Question 1

Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?

Accepted Answer

A)  Tit-for-tat 
B)  Price leadership 
C)  Cartel 
D)  All of the above 
A)  Tit-for-tat 
B)  Price leadership 
C)  Cartel 
D)  All of the above

Question 2

For both a monopolist and a monopolistically competitive firm:

Accepted Answer

A)  price equals average total cost. 
B)  price is above marginal revenue. 
C)  marginal revenue equals zero. 
D)  marginal cost equals zero. 
A)  price equals average total cost. 
B)  price is above marginal revenue. 
C)  marginal revenue equals zero. 
D)  marginal cost equals zero.

Question 3

Which of the following is always a characteristic of the oligopoly market structure?

Accepted Answer

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

Question 4

Which of the following is the best example of an oligopoly?

Accepted Answer

A)  Area restaurants. 
B)  The automobile industry. 
C)  Agricultural markets free of government support. 
D)  Local utilities. 
A)  Area restaurants. 
B)  The automobile industry. 
C)  Agricultural markets free of government support. 
D)  Local utilities.

Question 5

A monopolistically competitive firm, like a perfectly competitive firm, is a price taker.

Accepted Answer

A) True 
 B)False

Question 6

The marginal revenue curve of a monopolistically competitive firm will always lie:

Accepted Answer

A)  below the firm's demand curve. 
B)  parallel to the firm's demand curve. 
C)  parallel to the firm's quantity axis. 
D)  above the firm's demand curve. 
A)  below the firm's demand curve. 
B)  parallel to the firm's demand curve. 
C)  parallel to the firm's quantity axis. 
D)  above the firm's demand curve.

Question 7

The industry that most closely approximates the conditions of the oligopoly model is:

Accepted Answer

A)  Restaurant. 
B)  Retail clothing. 
C)  Home construction. 
D)  Airlines. 
A)  Restaurant. 
B)  Retail clothing. 
C)  Home construction. 
D)  Airlines.

Question 8

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. 
E)  firms do not operate where MR = MC. 
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. 
E)  firms do not operate where MR = MC.

Question 9

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

Accepted Answer

A)  there are zero economic profits in the long run. 
B)  production takes place at the least-cost combination. 
C)  there are few firms. 
D)  entry is difficult. 
E)  differentiated products are produced. 
A)  there are zero economic profits in the long run. 
B)  production takes place at the least-cost combination. 
C)  there are few firms. 
D)  entry is difficult. 
E)  differentiated products are produced.

Question 10

Which of the following is characteristic of a monopolistically competitive firm?

Accepted Answer

A)  The firm faces an upward-sloping demand curve. 
B)  The firm faces an inelastic demand curve. 
C)  The firm faces a horizontal demand curve. 
D)  The firm produces a differentiated product. 
A)  The firm faces an upward-sloping demand curve. 
B)  The firm faces an inelastic demand curve. 
C)  The firm faces a horizontal demand curve. 
D)  The firm produces a differentiated product.

Question 11

Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product?

Accepted Answer

A)  Perfect competition. 
B)  Monopoly. 
C)  Oligopoly. 
D)  Cartel. 
E)  Monopolistic competition. 
A)  Perfect competition. 
B)  Monopoly. 
C)  Oligopoly. 
D)  Cartel. 
E)  Monopolistic competition.

Question 12

Exhibit 9-5  Two-Firm Payoff Matrix   Suppose costs are identical for the two firms in Exhibit 9-5. 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)  Widget Co. charging the high price and Ajax Co. charging the low price. 
B)  Widget Co. charging the high price and Ajax Co. charging the high price. 
C)  Widget Co. charging the low price and Ajax Co. charging the low price. 
D)  Widget Co. charging the low price and Ajax Co. charging the high price. 
A)  Widget Co. charging the high price and Ajax Co. charging the low price. 
B)  Widget Co. charging the high price and Ajax Co. charging the high price. 
C)  Widget Co. charging the low price and Ajax Co. charging the low price. 
D)  Widget Co. charging the low price and Ajax Co. charging the high price.

Question 13

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

Accepted Answer

A)  produce at the level in which price equals long-run average cost. 
B)  operate at minimum long-run average cost. 
C)  overutilize its insufficient capacity. 
D)  none of the above. 
A)  produce at the level in which price equals long-run average cost. 
B)  operate at minimum long-run average cost. 
C)  overutilize its insufficient capacity. 
D)  none of the above.

Question 14

Which of the following is true about long-run equilibrium in a monopolistically competitive market?

Accepted Answer

A)  Firms earn zero economic profit because price equals long-run average cost, but the equilibrium is not allocatively efficient because price exceeds the marginal cost of the last unit produced. 
B)  They may earn negative, zero, or positive economic profit because monopolistically competitive firms are price takers. 
C)  Each firm faces a perfectly elastic demand curve and earns zero economic profit because price equals long-run average cost, and are allocatively efficient because price equals marginal cost for the last unit sold. 
D)  None of the above are correct. 
A)  Firms earn zero economic profit because price equals long-run average cost, but the equilibrium is not allocatively efficient because price exceeds the marginal cost of the last unit produced. 
B)  They may earn negative, zero, or positive economic profit because monopolistically competitive firms are price takers. 
C)  Each firm faces a perfectly elastic demand curve and earns zero economic profit because price equals long-run average cost, and are allocatively efficient because price equals marginal cost for the last unit sold. 
D)  None of the above are correct.

Question 15

Video rental stores in cities are an illustration of:

Accepted Answer

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

Question 16

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.

Question 17

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

Accepted Answer

A)  this firm is making a normal profit. 
B)  other picture frame companies will want to exit the market. 
C)  there are no other picture frame companies in the area. 
D)  economic profits are $1,500. 
E)  total profits are being maximized. 
A)  this firm is making a normal profit. 
B)  other picture frame companies will want to exit the market. 
C)  there are no other picture frame companies in the area. 
D)  economic profits are $1,500. 
E)  total profits are being maximized.

Question 18

Exhibit 9-4  Two-Firm Payoff Matrix   Suppose costs are identical for the two firms in Exhibit 9-4. 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)  Beta Co. charging $1,000 and Alpha Co. charging $1,000. 
B)  Beta Co. charging $1,000 and Alpha Co. charging $500. 
C)  Beta Co. charging $500 and Alpha Co. charging $500. 
D)  Beta Co. charging $500 and Alpha Co. charging $1,000. 
A)  Beta Co. charging $1,000 and Alpha Co. charging $1,000. 
B)  Beta Co. charging $1,000 and Alpha Co. charging $500. 
C)  Beta Co. charging $500 and Alpha Co. charging $500. 
D)  Beta Co. charging $500 and Alpha Co. charging $1,000.

Question 19

An oligopoly is a market structure in which:

Accepted Answer

A)  one firm has 100 percent of a market. 
B)  there are many small firms. 
C)  there are many firms with no control over price. 
D)  there are few firms selling either a homogeneous or differentiated product. 
A)  one firm has 100 percent of a market. 
B)  there are many small firms. 
C)  there are many firms with no control over price. 
D)  there are few firms selling either a homogeneous or differentiated product.

Question 20

Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?

Accepted Answer

A)  Tit-for-tat 
B)  Win-win 
C)  Last in-first out 
D)  Second best 
A)  Tit-for-tat 
B)  Win-win 
C)  Last in-first out 
D)  Second best

Exam 9: Monopolistic Competition and Oligopoly

Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?

For both a monopolist and a monopolistically competitive firm:

Which of the following is always a characteristic of the oligopoly market structure?

Which of the following is the best example of an oligopoly?

A monopolistically competitive firm, like a perfectly competitive firm, is a price taker.

The marginal revenue curve of a monopolistically competitive firm will always lie:

The industry that most closely approximates the conditions of the oligopoly model is:

In a price leadership oligopoly model,

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

Which of the following is characteristic of a monopolistically competitive firm?

Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product?

Exhibit 9-5 Two-Firm Payoff Matrix Suppose costs are identical for the two firms in Exhibit 9-5. 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:

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

Which of the following is true about long-run equilibrium in a monopolistically competitive market?

Video rental stores in cities are an illustration of:

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

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

Exhibit 9-4 Two-Firm Payoff Matrix Suppose costs are identical for the two firms in Exhibit 9-4. 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:

An oligopoly is a market structure in which:

Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?

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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