Question 1

In an oligopoly, the outcome is uncertain because price and output decisions depend on the response of rivals.

Accepted Answer

A) True 
 B)False

Question 2

A group of firms that collude to limit competition is called a(n):

Accepted Answer

A)  conglomerate. 
B)  oligopoly. 
C)  cartel. 
D)  kinked demand. 
E)  market concentration. 
A)  conglomerate. 
B)  oligopoly. 
C)  cartel. 
D)  kinked demand. 
E)  market concentration.

Question 3

Exhibit 9-3  A monopolistic competitive firm in the long run   As represented in Exhibit 9-3, the maximum long-run economic profit earned by this monopolistic competitive firm is:

Accepted Answer

A)  zero. 
B)  $10 per week. 
C)  $4,000 per week. 
D)  $40,000 per week. 
A)  zero. 
B)  $10 per week. 
C)  $4,000 per week. 
D)  $40,000 per week.

Question 4

An oligopoly market structure is characterized by firms closely watching their rivals' pricing policies.

Accepted Answer

A) True 
 B)False

Question 5

Monopolistic competitive firms in the long run earn:

Accepted Answer

A)  positive economic profits. 
B)  zero pure economic profits. 
C)  negative economic profits. 
D)  none of the above. 
A)  positive economic profits. 
B)  zero pure economic profits. 
C)  negative economic profits. 
D)  none of the above.

Question 6

Easy entry and exit cause oligopoly profits to be zero in the long run.

Accepted Answer

A) True 
 B)False

Question 7

Compare and contrast the four market models in terms of the profit-maximizing output level for each, the shut-down rule for each, the probability of long-run economic profits being earned, and their social desirability.

Accepted Answer

All firms, regardless of the market envi

Question 8

Nonprice competition, price leadership, and cartels are models in the ____ market structure(s).

Accepted Answer

A)  perfectly competitive 
B)  monopolistically competitive 
C)  oligopoly 
D)  monopoly 
E)  perfectly competitive and monopolistically competitive 
A)  perfectly competitive 
B)  monopolistically competitive 
C)  oligopoly 
D)  monopoly 
E)  perfectly competitive and monopolistically competitive

Question 9

Which of the following best describes a cartel?

Accepted Answer

A)  As a monopolist, a group of monopolistically competitive firms that jointly reduce output and raise the price. 
B)  As a monopolist, a group of cooperating oligopolists that jointly reduce output and raise the price. 
C)  A monopolist that reduces output and raises price. 
D)  A group of identical non-cooperative oligopolists that are able to reproduce a monopoly equilibrium through price rivalry. 
A)  As a monopolist, a group of monopolistically competitive firms that jointly reduce output and raise the price. 
B)  As a monopolist, a group of cooperating oligopolists that jointly reduce output and raise the price. 
C)  A monopolist that reduces output and raises price. 
D)  A group of identical non-cooperative oligopolists that are able to reproduce a monopoly equilibrium through price rivalry.

Question 10

In the long-run, surviving firms in monopolistic competition earn:

Accepted Answer

A)  higher pure economic profits. 
B)  zero pure economic profits. 
C)  below-normal profits. 
D)  substantial economic losses. 
A)  higher pure economic profits. 
B)  zero pure economic profits. 
C)  below-normal profits. 
D)  substantial economic losses.

Question 11

Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?

Accepted Answer

A)  Perfectly competition. 
B)  Monopoly. 
C)  Monopolistic competition. 
D)  Oligopoly. 
A)  Perfectly competition. 
B)  Monopoly. 
C)  Monopolistic competition. 
D)  Oligopoly.

Question 12

Entry of new firms will occur in a monopolistic competitive industry until:

Accepted Answer

A)  marginal cost equals zero. 
B)  marginal revenue equals zero. 
C)  marginal revenue equals marginal cost. 
D)  economic profit equals zero. 
E)  economic profit is negative. 
A)  marginal cost equals zero. 
B)  marginal revenue equals zero. 
C)  marginal revenue equals marginal cost. 
D)  economic profit equals zero. 
E)  economic profit is negative.

Question 13

Game theory is an especially useful model for analysis in the following types of markets:

Accepted Answer

A)  perfect competition. 
B)  monopolistic competition. 
C)  oligopoly. 
D)  monopoly. 
A)  perfect competition. 
B)  monopolistic competition. 
C)  oligopoly. 
D)  monopoly.

Question 14

Exhibit 9-3  A monopolistic competitive firm in the long run   To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 9-3 will charge a price per unit of:

Accepted Answer

A)  zero. 
B)  $10 
C)  $20. 
D)  $30. 
E)  $40. 
A)  zero. 
B)  $10 
C)  $20. 
D)  $30. 
E)  $40.

Question 15

Which of the following is evidence of an ineffective cartel?

Accepted Answer

A)  Output changes are dictated by changes in demand. 
B)  Price changes are dictated by changes in demand. 
C)  Members do not agree on output quotas. 
D)  All of the above. 
A)  Output changes are dictated by changes in demand. 
B)  Price changes are dictated by changes in demand. 
C)  Members do not agree on output quotas. 
D)  All of the above.

Question 16

Which of the following is the best example of a monopolistic competitor?

Accepted Answer

A)  Wheat farmers. 
B)  Diet centers. 
C)  American Telephone and Telegraph. 
D)  General Motors. 
A)  Wheat farmers. 
B)  Diet centers. 
C)  American Telephone and Telegraph. 
D)  General Motors.

Question 17

Exhibit 9-5  Two-Firm Payoff Matrix   Assume costs are identical for the two firms in Exhibit 9-5. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:

Accepted Answer

A)  Widget Co. charging the low price and Ajax Co. charging the high price. 
B)  Widget Co. charging the high price and Ajax Co. charging the low price. 
C)  Widget Co. charging the low price and Ajax Co. charging the low price. 
D)  Widget Co. charging the high price and Ajax Co. charging the high price. 
A)  Widget Co. charging the low price and Ajax Co. charging the high price. 
B)  Widget Co. charging the high price and Ajax Co. charging the low price. 
C)  Widget Co. charging the low price and Ajax Co. charging the low price. 
D)  Widget Co. charging the high price and Ajax Co. charging the high price.

Question 18

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)  all of the above. 
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)  all of the above.

Question 19

Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?

Accepted Answer

A)  Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run. 
B)  Price will always equal average variable cost in the short run and either profits or losses may result in the long run. 
C)  Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero. 
D)  Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero. 
A)  Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run. 
B)  Price will always equal average variable cost in the short run and either profits or losses may result in the long run. 
C)  Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero. 
D)  Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero.

Question 20

Supporters of advertising claim that it:

Accepted Answer

A)  makes demand for a firm's product more elastic. 
B)  is a barrier to entry. 
C)  promotes better quality products. 
D)  all of the above. 
A)  makes demand for a firm's product more elastic. 
B)  is a barrier to entry. 
C)  promotes better quality products. 
D)  all of the above.

Exam 9: Monopolistic Competition and Oligopoly

In an oligopoly, the outcome is uncertain because price and output decisions depend on the response of rivals.

A group of firms that collude to limit competition is called a(n):

Exhibit 9-3 A monopolistic competitive firm in the long run As represented in Exhibit 9-3, the maximum long-run economic profit earned by this monopolistic competitive firm is:

An oligopoly market structure is characterized by firms closely watching their rivals' pricing policies.

Monopolistic competitive firms in the long run earn:

Easy entry and exit cause oligopoly profits to be zero in the long run.

Compare and contrast the four market models in terms of the profit-maximizing output level for each, the shut-down rule for each, the probability of long-run economic profits being earned, and their social desirability.

Nonprice competition, price leadership, and cartels are models in the ____ market structure(s).

Which of the following best describes a cartel?

In the long-run, surviving firms in monopolistic competition earn:

Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?

Entry of new firms will occur in a monopolistic competitive industry until:

Game theory is an especially useful model for analysis in the following types of markets:

Exhibit 9-3 A monopolistic competitive firm in the long run To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 9-3 will charge a price per unit of:

Which of the following is evidence of an ineffective cartel?

Which of the following is the best example of a monopolistic competitor?

Exhibit 9-5 Two-Firm Payoff Matrix Assume costs are identical for the two firms in Exhibit 9-5. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:

If OPEC is an effective cartel,

Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?

Supporters of advertising claim that it:

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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