Question 1

The behavior of the monopolistic firm

Accepted Answer

A) maximizes the benefits to consumers, given the resources available to the economy. 
B) increases output in order to raise prices in the short term. 
C) results in excess capacity and inefficiency. 
D) results in entry into the market by other firms. 
A) maximizes the benefits to consumers, given the resources available to the economy. 
B) increases output in order to raise prices in the short term. 
C) results in excess capacity and inefficiency. 
D) results in entry into the market by other firms.

Question 2

The airline dominating Charlotte, North Carolina, once contended that it could not overcharge for fear of potential competition, if not at Charlotte, then at Raleigh, a two-hour drive away. Do you find this argument compelling, given the theory of contestable markets?

Accepted Answer

The theory of contestable markets holds

Question 3

In John Rawls' A Theory of Justice , people choose the rules for distributing income from behind a veil of ignorance. People understand that ability determines income, but they do not know their abilities or the abilities of others. Rawls argues that people are risk averse and will choose the distribution rule that maximizes their income in the worst-case scenario (they have relatively little ability). An economist would call this strategy

Accepted Answer

A) minimax. 
B) maximin. 
C) irrational. 
D) tacit collusion. 
A) minimax. 
B) maximin. 
C) irrational. 
D) tacit collusion.

Question 4

An oligopoly is a market in which at least some firms are large enough to influence market price.

Accepted Answer

A) True 
 B)False

Question 5

What is the long-run effect on the demand curve of a monopolistically competitive firm when more firms enter the market?

Accepted Answer

A) Demand curve shifts to left. 
B) Demand curve remains the same. 
C) Demand curve shifts to right. 
D) Demand curve become flatter. 
A) Demand curve shifts to left. 
B) Demand curve remains the same. 
C) Demand curve shifts to right. 
D) Demand curve become flatter.

Question 6

In what way is monopolistic competition more like competition, and in what way is it more like monopoly?

Accepted Answer

Like competition, there are many firms i

Question 7

The difficulty in analyzing oligopolistic behavior arises from the

Accepted Answer

A) degree of government regulation of the market structure. 
B) interdependent nature of oligopolistic decisions. 
C) large number of firms in the industry. 
D) market power of consumers. 
A) degree of government regulation of the market structure. 
B) interdependent nature of oligopolistic decisions. 
C) large number of firms in the industry. 
D) market power of consumers.

Question 8

A monopolistic competitor faces a horizontal demand curve.

Accepted Answer

A) True 
 B)False

Question 9

The payoff matrix is a fundamental tool of

Accepted Answer

A) monopolistic competition. 
B) game theory. 
C) corporate finance theory. 
D) regulatory oversight. 
A) monopolistic competition. 
B) game theory. 
C) corporate finance theory. 
D) regulatory oversight.

Question 10

In the cigarette industry either R. J. Reynolds or Phillip Morris, for a time, raised prices twice a year by about 50 cents per carton. The other firms in the industry raised their prices by the same amount. Economists call this

Accepted Answer

A) predatory pricing. 
B) a price war. 
C) price leadership. 
D) sales maximization. 
A) predatory pricing. 
B) a price war. 
C) price leadership. 
D) sales maximization.

Question 11

The demand curve facing a monopolistically competitive firm is generally

Accepted Answer

A) steeper than the demand curve that would face a perfectly competitive firm in the same industry. 
B) less elastic than the demand curve that would face a monopoly in the same industry. 
C) steeper and more elastic than the demand curve that would face a perfectly competitive firm in the same industry. 
D) flatter than the demand curve that would face a monopoly in the same industry. 
A) steeper than the demand curve that would face a perfectly competitive firm in the same industry. 
B) less elastic than the demand curve that would face a monopoly in the same industry. 
C) steeper and more elastic than the demand curve that would face a perfectly competitive firm in the same industry. 
D) flatter than the demand curve that would face a monopoly in the same industry.

Question 12

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 13

An oligopoly is a market structure in which a few large firms dominate the sale of a single product.

Accepted Answer

A) True 
 B)False

Question 14

In monopolistic competition, the long-run equilibrium results in zero economic profit of the firms in these industries. The key factor in this is

Accepted Answer

A) differentiated products. 
B) freedom of entry into and exit from the industry. 
C) price discrimination. 
D) brand names. 
A) differentiated products. 
B) freedom of entry into and exit from the industry. 
C) price discrimination. 
D) brand names.

Question 15

Oligopolies are difficult to analyze because of the interdependent nature of management decisions.

Accepted Answer

A) True 
 B)False

Question 16

When oligopolists join together in a cartel, they

Accepted Answer

A) have chosen to ignore interdependence. 
B) have admitted that their behavior is interdependent. 
C) are planning to violate the law of supply and demand. 
D) are trying to behave like perfect competitors. 
A) have chosen to ignore interdependence. 
B) have admitted that their behavior is interdependent. 
C) are planning to violate the law of supply and demand. 
D) are trying to behave like perfect competitors.

Question 17

Suppose that firms in a monopolistically competitive industry are earning positive economic profits. In this situation, you would expect

Accepted Answer

A) the number of firms in the market to increase. 
B) each firm will experience an increase in its demand. 
C) there is a downward shift in the firm's average cost curve. 
D) to observe firms reducing their advertising. 
A) the number of firms in the market to increase. 
B) each firm will experience an increase in its demand. 
C) there is a downward shift in the firm's average cost curve. 
D) to observe firms reducing their advertising.

Question 18

The demand curve for a monopolistic competitor has a negative slope.

Accepted Answer

A) True 
 B)False

Question 19

A situation in which both players can adopt moves such that each player's move is its most profitable response to the move of the other is the

Accepted Answer

A) prisoner's dilemma. 
B) Nash equilibrium. 
C) maximin criterion. 
D) tacit collusion. 
A) prisoner's dilemma. 
B) Nash equilibrium. 
C) maximin criterion. 
D) tacit collusion.

Question 20

The cost-revenue diagrams for a monopolist and a monopolistic competitor are similar except that the demand curve for the monopolistic competitor is flatter.

Accepted Answer

A) True 
 B)False

Exam 13: Between Competition and Monopoly

The behavior of the monopolistic firm

The airline dominating Charlotte, North Carolina, once contended that it could not overcharge for fear of potential competition, if not at Charlotte, then at Raleigh, a two-hour drive away. Do you find this argument compelling, given the theory of contestable markets?

An oligopoly is a market in which at least some firms are large enough to influence market price.

What is the long-run effect on the demand curve of a monopolistically competitive firm when more firms enter the market?

In what way is monopolistic competition more like competition, and in what way is it more like monopoly?

The difficulty in analyzing oligopolistic behavior arises from the

A monopolistic competitor faces a horizontal demand curve.

The payoff matrix is a fundamental tool of

In the cigarette industry either R. J. Reynolds or Phillip Morris, for a time, raised prices twice a year by about 50 cents per carton. The other firms in the industry raised their prices by the same amount. Economists call this

The demand curve facing a monopolistically competitive firm is generally

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

An oligopoly is a market structure in which a few large firms dominate the sale of a single product.

In monopolistic competition, the long-run equilibrium results in zero economic profit of the firms in these industries. The key factor in this is

Oligopolies are difficult to analyze because of the interdependent nature of management decisions.

When oligopolists join together in a cartel, they

Suppose that firms in a monopolistically competitive industry are earning positive economic profits. In this situation, you would expect

The demand curve for a monopolistic competitor has a negative slope.

A situation in which both players can adopt moves such that each player's move is its most profitable response to the move of the other is the

The cost-revenue diagrams for a monopolist and a monopolistic competitor are similar except that the demand curve for the monopolistic competitor is flatter.

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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