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

In the long run, which of the following conditions is true for a monopolistically competitive firm?

Accepted Answer

A) P > AC and MR = MC. 
B) P = MC and MR > AC. 
C) P = AC and MR = MC. 
D) P > MR and P > AC. 
A) P > AC and MR = MC. 
B) P = MC and MR > AC. 
C) P = AC and MR = MC. 
D) P > MR and P > AC.

Question 3

The game theory approach to the analysis of oligopoly assumes that oligopolists

Accepted Answer

A) ignore their interdependence. 
B) behave with little forethought. 
C) do not take their businesses seriously. 
D) act strategically. 
A) ignore their interdependence. 
B) behave with little forethought. 
C) do not take their businesses seriously. 
D) act strategically.

Question 4

Which of the following attitudes will be held by a typical firm in a typical cartel?

Accepted Answer

A) If I alone cheat, I'm better off; if everyone cheats, I'm worse off. 
B) I can never do better for myself than by following agreed-upon cartel policies. 
C) If everyone cheats, I'm better off and so is everyone else in the cartel. 
D) If I suspect others are planning to cheat, I'll do best for myself by deciding not to cheat. 
A) If I alone cheat, I'm better off; if everyone cheats, I'm worse off. 
B) I can never do better for myself than by following agreed-upon cartel policies. 
C) If everyone cheats, I'm better off and so is everyone else in the cartel. 
D) If I suspect others are planning to cheat, I'll do best for myself by deciding not to cheat.

Question 5

A perfectly contestable market is one in which there are excessive costs to entry and exit.

Accepted Answer

A) True 
 B)False

Question 6

An empirical study determines that price exceeds marginal cost at the levels of output of firms in long-run equilibrium in the widget industry. The widget industry may therefore

Accepted Answer

A) be monopolistically competitive. 
B) have firms whose goal is sales maximization. 
C) have firms that act as price leaders. 
D) All of the responses are correct. 
A) be monopolistically competitive. 
B) have firms whose goal is sales maximization. 
C) have firms that act as price leaders. 
D) All of the responses are correct.

Question 7

Which oligopoly model leads to price rigidity? Graphically show why.

Accepted Answer

The kinked demand curve model leads to p

Question 8

Which of the following conditions distinguishes the monopolistic competitor from the monopolist?

Accepted Answer

A) Profit-maximizing rule 
B) Downward slope of demand curve 
C) Entry of rivals 
D) Short-run economic profits 
A) Profit-maximizing rule 
B) Downward slope of demand curve 
C) Entry of rivals 
D) Short-run economic profits

Question 9

Displayed below is the payoff matrix of firm A for four different strategies, A1, A2, A3, and A4, and the potential retaliatory responses of firm B (B1, B2, B3, B4). Table 12-1
  If firm A uses the maximin criterion, which strategy will it choose?
​

Accepted Answer

A) A1 
B) A2 
C) A3 
D) A4 
A) A1 
B) A2 
C) A3 
D) A4

Question 10

If the firms in a market reach an agreement about pricing and output shares, we would call this

Accepted Answer

A) a cartel. 
B) a dominant strategy. 
C) a Nash equilibrium. 
D) a duopoly. 
A) a cartel. 
B) a dominant strategy. 
C) a Nash equilibrium. 
D) a duopoly.

Question 11

When an airline reduces its fares, other airlines typically match the action. But when an airline increases its fare, other airlines do not follow suit. Which oligopoly model cartel, price leadership, or kinked demand best fits the airline industry as described? Justify your choice and explain why the other models are less appropriate.

Accepted Answer

The interdependence fits the kinked dema

Question 12

A dominant strategy

Accepted Answer

A) results in the best outcome for a player if other players also play the same strategy. 
B) is the best strategy for a player, regardless of the strategy chosen by other players. 
C) is present in every game. 
D) is identical to a Nash equilibrium. 
A) results in the best outcome for a player if other players also play the same strategy. 
B) is the best strategy for a player, regardless of the strategy chosen by other players. 
C) is present in every game. 
D) is identical to a Nash equilibrium.

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

One indication that an industry might be oligopolistic is that prices change

Accepted Answer

A) infrequently. 
B) frequently. 
C) in rhythmic patterns. 
D) on a regular, periodic basis. 
A) infrequently. 
B) frequently. 
C) in rhythmic patterns. 
D) on a regular, periodic basis.

Question 15

Which of the following conditions distinguishes monopolistic competition from perfect competition?

Accepted Answer

A) Number of sellers 
B) Freedom of entry and exit 
C) Perfect information 
D) Homogeneity of the product 
A) Number of sellers 
B) Freedom of entry and exit 
C) Perfect information 
D) Homogeneity of the product

Question 16

If a firm decides to ignore the reactions of its rivals to its policies, the appropriate model to analyze its behavior is

Accepted Answer

A) game theory. 
B) perfect competition. 
C) monopoly. 
D) cartels. 
A) game theory. 
B) perfect competition. 
C) monopoly. 
D) cartels.

Question 17

Can positive economic profits persist under monopolistic competition in the long run. Why?

Accepted Answer

No, because economic profits will entice

Question 18

Oligopolists seldom change prices, because they don't like change.

Accepted Answer

A) True 
 B)False

Question 19

What quantity of output and price do they try to set, when a group of oligopoly firms form a cartel? Will there be any changes in the price and quantity supplied if the cartel gets broken down?

Accepted Answer

By forming cartels, oligopoly

Question 20

The key difference between monopolistic competition and perfect competition is that in monopolistic competition the tangency of

Accepted Answer

A) AC and the demand curve occurs along the negatively sloped part of AC. 
B) the demand curve and AC occurs at the minimum point of the AC curve. 
C) AC and the demand curve occurs along the positively sloped part of AC. 
D) MC and MR at the optimum output. 
A) AC and the demand curve occurs along the negatively sloped part of AC. 
B) the demand curve and AC occurs at the minimum point of the AC curve. 
C) AC and the demand curve occurs along the positively sloped part of AC. 
D) MC and MR at the optimum output.

Exam 13: Between Competition and Monopoly

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

In the long run, which of the following conditions is true for a monopolistically competitive firm?

The game theory approach to the analysis of oligopoly assumes that oligopolists

Which of the following attitudes will be held by a typical firm in a typical cartel?

A perfectly contestable market is one in which there are excessive costs to entry and exit.

An empirical study determines that price exceeds marginal cost at the levels of output of firms in long-run equilibrium in the widget industry. The widget industry may therefore

Which oligopoly model leads to price rigidity? Graphically show why.

Which of the following conditions distinguishes the monopolistic competitor from the monopolist?

Displayed below is the payoff matrix of firm A for four different strategies, A1, A2, A3, and A4, and the potential retaliatory responses of firm B (B1, B2, B3, B4). Table 12-1 If firm A uses the maximin criterion, which strategy will it choose? ​

If the firms in a market reach an agreement about pricing and output shares, we would call this

A dominant strategy

A market is contestable if

One indication that an industry might be oligopolistic is that prices change

Which of the following conditions distinguishes monopolistic competition from perfect competition?

If a firm decides to ignore the reactions of its rivals to its policies, the appropriate model to analyze its behavior is

Can positive economic profits persist under monopolistic competition in the long run. Why?

Oligopolists seldom change prices, because they don't like change.

What quantity of output and price do they try to set, when a group of oligopoly firms form a cartel? Will there be any changes in the price and quantity supplied if the cartel gets broken down?

The key difference between monopolistic competition and perfect competition is that in monopolistic competition the tangency of

What Is Economics

The Economy: 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

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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Displayed below is the payoff matrix of firm A for four different strategies, A1, A2, A3, and A4, and the potential retaliatory responses of firm B (B1, B2, B3, B4). Table 12-1 If firm A uses the maximin criterion, which strategy will it choose?