Question 1

Firms are more likely to find themselves in a prisoner's dilemma in sequential games as opposed to simultaneous games.

Accepted Answer

A) True 
 B)False

Question 2

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.

Accepted Answer

A) $270. 
B) $20 
C) $4 
D) $2.50 
A) $270. 
B) $20 
C) $4 
D) $2.50

Question 3

Which of the following is not necessarily a consequence of occupational licensing laws?

Accepted Answer

A) They restrict competition. 
B) Consumers pay higher prices for the services of licensed professions. 
C) They result in a higher quality of service. 
D) They ensure that licensed professionals meet some minimum qualifications. 
A) They restrict competition. 
B) Consumers pay higher prices for the services of licensed professions. 
C) They result in a higher quality of service. 
D) They ensure that licensed professionals meet some minimum qualifications.

Question 4

Figure 11-14
   
Figure 11-14 illustrates a monopolistically competitive firm.
-Refer to Figure 11-14.Which of the following statements describes the firm depicted in the diagram?

Accepted Answer

A) The firm is making no economic profit and will exit the industry. 
B) The firm is suffering an economic loss by producing at Q₀ but will break even it increases its output to Q₁. 
C) The firm achieves productive efficiency by producing at Q₀. 
D) The firm is in long-run equilibrium and is breaking even. 
A) The firm is making no economic profit and will exit the industry. 
B) The firm is suffering an economic loss by producing at Q₀ but will break even it increases its output to Q₁. 
C) The firm achieves productive efficiency by producing at Q₀. 
D) The firm is in long-run equilibrium and is breaking even.

Question 5

In most business situations where firms compete,often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

Accepted Answer

A) Firms engage in aggressive advertising to overcome the barriers to loyalty. 
B) Most games are one-shot games so firms learn from their mistakes. 
C) Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate. 
D) Firms are constantly improving their products and anticipating changing consumer tastes. 
A) Firms engage in aggressive advertising to overcome the barriers to loyalty. 
B) Most games are one-shot games so firms learn from their mistakes. 
C) Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate. 
D) Firms are constantly improving their products and anticipating changing consumer tastes.

Question 6

Only one of the following statements is correct.The statements compare perfectly competitive (PC)markets and monopolistically competitive (MC)markets.Which statement is correct?

Accepted Answer

A) Productive efficiency is achieved in both PC and MC markets.Allocative efficiency is achieved only in MC markets. 
B) Allocative efficiency is achieved in both PC and MC markets.Productive efficiency is achieved only in PC markets. 
C) Productive efficiency and allocative efficiency are both achieved in PC markets.Neither is achieved in MC markets. 
D) Allocative efficiency is achieved only in PC markets.Productive efficiency is achieved only in MC markets. 
A) Productive efficiency is achieved in both PC and MC markets.Allocative efficiency is achieved only in MC markets. 
B) Allocative efficiency is achieved in both PC and MC markets.Productive efficiency is achieved only in PC markets. 
C) Productive efficiency and allocative efficiency are both achieved in PC markets.Neither is achieved in MC markets. 
D) Allocative efficiency is achieved only in PC markets.Productive efficiency is achieved only in MC markets.

Question 7

Collusion makes firms better off because if they act as a single entity (a cartel)they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

Accepted Answer

A) Most cartels do not have a dominant strategy. 
B) When a cartel is profitable the amount of competition it faces increases. 
C) Members of a cartel may resent having to share their profits equally. 
D) Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement. 
A) Most cartels do not have a dominant strategy. 
B) When a cartel is profitable the amount of competition it faces increases. 
C) Members of a cartel may resent having to share their profits equally. 
D) Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.

Question 8

Figure 11-9
  
-Refer to Figure 11-9.Which of the graphs in the figure depicts a monopolistically competitive firm that is minimizing its losses?

Accepted Answer

A) Panel A 
B) Panel B 
C) Panel C 
D) Panel A and Panel C 
A) Panel A 
B) Panel B 
C) Panel C 
D) Panel A and Panel C

Question 9

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

Accepted Answer

A) large; competitive 
B) large; an oligopoly 
C) small; competitive 
D) small; an oligopoly 
A) large; competitive 
B) large; an oligopoly 
C) small; competitive 
D) small; an oligopoly

Question 10

The DeBeers Company of South Africa was able to block competition through

Accepted Answer

A) economies of scale. 
B) ownership of an essential input. 
C) government-imposed barriers. 
D) differentiating its product. 
A) economies of scale. 
B) ownership of an essential input. 
C) government-imposed barriers. 
D) differentiating its product.

Question 11

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm

Accepted Answer

A) expands its marketing budget. 
B) adopts new technologies that enable it to lower its cost of production. 
C) expands its product offerings to appeal to a wider range of consumers. 
D) reduces its price to expand its market. 
A) expands its marketing budget. 
B) adopts new technologies that enable it to lower its cost of production. 
C) expands its product offerings to appeal to a wider range of consumers. 
D) reduces its price to expand its market.

Question 12

A characteristic found only in oligopolies is

Accepted Answer

A) break even level of profits. 
B) interdependence of firms. 
C) independence of firms. 
D) products that are slightly different. 
A) break even level of profits. 
B) interdependence of firms. 
C) independence of firms. 
D) products that are slightly different.

Question 13

In which of the following cartels is total cartel profit likely to be the highest?

Accepted Answer

A) a cartel made up of equal sized firms each producing different quantities of a differentiated product 
B) a cartel made up of firms of various sizes each producing different quantities of a homogeneous product 
C) a cartel made up of firms of various sizes each producing the same quantity of a differentiated product 
D) a cartel made up of identical firms each producing the same quantity of a homogeneous product 
A) a cartel made up of equal sized firms each producing different quantities of a differentiated product 
B) a cartel made up of firms of various sizes each producing different quantities of a homogeneous product 
C) a cartel made up of firms of various sizes each producing the same quantity of a differentiated product 
D) a cartel made up of identical firms each producing the same quantity of a homogeneous product

Question 14

In both monopolistically competitive and perfectly competitive industries

Accepted Answer

A) firms produce products for which there are no close substitutes. 
B) there are high barriers to entry. 
C) there are many buyers and sellers. 
D) firms are price takers. 
A) firms produce products for which there are no close substitutes. 
B) there are high barriers to entry. 
C) there are many buyers and sellers. 
D) firms are price takers.

Question 15

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

Accepted Answer

A) a copyright. 
B) a patent. 
C) an exclusive marketing agreement. 
D) a tariff. 
A) a copyright. 
B) a patent. 
C) an exclusive marketing agreement. 
D) a tariff.

Question 16

Table 11-5
 $$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \text { Price } & \text { Total Cost } \
\hline 1 & \$ 18 & \$ 14 \
\hline 2 & 16 & 20 \
\hline 3 & 14 & 26 \
\hline 4 & 12 & 32 \
\hline 5 & 10 & 38 \
\hline 6 & 8 & 44 \
\hline
\end{array}$$ 
Table 11-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 11-5.At the profit-maximizing or loss-minimizing output level

Accepted Answer

A) the firm makes a profit of $12. 
B) the firm incurs a loss equal to its fixed cost. 
C) the firm makes a profit of $16. 
D) the firm incurs a loss of $14. 
A) the firm makes a profit of $12. 
B) the firm incurs a loss equal to its fixed cost. 
C) the firm makes a profit of $16. 
D) the firm incurs a loss of $14.

Question 17

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

Accepted Answer

A) True 
 B)False

Question 18

Table 11-15
  
-Refer to Table 11-15.Suppose the payoff matrix in the above figure represents the payoffs to Saudi Arabia and Yemen for the production of oil.Saudi Arabia and Yemen must decide how much oil to produce.Since the demand for oil is inelastic,relatively low production rates drive up prices and profits.Saudi Arabia,the world's largest and lowest cost producer,is able to influence market price; it has an incentive to keep output low.Yemen,on the other hand,is a relatively high cost producer with much smaller reserves.Assume Saudi Arabia now decides to try to further influence the oil market by offering to pay Yemen $25 million to produce a low output.
a.Create a new payoff matrix that reflects Saudi Arabia's willingness to pay Yemen $25 million to produce a low output.
b.What is the dominant strategy for each country in this new game?
c.What is the new Nash equilibrium?

Accepted Answer

a. See payoff matrix below.
b.

Question 19

Table 11-13
 $\begin{array}{c}
 \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad\text { Power Fuel's (P) Strategy }\
\text { Brawny  Juice's (B)  Strategy }
\begin{array}{|c|c|c|} 
\hline& \text { High Price } & \text { Low Price } \
\hline{\text { High Price }} & \text { P: } \$ 12 \mathrm{~m} & \text { P: } \$ 16 \mathrm{~m} \
& \text { B: } \$ 12 \mathrm{~m} & \text { B: } \$ 4 m \
\hline {\text { Low Price }} & \text { P: } \$ 4 \mathrm{~m} & \text { P: } \$ 8 \mathrm{~m} \
& \text { B: } \$ 16 \mathrm{~m} & \text { B: } \$ 8 \mathrm{~m}\
\hline
\end{array}\end{array}$ 
Two rival oligopolists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy.Each can choose either a high price or a low price.Table 11-13 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 11-13.If the two firms collude,is there an incentive for either to cheat on the collusion agreement?

Accepted Answer

A) No, neither firm can gain by cheating. 
B) Yes, but only Brawny Juice is in a position to gain by cheating. 
C) Yes, but only Power Fuel is in a position to gain by cheating. 
D) Yes, either firm can gain if it alone cheats. 
A) No, neither firm can gain by cheating. 
B) Yes, but only Brawny Juice is in a position to gain by cheating. 
C) Yes, but only Power Fuel is in a position to gain by cheating. 
D) Yes, either firm can gain if it alone cheats.

Question 20

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

Accepted Answer

A) producing more of its product 
B) advertising that it will match its rival's price 
C) reneging on a previous tacit agreement with rival firms to charge identical high prices 
D) ignoring the pricing decisions of the other firms 
A) producing more of its product 
B) advertising that it will match its rival's price 
C) reneging on a previous tacit agreement with rival firms to charge identical high prices 
D) ignoring the pricing decisions of the other firms

Firms are more likely to find themselves in a prisoner's dilemma in sequential games as opposed to simultaneous games.

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.

Which of the following is not necessarily a consequence of occupational licensing laws?

Figure 11-14 Figure 11-14 illustrates a monopolistically competitive firm. -Refer to Figure 11-14.Which of the following statements describes the firm depicted in the diagram?

In most business situations where firms compete,often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

Only one of the following statements is correct.The statements compare perfectly competitive (PC)markets and monopolistically competitive (MC)markets.Which statement is correct?

Collusion makes firms better off because if they act as a single entity (a cartel)they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

Figure 11-9 -Refer to Figure 11-9.Which of the graphs in the figure depicts a monopolistically competitive firm that is minimizing its losses?

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a fraction of total industry sales.The industry will be .

The DeBeers Company of South Africa was able to block competition through

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm

A characteristic found only in oligopolies is

In which of the following cartels is total cartel profit likely to be the highest?

In both monopolistically competitive and perfectly competitive industries

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

Table 11-5 Quantity Price Total Cost 1 \ 18 \ 14 2 16 20 3 14 26 4 12 32 5 10 38 6 8 44 Table 11-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags. -Refer to Table 11-5.At the profit-maximizing or loss-minimizing output level

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 11: Monopolistic Competition and Oligopoly

Firms are more likely to find themselves in a prisoner's dilemma in sequential games as opposed to simultaneous games.

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.

Which of the following is not necessarily a consequence of occupational licensing laws?

Figure 11-14 Figure 11-14 illustrates a monopolistically competitive firm. -Refer to Figure 11-14.Which of the following statements describes the firm depicted in the diagram?

In most business situations where firms compete,often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

Only one of the following statements is correct.The statements compare perfectly competitive (PC)markets and monopolistically competitive (MC)markets.Which statement is correct?

Collusion makes firms better off because if they act as a single entity (a cartel)they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

Figure 11-9 -Refer to Figure 11-9.Which of the graphs in the figure depicts a monopolistically competitive firm that is minimizing its losses?

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

The DeBeers Company of South Africa was able to block competition through

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm

A characteristic found only in oligopolies is

In which of the following cartels is total cartel profit likely to be the highest?

In both monopolistically competitive and perfectly competitive industries

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

Table 11-5 Quantity Price Total Cost 1 \ 18 \ 14 2 16 20 3 14 26 4 12 32 5 10 38 6 8 44 Table 11-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags. -Refer to Table 11-5.At the profit-maximizing or loss-minimizing output level

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a fraction of total industry sales.The industry will be .