Question 1

When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit,

Accepted Answer

A)  no firms will want to enter or exit. 
B)  some firms will want to leave. 
C)  some firms will want to enter. 
D)  market demand shifts to the left. 
E)  the price of the output will rise in the long run. 
A)  no firms will want to enter or exit. 
B)  some firms will want to leave. 
C)  some firms will want to enter. 
D)  market demand shifts to the left. 
E)  the price of the output will rise in the long run. A

Question 2

Exhibit 9-2  A monopolistic competitive firm   To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 9-2 will charge a price per unit of:

Accepted Answer

A)  zero. 
B)  $5. 
C)  $10. 
D)  $15. 
E)  $20. 
A)  zero. 
B)  $5. 
C)  $10. 
D)  $15. 
E)  $20. D

Question 3

Exhibit 9-6  Two-Firm Payoff Matrix   Suppose costs are identical for the two firms in Exhibit 9-6. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by:

Accepted Answer

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

Question 4

Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries. The primary reason for the complication is the:

Accepted Answer

A)  fewness of firms. 
B)  brand loyalty of consumers. 
C)  powerful effect of advertising. 
D)  variability of concentration ratios. 
E)  mutual interdependence of firms. 
A)  fewness of firms. 
B)  brand loyalty of consumers. 
C)  powerful effect of advertising. 
D)  variability of concentration ratios. 
E)  mutual interdependence of firms.

Question 5

Which of the following is true in long-run equilibrium for both perfect competition and monopolistic competition?

Accepted Answer

A)  Accounting profit is zero. 
B)  Marginal cost equals price. 
C)  Long-run average cost is at a minimum. 
D)  Economic profit is zero. 
A)  Accounting profit is zero. 
B)  Marginal cost equals price. 
C)  Long-run average cost is at a minimum. 
D)  Economic profit is zero.

Question 6

Exhibit 9-1  A monopolistic competitive firm   In the long run, the demand curve for the monopolistic competitive firm shown in Exhibit 9-1:

Accepted Answer

A)  shifts leftward. 
B)  remains the same. 
C)  shifts rightward. 
D)  none of the above. 
A)  shifts leftward. 
B)  remains the same. 
C)  shifts rightward. 
D)  none of the above.

Question 7

Suppose that R. J. Reynolds raises the price of cigarettes by 10 percent. Although they have no requirement or agreement to do so, the other cigarette firms decide to raise their prices accordingly. This situation is best described as:

Accepted Answer

A)  price leadership. 
B)  a cartel. 
C)  monopolistic competition. 
D)  a market with kinked demand. 
A)  price leadership. 
B)  a cartel. 
C)  monopolistic competition. 
D)  a market with kinked demand.

Question 8

Supporters of advertising claim that it:

Accepted Answer

A)  increases the variety of products. 
B)  attacks established brand loyalties. 
C)  allows new firms to compete. 
D)  all of the above. 
A)  increases the variety of products. 
B)  attacks established brand loyalties. 
C)  allows new firms to compete. 
D)  all of the above.

Question 9

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 10

Which of the following statements best describes firms under monopolistic competition?

Accepted Answer

A)  Profits will be positive in the long run. 
B)  Price always equals average variable cost. 
C)  In the long run, positive economic profit will be eliminated. 
D)  Marginal revenue equals minimum average total cost in the short run. 
A)  Profits will be positive in the long run. 
B)  Price always equals average variable cost. 
C)  In the long run, positive economic profit will be eliminated. 
D)  Marginal revenue equals minimum average total cost in the short run.

Question 11

Which of the following is a characteristic of the monopolistic competition market structure?

Accepted Answer

A)  Many firms and a homogeneous product. 
B)  Few firms and differentiated products. 
C)  Few firms and similar products. 
D)  Few firms and a homogeneous product. 
E)  Many firms and differentiated products. 
A)  Many firms and a homogeneous product. 
B)  Few firms and differentiated products. 
C)  Few firms and similar products. 
D)  Few firms and a homogeneous product. 
E)  Many firms and differentiated products.

Question 12

A monopolistically competitive firm will:

Accepted Answer

A)  maximize profits by producing where MR = MC. 
B)  not likely earn an economic profit in the long run. 
C)  shut down if price is less than average variable cost. 
D)  all of the above. 
A)  maximize profits by producing where MR = MC. 
B)  not likely earn an economic profit in the long run. 
C)  shut down if price is less than average variable cost. 
D)  all of the above.

Question 13

Cartel members have an incentive to cheat on the cartel because:

Accepted Answer

A)  the cartel does not maximize profits. 
B)  the cartel price is the competitive price. 
C)  each member's output quota is too high. 
D)  each member's MR is not equal to the cartel's MC. 
E)  the industry profit would be higher under competitive conditions. 
A)  the cartel does not maximize profits. 
B)  the cartel price is the competitive price. 
C)  each member's output quota is too high. 
D)  each member's MR is not equal to the cartel's MC. 
E)  the industry profit would be higher under competitive conditions.

Question 14

A cartel is:

Accepted Answer

A)  a joint venture of two companies. 
B)  a joining of firms for the purpose of fixing prices and controlling output. 
C)  a breaking up of a company into two or more parts. 
D)  the joining of industry with government to solve a specified problem. 
E)  the joining of two firms with unrelated products. 
A)  a joint venture of two companies. 
B)  a joining of firms for the purpose of fixing prices and controlling output. 
C)  a breaking up of a company into two or more parts. 
D)  the joining of industry with government to solve a specified problem. 
E)  the joining of two firms with unrelated products.

Question 15

In the short run, the monopolistic competitive firm will charge a price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 16

The automobile, steel, and oil markets are all examples of:

Accepted Answer

A)  perfectly competitive markets. 
B)  monopolies. 
C)  monopolistically competitive markets. 
D)  oligopolies. 
A)  perfectly competitive markets. 
B)  monopolies. 
C)  monopolistically competitive markets. 
D)  oligopolies.

Question 17

Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $30 per barrel. A single cartel member may want to cheat and exceed its quota so that it can:

Accepted Answer

A)  reduce its costs. 
B)  charge higher prices. 
C)  make demand more inelastic. 
D)  earn a bigger profit. 
A)  reduce its costs. 
B)  charge higher prices. 
C)  make demand more inelastic. 
D)  earn a bigger profit.

Question 18

Which of the following is not a characteristic of the monopolistic competition market structure?

Accepted Answer

A)  Many sellers, each small in size relative to the overall market. 
B)  Few sellers. 
C)  Differentiated product. 
D)  Easy, low-cost entry and exit. 
A)  Many sellers, each small in size relative to the overall market. 
B)  Few sellers. 
C)  Differentiated product. 
D)  Easy, low-cost entry and exit.

Question 19

Mutual interdependence applies to actions of:

Accepted Answer

A)  monopolistic competitors. 
B)  oligopolists. 
C)  perfect competitors. 
D)  monopolists. 
E)  firms operating in different industries. 
A)  monopolistic competitors. 
B)  oligopolists. 
C)  perfect competitors. 
D)  monopolists. 
E)  firms operating in different industries.

Question 20

Exhibit 9-1  A monopolistic competitive firm   As presented in Exhibit 9-l, the short-run profit per unit of output for the monopolistic competitive firm is:

Accepted Answer

A)  zero. 
B)  $5. 
C)  $10. 
D)  $15. 
E)  $20. 
A)  zero. 
B)  $5. 
C)  $10. 
D)  $15. 
E)  $20.

Exam 9: Monopolistic Competition and Oligopoly

When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit,

Exhibit 9-2 A monopolistic competitive firm To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 9-2 will charge a price per unit of:

Exhibit 9-6 Two-Firm Payoff Matrix Suppose costs are identical for the two firms in Exhibit 9-6. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by:

Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries. The primary reason for the complication is the:

Which of the following is true in long-run equilibrium for both perfect competition and monopolistic competition?

Exhibit 9-1 A monopolistic competitive firm In the long run, the demand curve for the monopolistic competitive firm shown in Exhibit 9-1:

Suppose that R. J. Reynolds raises the price of cigarettes by 10 percent. Although they have no requirement or agreement to do so, the other cigarette firms decide to raise their prices accordingly. This situation is best described as:

Supporters of advertising claim that it:

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

Which of the following statements best describes firms under monopolistic competition?

Which of the following is a characteristic of the monopolistic competition market structure?

A monopolistically competitive firm will:

Cartel members have an incentive to cheat on the cartel because:

A cartel is:

In the short run, the monopolistic competitive firm will charge a price equal to marginal cost.

The automobile, steel, and oil markets are all examples of:

Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $30 per barrel. A single cartel member may want to cheat and exceed its quota so that it can:

Which of the following is not a characteristic of the monopolistic competition market structure?

Mutual interdependence applies to actions of:

Exhibit 9-1 A monopolistic competitive firm As presented in Exhibit 9-l, the short-run profit per unit of output for the monopolistic competitive firm is:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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