Question 1

A major cartel problem is that member firms cheat by attempting to steal customers from one another.

Accepted Answer

A) True 
 B)False

Question 2

A major characteristic of the theory of oligopoly is that:

Accepted Answer

A)  there are no real-world examples. 
B)  the reactions of each firm depends on how the firm believes rivals will react. 
C)  in reality few oligopolies survive more than 10 years. 
D)  none of the above. 
A)  there are no real-world examples. 
B)  the reactions of each firm depends on how the firm believes rivals will react. 
C)  in reality few oligopolies survive more than 10 years. 
D)  none of the above.

Question 3

Which of the following explains how a cartel with 100 percent control might raise price to monopoly-like levels?

Accepted Answer

A)  By setting a group output level equal to a profit-maximizing monopolist, and then assigning binding quota shares to cartel members. 
B)  By setting an official price that members can secretly undercut. 
C)  By forbidding price competition, but allowing non-cooperative rivalry in output levels. 
D)  None of the above. 
A)  By setting a group output level equal to a profit-maximizing monopolist, and then assigning binding quota shares to cartel members. 
B)  By setting an official price that members can secretly undercut. 
C)  By forbidding price competition, but allowing non-cooperative rivalry in output levels. 
D)  None of the above.

Question 4

Exhibit 9-2  A monopolistic competitive firm   As presented in Exhibit 9-2, the long-run profit-maximizing output for the monopolistic competitive firm is:

Accepted Answer

A)  zero units per week. 
B)  100 units per week. 
C)  200 units per week. 
D)  300 units per week. 
E)  400 units per week. 
A)  zero units per week. 
B)  100 units per week. 
C)  200 units per week. 
D)  300 units per week. 
E)  400 units per week.

Question 5

In the long run, a monopolistic competitive firm will operate at a price which:

Accepted Answer

A)  is higher than minimum long-run average cost. 
B)  equals minimum long-run average cost. 
C)  equals marginal cost. 
D)  none of the above. 
A)  is higher than minimum long-run average cost. 
B)  equals minimum long-run average cost. 
C)  equals marginal cost. 
D)  none of the above.

Question 6

A cartel is a formal agreement among firms to control price and output of a product.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is true about advertising?

Accepted Answer

A)  If monopolistically competitive firms compete through advertising, that creates brand loyalty, then advertising can be an effective entry cost. 
B)  Advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms. 
C)  Advertising has no impact on entry costs or market structure. 
D)  Both a. and b. above are correct. 
A)  If monopolistically competitive firms compete through advertising, that creates brand loyalty, then advertising can be an effective entry cost. 
B)  Advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms. 
C)  Advertising has no impact on entry costs or market structure. 
D)  Both a. and b. above are correct.

Question 8

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. 
E)  this producer should produce more than 700 necklaces. 
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. 
E)  this producer should produce more than 700 necklaces.

Question 9

In a monopolistically competitive market like retail trade, firms can easily enter and exit the market.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following most closely approximates the conditions of a monopolistically competitive market?

Accepted Answer

A)  The market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product. 
B)  The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers. 
C)  Local cable television service, where a licensed supplier competes with firms offering satellite service. 
D)  The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm. 
A)  The market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product. 
B)  The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers. 
C)  Local cable television service, where a licensed supplier competes with firms offering satellite service. 
D)  The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm.

Question 11

If a firm has substantial market power, it must be operating in an industry that would be classified as:

Accepted Answer

A)  a monopoly or oligopoly. 
B)  perfectly competitive. 
C)  monopolistically competitive. 
D)  perfectly competitive or monopolistically competitive. 
E)  perfectly competitive or a monopoly. 
A)  a monopoly or oligopoly. 
B)  perfectly competitive. 
C)  monopolistically competitive. 
D)  perfectly competitive or monopolistically competitive. 
E)  perfectly competitive or a monopoly.

Question 12

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

Accepted Answer

A)  There is little price or quality competition. 
B)  The firms compete, using quality, location, advertising, and price. 
C)  Firms do not compete using advertising. 
D)  There is little competition between firms. 
A)  There is little price or quality competition. 
B)  The firms compete, using quality, location, advertising, and price. 
C)  Firms do not compete using advertising. 
D)  There is little competition between firms.

Question 13

If a firm reacts to other firms' market decisions by anticipating how the other will then react, this is:

Accepted Answer

A)  not profit-maximizing behavior 
B)  a monopolistic competitive market 
C)  a market with a low concentration ratio 
D)  mutual interdependence 
E)  collusion by definition 
A)  not profit-maximizing behavior 
B)  a monopolistic competitive market 
C)  a market with a low concentration ratio 
D)  mutual interdependence 
E)  collusion by definition

Question 14

Which of the following is true about advertising by a firm?

Accepted Answer

A)  It is not always successful in increasing demand for a firm's product. 
B)  It attempts to increase demand and to make demand more inelastic. 
C)  It may reduce per unit costs of production when economies of scale are experienced. 
D)  All of the above. 
A)  It is not always successful in increasing demand for a firm's product. 
B)  It attempts to increase demand and to make demand more inelastic. 
C)  It may reduce per unit costs of production when economies of scale are experienced. 
D)  All of the above.

Question 15

What are the characteristics of monopolistic competition?

Accepted Answer

Monopolistic competition is characterize

Question 16

Defenders of advertising argue that it:

Accepted Answer

A)  informs buyers and broadens the market for goods. 
B)  enhances economic efficiency by lowering prices. 
C)  enables small firms to compete more effectively with large ones. 
D)  all of the above. 
A)  informs buyers and broadens the market for goods. 
B)  enhances economic efficiency by lowering prices. 
C)  enables small firms to compete more effectively with large ones. 
D)  all of the above.

Question 17

A cartel maximizes industry profit by:

Accepted Answer

A)  eliminating quotas. 
B)  producing at the kink in its demand curve. 
C)  producing where MR = MC. 
D)  giving secret price concessions. 
E)  producing more output than a monopoly would. 
A)  eliminating quotas. 
B)  producing at the kink in its demand curve. 
C)  producing where MR = MC. 
D)  giving secret price concessions. 
E)  producing more output than a monopoly would.

Question 18

In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are:

Accepted Answer

A)  not eliminated, because competition is not perfect. 
B)  not eliminated, because the demand curve slopes downward. 
C)  eliminated due to firms entering the industry. 
D)  eliminated due to firms leaving the industry. 
E)  not eliminated, because firms cannot enter the industry. 
A)  not eliminated, because competition is not perfect. 
B)  not eliminated, because the demand curve slopes downward. 
C)  eliminated due to firms entering the industry. 
D)  eliminated due to firms leaving the industry. 
E)  not eliminated, because firms cannot enter the industry.

Question 19

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

Accepted Answer

A)  produce the output level at which price equals long-run marginal cost. 
B)  operate at minimum long-run average cost. 
C)  overutilize its insufficient capacity. 
D)  produce the output level at which price equals long-run average cost. 
A)  produce the output level at which price equals long-run marginal cost. 
B)  operate at minimum long-run average cost. 
C)  overutilize its insufficient capacity. 
D)  produce the output level at which price equals long-run average cost.

Question 20

Exhibit 9-3  A monopolistic competitive firm in the long run   As presented in Exhibit 9-3, 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. 
E)  800 units per week. 
A)  zero units per week. 
B)  200 units per week. 
C)  400 units per week. 
D)  600 units per week. 
E)  800 units per week.

Exam 9: Monopolistic Competition and Oligopoly

A major cartel problem is that member firms cheat by attempting to steal customers from one another.

A major characteristic of the theory of oligopoly is that:

Which of the following explains how a cartel with 100 percent control might raise price to monopoly-like levels?

Exhibit 9-2 A monopolistic competitive firm As presented in Exhibit 9-2, the long-run profit-maximizing output for the monopolistic competitive firm is:

In the long run, a monopolistic competitive firm will operate at a price which:

A cartel is a formal agreement among firms to control price and output of a product.

Which of the following is true about advertising?

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:

In a monopolistically competitive market like retail trade, firms can easily enter and exit the market.

Which of the following most closely approximates the conditions of a monopolistically competitive market?

If a firm has substantial market power, it must be operating in an industry that would be classified as:

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

If a firm reacts to other firms' market decisions by anticipating how the other will then react, this is:

Which of the following is true about advertising by a firm?

What are the characteristics of monopolistic competition?

Defenders of advertising argue that it:

A cartel maximizes industry profit by:

In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are:

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

Exhibit 9-3 A monopolistic competitive firm in the long run As presented in Exhibit 9-3, the long-run profit-maximizing 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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