Question 1

In a price leadership oligopoly model,

Accepted Answer

A)  a cartel of leading firms determines price and industry output. 
B)  the industry in consortium with the government determines price and output. 
C)  one firm is the price leader and all other firms follow. 
D)  the firms abandon a profit-maximizing goal. 
A)  a cartel of leading firms determines price and industry output. 
B)  the industry in consortium with the government determines price and output. 
C)  one firm is the price leader and all other firms follow. 
D)  the firms abandon a profit-maximizing goal.

Question 2

As new firms enter a monopolistic competitive industry, it can be expected that:

Accepted Answer

A)  market price will increase. 
B)  the output of existing firms will increase. 
C)  profits of existing firms will increase. 
D)  profits of existing firms will decrease. 
A)  market price will increase. 
B)  the output of existing firms will increase. 
C)  profits of existing firms will increase. 
D)  profits of existing firms will decrease.

Question 3

Exhibit 10-4 Kinked demand curves
 
In Exhibit 10-4, in a kinked-demand oligopoly model, D2 represents the demand curve

Accepted Answer

A)  applicable to any price increase above $50. 
B)  applicable to any price decrease below $50. 
C)  facing firms when a cartel is formed. 
D)  facing the price leader. 
A)  applicable to any price increase above $50. 
B)  applicable to any price decrease below $50. 
C)  facing firms when a cartel is formed. 
D)  facing the price leader.

Question 4

Which of the following is the best example of a firm operating in a monopolistically competitive market?

Accepted Answer

A)  A Kansas wheat farmer. 
B)  TGI Fridays, a family restaurant. 
C)  U.S. Postal Service. 
D)  Boeing, an aircraft manufacturer 
A)  A Kansas wheat farmer. 
B)  TGI Fridays, a family restaurant. 
C)  U.S. Postal Service. 
D)  Boeing, an aircraft manufacturer

Question 5

A kinked demand curve is perceived by the firm as being:

Accepted Answer

A)  more elastic to the right of the kink 
B)  more inelastic to the right of the kink 
C)  more inelastic to the left of the kink 
D)  present when there is a monopoly 
A)  more elastic to the right of the kink 
B)  more inelastic to the right of the kink 
C)  more inelastic to the left of the kink 
D)  present when there is a monopoly

Question 6

Some economists argue that monopolistically competitive markets are inefficient because:

Accepted Answer

A)  the firms earn economic profits in the long run. 
B)  the firms' marginal costs and marginal revenues are not always equal. 
C)  firms do not produce the output rate that would minimize their average total cost. 
D)  barriers to entry are high. 
A)  the firms earn economic profits in the long run. 
B)  the firms' marginal costs and marginal revenues are not always equal. 
C)  firms do not produce the output rate that would minimize their average total cost. 
D)  barriers to entry are high.

Question 7

Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

Accepted Answer

A)  the producer is charging a price of $3. 
B)  economic profit is $2,100. 
C)  the producer charges a price greater than $3. 
D)  new firms will want to enter. 
A)  the producer is charging a price of $3. 
B)  economic profit is $2,100. 
C)  the producer charges a price greater than $3. 
D)  new firms will want to enter.

Question 8

Suppose the Tidy Laundry Detergent Company, which sells 40% of all detergent, is thinking about raising its price. Before Tidy makes the change, they analyze the likely responses of the All-Clean Detergent Company, which sells 35% of all detergent, and Cheerful Detergent Company, which sells 20% of all detergent. Tidy's behavior shows

Accepted Answer

A)  mutual interdependence in pricing decisions. 
B)  nonprice competition. 
C)  difficult entry in oligopolies. 
D)  collusion. 
A)  mutual interdependence in pricing decisions. 
B)  nonprice competition. 
C)  difficult entry in oligopolies. 
D)  collusion.

Question 9

Perfect competition and monopolistic competition are similar because under both market structures,

Accepted Answer

A)  there are many firms. 
B)  production takes place at the least-cost combination. 
C)  differentiated products are produced. 
D)  entry is difficult. 
A)  there are many firms. 
B)  production takes place at the least-cost combination. 
C)  differentiated products are produced. 
D)  entry is difficult.

Question 10

What is the key feature shared by all oligopoly markets?

Accepted Answer

A)  a large number of sellers 
B)  mutual interdependence 
C)  product differentiation 
D)  easy entry and exit 
A)  a large number of sellers 
B)  mutual interdependence 
C)  product differentiation 
D)  easy entry and exit

Question 11

If OPEC is an effective cartel,

Accepted Answer

A)  price changes are dictated by changes in demand. 
B)  output changes are dictated by changes in demand. 
C)  members agree on output quotas. 
D)  oil prices will be lower than if the market functioned competitively. 
A)  price changes are dictated by changes in demand. 
B)  output changes are dictated by changes in demand. 
C)  members agree on output quotas. 
D)  oil prices will be lower than if the market functioned competitively.

Question 12

Exhibit 10-7 Two-Firm Payoff Matrix
 
Suppose costs are identical for the two firms in Exhibit 10-7. If both firms assume the other will compete and charge a lower price, equilibrium will be established by:

Accepted Answer

A)  Camel charging the high price and Marlboro charging the high price. 
B)  Camel charging the low price and Marlboro charging the low price. 
C)  Camel charging the low price and Marlboro charging the high price. 
D)  Camel charging the high price and Marlboro charging the low price. 
A)  Camel charging the high price and Marlboro charging the high price. 
B)  Camel charging the low price and Marlboro charging the low price. 
C)  Camel charging the low price and Marlboro charging the high price. 
D)  Camel charging the high price and Marlboro charging the low price.

Question 13

Critics of advertising argue that it:

Accepted Answer

A)  lowers price by increasing competition. 
B)  results in more variety of products. 
C)  establishes brand loyalty, which promotes competition. 
D)  serves as a barrier to entry for new firms. 
A)  lowers price by increasing competition. 
B)  results in more variety of products. 
C)  establishes brand loyalty, which promotes competition. 
D)  serves as a barrier to entry for new firms.

Question 14

Exhibit 10-4 Kinked demand curves
 
In Exhibit 10-4, the exhibit represents a kinked-demand oligopoly model. Suppose the current price is $50. If one firm in the oligopoly now attempts to raise price, all firms will:

Accepted Answer

A)  follow along demand curve D1. 
B)  follow along demand curve D2. 
C)  ignore this price increase and cause the price-raising firm to move along D1. 
D)  ignore this price increase and cause the price-raising firm to move along D2. 
A)  follow along demand curve D1. 
B)  follow along demand curve D2. 
C)  ignore this price increase and cause the price-raising firm to move along D1. 
D)  ignore this price increase and cause the price-raising firm to move along D2.

Question 15

The two tendencies of a firm in a cartel are the incentive to:

Accepted Answer

A)  cheat to maximize joint profits and the incentive to raise prices. 
B)  cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits. 
C)  increase output in order to minimize per-unit cost and the incentive to reduce price in order to maximize joint profit. 
D)  cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit. 
A)  cheat to maximize joint profits and the incentive to raise prices. 
B)  cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits. 
C)  increase output in order to minimize per-unit cost and the incentive to reduce price in order to maximize joint profit. 
D)  cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit.

Question 16

Nonprice competition in monopolistically competitive markets results in

Accepted Answer

A)  consumers buying the product with the lowest price in a differentiated market. 
B)  less advertising and product differentiation than in markets without nonprice competition. 
C)  rivalry among competing firms based on the characteristics that differentiate their products. 
D)  price equaling the minimum average total cost in long run equilibrium. 
A)  consumers buying the product with the lowest price in a differentiated market. 
B)  less advertising and product differentiation than in markets without nonprice competition. 
C)  rivalry among competing firms based on the characteristics that differentiate their products. 
D)  price equaling the minimum average total cost in long run equilibrium.

Question 17

One key characteristic that is distinctive of an oligopoly market is that:

Accepted Answer

A)  the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve. 
B)  the decisions of one seller often influences the price of products, the output, and the profits of rival firms. 
C)  there is only one firm that produces a product for which there are no good substitutes. 
D)  there are many sellers in the market and each is small relative to the total market. 
A)  the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve. 
B)  the decisions of one seller often influences the price of products, the output, and the profits of rival firms. 
C)  there is only one firm that produces a product for which there are no good substitutes. 
D)  there are many sellers in the market and each is small relative to the total market.

Question 18

Exhibit 10-3 A monopolistic competitive firm in the long run
 
As presented in Exhibit 10-3, the long-run profit-maximizing output for the monopolistic competitive firm is:

Accepted Answer

A)  zero units per week. 
B)  200 units per week. 
C)  400 units per week. 
D)  600 units per week. 
A)  zero units per week. 
B)  200 units per week. 
C)  400 units per week. 
D)  600 units per week.

Question 19

Exhibit 10-4 Kinked demand curves
 
In Exhibit 10-4, in a kinked-demand oligopoly model, D1 represents the demand curve

Accepted Answer

A)  applicable to any price increase above $50. 
B)  applicable to any price decrease below $50. 
C)  facing firms when a cartel is formed. 
D)  facing the price leader. 
A)  applicable to any price increase above $50. 
B)  applicable to any price decrease below $50. 
C)  facing firms when a cartel is formed. 
D)  facing the price leader.

Question 20

Which of the following is the result of competing through advertising for a monopolistically competitive firm?

Accepted Answer

A)  Long-run average costs shift downward. 
B)  The firm's demand curve become flatter and shifts inward. 
C)  The firm's demand curve keeps the same slope and shifts inward. 
D)  Long-run average costs shift upward. 
A)  Long-run average costs shift downward. 
B)  The firm's demand curve become flatter and shifts inward. 
C)  The firm's demand curve keeps the same slope and shifts inward. 
D)  Long-run average costs shift upward.

Exam 10: Monopolistic Competition and Oligopoly

In a price leadership oligopoly model,

As new firms enter a monopolistic competitive industry, it can be expected that:

Exhibit 10-4 Kinked demand curves In Exhibit 10-4, in a kinked-demand oligopoly model, D2 represents the demand curve

Which of the following is the best example of a firm operating in a monopolistically competitive market?

A kinked demand curve is perceived by the firm as being:

Some economists argue that monopolistically competitive markets are inefficient because:

Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

Perfect competition and monopolistic competition are similar because under both market structures,

What is the key feature shared by all oligopoly markets?

If OPEC is an effective cartel,

Exhibit 10-7 Two-Firm Payoff Matrix Suppose costs are identical for the two firms in Exhibit 10-7. If both firms assume the other will compete and charge a lower price, equilibrium will be established by:

Critics of advertising argue that it:

Exhibit 10-4 Kinked demand curves In Exhibit 10-4, the exhibit represents a kinked-demand oligopoly model. Suppose the current price is $50. If one firm in the oligopoly now attempts to raise price, all firms will:

The two tendencies of a firm in a cartel are the incentive to:

Nonprice competition in monopolistically competitive markets results in

One key characteristic that is distinctive of an oligopoly market is that:

Exhibit 10-3 A monopolistic competitive firm in the long run As presented in Exhibit 10-3, the long-run profit-maximizing output for the monopolistic competitive firm is:

Exhibit 10-4 Kinked demand curves In Exhibit 10-4, in a kinked-demand oligopoly model, D1 represents the demand curve

Which of the following is the result of competing through advertising for a monopolistically competitive firm?

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

Filters

Exhibit 10-4 Kinked demand curves In Exhibit 10-4, in a kinked-demand oligopoly model, D₂ represents the demand curve

Exhibit 10-4 Kinked demand curves In Exhibit 10-4, in a kinked-demand oligopoly model, D₁ represents the demand curve