Question 1

Is there any similarity between a perfectly competitive firm and a monopolistically competitive firm in the long run? Explain your answer.

Accepted Answer

Both a perfectly competitive f

Question 2

Tire Rack.com is an online seller of tires that currently has a 14 percent share of the replacement passenger and light truck tire market in the United States and has a 25 percent share in Canada.Tire Rack not only sells tires but also sells wheels and offers mounting and balancing services.It does not offer installation services,but it partners with 8,100 installation providers in the United States,all of whom agree to charge standard installation fees based on tire size.The online presence of Tire Rack.com ________.

Accepted Answer

A)  lowers search costs for the best tire deal and makes local tire markets more competitive regardless of the number of brick-and-mortar tire dealers 
B)  lowers search costs for the best tire deal but has no impact on local tire markets, because it does not provide tire installation services 
C)  lowers search costs for the best tire deal but actually makes local tire markets less competitive, because it has partnerships with tire installers 
D)  does none of the above 
A)  lowers search costs for the best tire deal and makes local tire markets more competitive regardless of the number of brick-and-mortar tire dealers 
B)  lowers search costs for the best tire deal but has no impact on local tire markets, because it does not provide tire installation services 
C)  lowers search costs for the best tire deal but actually makes local tire markets less competitive, because it has partnerships with tire installers 
D)  does none of the above

Question 3

Which of the following is a difference between an oligopoly with homogeneous products and an oligopoly with differentiated products?

Accepted Answer

A)  There are a large number of sellers in an oligopoly with homogeneous products, while there are only a few sellers in an oligopoly with differentiated products. 
B)  Firms in an oligopoly with homogeneous products earn positive economic profits in equilibrium, while firms in an oligopoly with differentiated products earn zero economic profits in equilibrium. 
C)  There are huge barriers to entry in an oligopoly with homogeneous products, while there are no barriers to entry in an oligopoly with differentiated products. 
D)  Firms in an oligopoly with homogeneous products earn zero economic profits in equilibrium, while firms in an oligopoly with differentiated products earn positive economic profits in equilibrium. 
A)  There are a large number of sellers in an oligopoly with homogeneous products, while there are only a few sellers in an oligopoly with differentiated products. 
B)  Firms in an oligopoly with homogeneous products earn positive economic profits in equilibrium, while firms in an oligopoly with differentiated products earn zero economic profits in equilibrium. 
C)  There are huge barriers to entry in an oligopoly with homogeneous products, while there are no barriers to entry in an oligopoly with differentiated products. 
D)  Firms in an oligopoly with homogeneous products earn zero economic profits in equilibrium, while firms in an oligopoly with differentiated products earn positive economic profits in equilibrium.

Question 4

Which of the following is a difference between an oligopoly with differentiated products and a monopolistically competitive market?

Accepted Answer

A)  There are no barriers to entry in an oligopoly with differentiated products, while there are huge barriers to entry in a monopolistically competitive market. 
B)  There are huge barriers to entry in an oligopoly with differentiated products, while there are minimal barriers to entry in a monopolistically competitive market. 
C)  Firms in an oligopoly with differentiated products charge a price higher than marginal cost in the long run, while firms in a monopolistically competitive market charge a price lower than marginal cost in the long run. 
D)  Firms in an oligopoly with differentiated products charge a price lower than average total cost in the long run, while firms in a monopolistically competitive market charge a price higher than average total cost in the long run. 
A)  There are no barriers to entry in an oligopoly with differentiated products, while there are huge barriers to entry in a monopolistically competitive market. 
B)  There are huge barriers to entry in an oligopoly with differentiated products, while there are minimal barriers to entry in a monopolistically competitive market. 
C)  Firms in an oligopoly with differentiated products charge a price higher than marginal cost in the long run, while firms in a monopolistically competitive market charge a price lower than marginal cost in the long run. 
D)  Firms in an oligopoly with differentiated products charge a price lower than average total cost in the long run, while firms in a monopolistically competitive market charge a price higher than average total cost in the long run.

Question 5

One way to test whether a market is competitive is to see if the price ________ when more firms enter the market.

Accepted Answer

A)  falls 
B)  stays the same 
C)  rises 
D)  changes by the reciprocal of the total number of firms 
A)  falls 
B)  stays the same 
C)  rises 
D)  changes by the reciprocal of the total number of firms

Question 6

Homogeneous products are found in ________.

Accepted Answer

A)  perfect competition and oligopoly market structures 
B)  monopoly only 
C)  perfect competition only 
D)  perfect competition and monopoly market structures 
A)  perfect competition and oligopoly market structures 
B)  monopoly only 
C)  perfect competition only 
D)  perfect competition and monopoly market structures

Question 7

Is there any similarity between a monopoly and a monopolistically competitive firm in the long run? Explain your answer.

Accepted Answer

Both a monopoly and a monopoli

Question 8

An oligopoly model in which sellers compete on quantities rather than prices is called the ________ model.

Accepted Answer

A)  Bertrand 
B)  Cournot 
C)  Pareto 
D)  Pigouvian 
A)  Bertrand 
B)  Cournot 
C)  Pareto 
D)  Pigouvian

Question 9

________ is a market structure in which there are a few rival firms.

Accepted Answer

A)  Perfect competition 
B)  Monopolistic competition 
C)  A monopoly 
D)  An oligopoly 
A)  Perfect competition 
B)  Monopolistic competition 
C)  A monopoly 
D)  An oligopoly

Question 10

Scenario: Two firms, Firm 1 and Firm 2, make differentiated products and compete in a duopoly market. The firms do not have a fixed cost. Firm 1's cost is $30 per unit, while Firm 2's cost is $25 per unit. (So they are the marginal cost and the average total cost). There are 1,000 consumers in this market. The demand is divided between the two firm in the following way:
• If Firm 1's price is less than twice Firm 2's price, then everyone buys from Firm 1.
• If Firm 1's price is more than twice Firm 2's price, then everyone buys from Firm 2.
• If Firm 1's price is equal to twice Firm 2's price, then half of the consumers buy from Firm 1 and the other half buy from Firm 2.
-Refer to the scenario above.Suppose Firm 2 sets the price at $25.What price should Firm 1 set in response?

Accepted Answer

A)  $0 
B)  $25 
C)  $30 
D)  $50 
A)  $0 
B)  $25 
C)  $30 
D)  $50

Question 11

A monopolistic competitor shuts down production in the short run if ________.

Accepted Answer

A)  marginal revenue equals marginal cost 
B)  marginal cost equals average cost 
C)  total revenues do not cover variable costs 
D)  total revenues do not cover fixed costs 
A)  marginal revenue equals marginal cost 
B)  marginal cost equals average cost 
C)  total revenues do not cover variable costs 
D)  total revenues do not cover fixed costs

Question 12

Which of the following applies to both monopolistic competition and perfect competition?

Accepted Answer

A)  Firms produce a differentiated product 
B)  Absence of barriers to entry 
C)  P = MR = MC 
D)  Large number of firms 
A)  Firms produce a differentiated product 
B)  Absence of barriers to entry 
C)  P = MR = MC 
D)  Large number of firms

Question 13

The entry of new firms into a market will ________ if the market power of the existing firms is large.

Accepted Answer

A)  reduce the market price 
B)  increase the market price 
C)  not change the market price 
D)  first reduce, and then increase the market price 
A)  reduce the market price 
B)  increase the market price 
C)  not change the market price 
D)  first reduce, and then increase the market price

Question 14

There are four firms in the cement industry in Petrovia.Firm A has a market share of 30 percent,Firm B has a market share of 20 percent,Firm C has a market share of 25 percent,and Firm D has a market share of 25 percent.The Herfindahl-Hirschman Index for the cement industry is ________.

Accepted Answer

A)  50 
B)  100 
C)  2,550 
D)  4,000 
A)  50 
B)  100 
C)  2,550 
D)  4,000

Question 15

The U.S.book publishing industry is an example of ________.

Accepted Answer

A)  perfect competition 
B)  oligopoly with differentiated products 
C)  oligopoly with homogeneous products 
D)  monopolistic competition 
A)  perfect competition 
B)  oligopoly with differentiated products 
C)  oligopoly with homogeneous products 
D)  monopolistic competition

Question 16

A monopolistically competitive firm ________ in the long run.

Accepted Answer

A)  earns low but positive economic profits 
B)  earns high economic profits 
C)  earns zero economic profits 
D)  incurs losses 
A)  earns low but positive economic profits 
B)  earns high economic profits 
C)  earns zero economic profits 
D)  incurs losses

Question 17

Scenario: Two firms, Firm 1 and Firm 2, make differentiated products and compete in a duopoly market. The firms do not have a fixed cost. Firm 1's cost is $30 per unit, while Firm 2's cost is $25 per unit. (So they are the marginal cost and the average total cost). There are 1,000 consumers in this market. The demand is divided between the two firm in the following way:
• If Firm 1's price is less than twice Firm 2's price, then everyone buys from Firm 1.
• If Firm 1's price is more than twice Firm 2's price, then everyone buys from Firm 2.
• If Firm 1's price is equal to twice Firm 2's price, then half of the consumers buy from Firm 1 and the other half buy from Firm 2.
-Refer to the scenario above.Suppose Firm 1 sets its price at $50 and Firm 2 sets its price at $25.Is this a Nash equilibrium? Why?

Accepted Answer

A)  No, because if Firm 1's price is $50, then Firm 2 should set its price below $25. 
B)  No, because if Firm 2's price is $25, then Firm 1 should set its price below $50. 
C)  Yes, because (a) if Firm 1's price is $50, then setting price at $25 is Firm 2's best response, and (b) if Firm 2's price is $25, then setting price at $50 is Firm 1's best response. 
D)  Yes, because (a) if Firm 1's price is $50, then setting price at $25 or below is Firm 2's best response, and (b) if Firm 2's price is $25, then setting price at least $50 is Firm 1's best response. 
A)  No, because if Firm 1's price is $50, then Firm 2 should set its price below $25. 
B)  No, because if Firm 2's price is $25, then Firm 1 should set its price below $50. 
C)  Yes, because (a) if Firm 1's price is $50, then setting price at $25 is Firm 2's best response, and (b) if Firm 2's price is $25, then setting price at $50 is Firm 1's best response. 
D)  Yes, because (a) if Firm 1's price is $50, then setting price at $25 or below is Firm 2's best response, and (b) if Firm 2's price is $25, then setting price at least $50 is Firm 1's best response.

Question 18

The following figure shows the revenue and cost curves for a monopolistic competitor before and after several new firms enter the industry. Dₒld shows the demand curve before the entry of new firms, and Dnₑw shows the demand curve after the entry of new firms.
  
-Refer to the figure above.Which of the following is true?

Accepted Answer

A)  The firm was incurring losses before the entry of new firms. 
B)  The firm was earning zero economic profits before the entry of new firms. 
C)  The firm is earning positive economic profits after the entry of new firms. 
D)  The firm is earning zero economic profits after the entry of new firms. 
A)  The firm was incurring losses before the entry of new firms. 
B)  The firm was earning zero economic profits before the entry of new firms. 
C)  The firm is earning positive economic profits after the entry of new firms. 
D)  The firm is earning zero economic profits after the entry of new firms.

Question 19

The equilibrium price charged by a monopolistic competitor in the long run after the entry of new firms is ________.

Accepted Answer

A)  higher than the equilibrium price charged by the firm before the entry of new firms 
B)  lower than the equilibrium price charged by the firm before the entry of new firms 
C)  lower than the equilibrium price charged by a perfectly competitive firm in the long run 
D)  equal to the equilibrium price charged by the firm before the entry of new firms 
A)  higher than the equilibrium price charged by the firm before the entry of new firms 
B)  lower than the equilibrium price charged by the firm before the entry of new firms 
C)  lower than the equilibrium price charged by a perfectly competitive firm in the long run 
D)  equal to the equilibrium price charged by the firm before the entry of new firms

Question 20

A monopolistically competitive firm ________.

Accepted Answer

A)  can increase price without losing all of its business 
B)  loses all of its business if it increases price slightly 
C)  faces a perfectly elastic demand curve 
D)  faces a perfectly inelastic demand curve 
A)  can increase price without losing all of its business 
B)  loses all of its business if it increases price slightly 
C)  faces a perfectly elastic demand curve 
D)  faces a perfectly inelastic demand curve

Is there any similarity between a perfectly competitive firm and a monopolistically competitive firm in the long run? Explain your answer.

Which of the following is a difference between an oligopoly with homogeneous products and an oligopoly with differentiated products?

Which of the following is a difference between an oligopoly with differentiated products and a monopolistically competitive market?

One way to test whether a market is competitive is to see if the price ________ when more firms enter the market.

Homogeneous products are found in ________.

Is there any similarity between a monopoly and a monopolistically competitive firm in the long run? Explain your answer.

An oligopoly model in which sellers compete on quantities rather than prices is called the ________ model.

________ is a market structure in which there are a few rival firms.

A monopolistic competitor shuts down production in the short run if ________.

Which of the following applies to both monopolistic competition and perfect competition?

The entry of new firms into a market will ________ if the market power of the existing firms is large.

There are four firms in the cement industry in Petrovia.Firm A has a market share of 30 percent,Firm B has a market share of 20 percent,Firm C has a market share of 25 percent,and Firm D has a market share of 25 percent.The Herfindahl-Hirschman Index for the cement industry is ________.

The U.S.book publishing industry is an example of ________.

A monopolistically competitive firm ________ in the long run.

The equilibrium price charged by a monopolistic competitor in the long run after the entry of new firms is ________.

A monopolistically competitive firm ________.

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Consumers and Incentives

Sellers and Incentives

Perfect Competition and the Invisible Hand

Trade

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Trade-Offs Involving Time and Risk

The Economics of Information

Auctions and Bargaining

Social Economics

Filters

Exam 14: Oligopoly and Monopolistic Competition

Is there any similarity between a perfectly competitive firm and a monopolistically competitive firm in the long run? Explain your answer.

Which of the following is a difference between an oligopoly with homogeneous products and an oligopoly with differentiated products?

Which of the following is a difference between an oligopoly with differentiated products and a monopolistically competitive market?

One way to test whether a market is competitive is to see if the price ________ when more firms enter the market.

Homogeneous products are found in ________.

Is there any similarity between a monopoly and a monopolistically competitive firm in the long run? Explain your answer.

An oligopoly model in which sellers compete on quantities rather than prices is called the ________ model.

________ is a market structure in which there are a few rival firms.

A monopolistic competitor shuts down production in the short run if ________.

Which of the following applies to both monopolistic competition and perfect competition?

The entry of new firms into a market will ________ if the market power of the existing firms is large.

There are four firms in the cement industry in Petrovia.Firm A has a market share of 30 percent,Firm B has a market share of 20 percent,Firm C has a market share of 25 percent,and Firm D has a market share of 25 percent.The Herfindahl-Hirschman Index for the cement industry is ________.

The U.S.book publishing industry is an example of ________.

A monopolistically competitive firm ________ in the long run.

The equilibrium price charged by a monopolistic competitor in the long run after the entry of new firms is ________.

A monopolistically competitive firm ________.

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Consumers and Incentives

Sellers and Incentives

Perfect Competition and the Invisible Hand

Trade

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Trade-Offs Involving Time and Risk

The Economics of Information

Auctions and Bargaining

Social Economics

Filters