loss from underallocation of resources 
C)  if it increases productive efficiency 
D)  if it increases allocative efficiency 
A)  if it provides information 
B)  if it decreases the deadweight loss from underallocation of resources 
C)  if it increases productive efficiency 
D)  if it increases allocative efficiency

Question 17

FIGURE 10-1
  
-The profit-maximizing firm illustrated in Figure 10-1 operates in a monopolistically competitive industry. What is this firm's total profit equal to?

Accepted Answer

A)  FGAB 
B)  OECD 
C)  EFBC 
D)  OFBD 
A)  FGAB 
B)  OECD 
C)  EFBC 
D)  OFBD

Question 18

Monopolistically competitive firms are capable of earning long-run profits due to product differentiation.

Accepted Answer

A) True 
 B)False

Question 19

FIGURE 10-1
  
-The profit-maximizing firm illustrated in Figure 10-1 operates in a monopolistically competitive industry. What is this firm's total revenue equal to?

Accepted Answer

A)  FGAB 
B)  OFBD 
C)  OECD 
D)  OGAD 
A)  FGAB 
B)  OFBD 
C)  OECD 
D)  OGAD

What is the deadweight loss of monopolistic competition a result of?

Why do oligopolists tend to change their price less frequently than perfect competitors?

When does excess capacity in an industry occur?

Prisoner's Dilemma is the classic game with a dominant strategy that demonstrates the basic problem faced by noncolluding oligopolists.

What are oligopolists said to be doing when they determine price and output decisions jointly?

Monopolistically competitive firms set price equal to marginal cost.

Under what circumstances might advertising lead to a reduction in prices?

What is it referred to when two firms collude to improve their profit maximizations?

FIGURE 10-1 -The profit-maximizing firm illustrated in Figure 10-1 operates in a monopolistically competitive industry. What is this firm's total fixed cost equal to?

Advertising always leads to a cost of production.

How do firms in monopolistically competitive industries maximize profits?

Why do firms in monopolistically competitive industries have some degree of market power?

FIGURE 10-2 -The profit-maximizing firm illustrated in Figure 10-2 operates in a monopolistically competitive industry. What is this firm's total profit equal to?

Game theory examines how firms try to maximize their profits by making decisions based on the actions of their competitors.

Under what circumstances might advertising benefit society?

FIGURE 10-1 -The profit-maximizing firm illustrated in Figure 10-1 operates in a monopolistically competitive industry. What is this firm's total profit equal to?

Monopolistically competitive firms are capable of earning long-run profits due to product differentiation.

FIGURE 10-1 -The profit-maximizing firm illustrated in Figure 10-1 operates in a monopolistically competitive industry. What is this firm's total revenue equal to?

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Perfect Competition

Monopoly

Labour Markets and the Distribution of Income

The Environment

Filters

Exam 10: Monopolistic Competition and Oligopoly

What is the deadweight loss of monopolistic competition a result of?

Why do oligopolists tend to change their price less frequently than perfect competitors?

When does excess capacity in an industry occur?

Prisoner's Dilemma is the classic game with a dominant strategy that demonstrates the basic problem faced by noncolluding oligopolists.

What are oligopolists said to be doing when they determine price and output decisions jointly?

Monopolistically competitive firms set price equal to marginal cost.

Under what circumstances might advertising lead to a reduction in prices?

What is it referred to when two firms collude to improve their profit maximizations?

FIGURE 10-1 -The profit-maximizing firm illustrated in Figure 10-1 operates in a monopolistically competitive industry. What is this firm's total fixed cost equal to?

Advertising always leads to a cost of production.

How do firms in monopolistically competitive industries maximize profits?

Why do firms in monopolistically competitive industries have some degree of market power?

FIGURE 10-2 -The profit-maximizing firm illustrated in Figure 10-2 operates in a monopolistically competitive industry. What is this firm's total profit equal to?

Game theory examines how firms try to maximize their profits by making decisions based on the actions of their competitors.

Under what circumstances might advertising benefit society?

FIGURE 10-1 -The profit-maximizing firm illustrated in Figure 10-1 operates in a monopolistically competitive industry. What is this firm's total profit equal to?

Monopolistically competitive firms are capable of earning long-run profits due to product differentiation.

FIGURE 10-1 -The profit-maximizing firm illustrated in Figure 10-1 operates in a monopolistically competitive industry. What is this firm's total revenue equal to?

The Role and Method of Economics

Scarcity, Trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Elasticity

Market Efficiency and Market Failure

Production and Costs

Perfect Competition

Monopoly

Labour Markets and the Distribution of Income

The Environment

Filters