Question 1

When large firms in oligopoly markets cut their prices

Accepted Answer

A) rival firms will also cut their prices to avoid losing sales. 
B) rival firms will not change their prices because most of their customers have signed contracts that commit them to doing business with the same firms for the life of their contracts. 
C) we don't know for sure how rival firms will respond. 
D) rival firms will not cut their prices because they fear that the federal government will accuse them of collusion. 
A) rival firms will also cut their prices to avoid losing sales. 
B) rival firms will not change their prices because most of their customers have signed contracts that commit them to doing business with the same firms for the life of their contracts. 
C) we don't know for sure how rival firms will respond. 
D) rival firms will not cut their prices because they fear that the federal government will accuse them of collusion.

Question 2

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.Which of the following is true?

Accepted Answer

A) Power Fuel's dominant strategy is to select a low price. 
B) Brawny Juice's dominant strategy is to select a high price. 
C) Power Fuel does not have a dominant strategy. 
D) Brawny Juice does not have a dominant strategy. 
A) Power Fuel's dominant strategy is to select a low price. 
B) Brawny Juice's dominant strategy is to select a high price. 
C) Power Fuel does not have a dominant strategy. 
D) Brawny Juice does not have a dominant strategy.

Question 3

Which of the following is important in determining the extent of competition in an industry?

Accepted Answer

A) the minimum level of short run average total costs of production 
B) the minimum efficient scale of production relative to market demand 
C) whether or not the industry product is differentiated or standardized 
D) the level of market demand for the industry's product 
A) the minimum level of short run average total costs of production 
B) the minimum efficient scale of production relative to market demand 
C) whether or not the industry product is differentiated or standardized 
D) the level of market demand for the industry's product

Question 4

Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.

Accepted Answer

A) True 
 B)False

Question 5

Figure 11-7
   
Figure 11-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market.
-Refer to Figure 11-7.Which of the following statements describes the best course of action for the firm depicted in the diagram?

Accepted Answer

A) The firm should exit the industry because its price is less than its average total cost. 
B) The firm should minimize its losses by producing Qᵧ units and charging a price of P₀. 
C) The firm should minimize its losses by producing Qᵧ units and charging a price of P₂. 
D) The firm should minimize its losses by producing Qᵧ units and charging a price of P₁. 
A) The firm should exit the industry because its price is less than its average total cost. 
B) The firm should minimize its losses by producing Qᵧ units and charging a price of P₀. 
C) The firm should minimize its losses by producing Qᵧ units and charging a price of P₂. 
D) The firm should minimize its losses by producing Qᵧ units and charging a price of P₁.

Question 6

Figure 11-6
  
-Refer to Figure 11-6.Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 13-2.Dell will maximize profits if it produces ________ notebook computers per month.

Accepted Answer

A) 100,000 
B) 200,000 
C) 300,000 
D) Not enough information is given to determine the profit-maximizing quantity. 
A) 100,000 
B) 200,000 
C) 300,000 
D) Not enough information is given to determine the profit-maximizing quantity.

Question 7

Unlike a perfectly competitive firm,a monopolistic competitor does not have a short-run shut-down point.

Accepted Answer

A) True 
 B)False

Question 8

Because of the shortcomings of concentration ratios,some economists prefer another measure of competition called

Accepted Answer

A) the Competition Index. 
B) the Marginal Revenue-Marginal Cost Index. 
C) the Economic Profit Index. 
D) the Herfindahl-Hirschman Index. 
A) the Competition Index. 
B) the Marginal Revenue-Marginal Cost Index. 
C) the Economic Profit Index. 
D) the Herfindahl-Hirschman Index.

Question 9

What is meant by "excess capacity"? How does it relate to consumer utility?

Accepted Answer

Excess capacity refers to a situation wh

Question 10

Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.

Accepted Answer

A cooperative equilibrium is one in whic

Question 11

In the long run,if price is less than average cost

Accepted Answer

A) there is an incentive for firms to exit the market. 
B) there is profit incentive for firms to enter the market. 
C) the market must be in long-run equilibrium. 
D) there is no incentive for the number of firms in the market to change. 
A) there is an incentive for firms to exit the market. 
B) there is profit incentive for firms to enter the market. 
C) the market must be in long-run equilibrium. 
D) there is no incentive for the number of firms in the market to change.

Question 12

Figure 11-18
  
-Refer to Figure 11-18.Which of the following statements is true?

Accepted Answer

A) Dₐ represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the demand curve in the short run. 
B) Dₐ represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the long-run demand curve in an increasing-cost industry. 
C) Dₐ represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor. 
D) Dₐ represents the long-run supply curve in a perfectly competitive, constant-cost industry while Db depicts the long-run demand curve facing a monopolistic competitor in a decreasing-cost industry. 
A) Dₐ represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the demand curve in the short run. 
B) Dₐ represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the long-run demand curve in an increasing-cost industry. 
C) Dₐ represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor. 
D) Dₐ represents the long-run supply curve in a perfectly competitive, constant-cost industry while Db depicts the long-run demand curve facing a monopolistic competitor in a decreasing-cost industry.

Question 13

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Accepted Answer

A) Prisoner's dilemma games do not permit people or firms from reneging on agreements, which often occurs in real word situations. 
B) The prisoner's dilemma does not apply to most business situations that are repeated over and over. 
C) Prisoner's dilemma games predict the behavior of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity. 
D) Most real world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties. 
A) Prisoner's dilemma games do not permit people or firms from reneging on agreements, which often occurs in real word situations. 
B) The prisoner's dilemma does not apply to most business situations that are repeated over and over. 
C) Prisoner's dilemma games predict the behavior of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity. 
D) Most real world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties.

Question 14

Figure 11-8
   
Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced-tea.
-Refer to Figure 11-8.What is the firm's profit-maximizing price?

Accepted Answer

A) $12 
B) $13 
C) $14 
D) $16 
A) $12 
B) $13 
C) $14 
D) $16

Question 15

A market comprised of only two firms is called a

Accepted Answer

A) competitive market. 
B) duopoly. 
C) monopoly. 
D) monopolistically competitive market. 
A) competitive market. 
B) duopoly. 
C) monopoly. 
D) monopolistically competitive market.

Question 16

Figure 11-17
  
-Refer to Figure 11-17.What is the amount of excess capacity?

Accepted Answer

A) Qh - Qf units 
B) Qⱼ - Qf units 
C) Qⱼ - Qh units 
D) Qh - Qg units 
A) Qh - Qf units 
B) Qⱼ - Qf units 
C) Qⱼ - Qh units 
D) Qh - Qg units

Question 17

Table 11-10
 $\begin{array}{c}
\text { Ming }\
\text { Henri }
\begin{array}{|l|l|l|}
\hline & \begin{array}{l}
\text { offers free pickup } \
\text { and delivery }
\end{array} & \begin{array}{l}
\text { does not offer free pickup } \
\text { and delnvery }
\end{array} \
\hline \begin{array}{l}
\text { offers free pickup } \
\text { and delivery }
\end{array} & \begin{array}{l}
\text { Ming } \$ 20,000 \
\text { Henri: } \$ 50,000
\end{array} & \begin{array}{l}
\text { Ming } \$ 10,000 \
\text { Henri } \$ 25,000
\end{array} \
\hline \begin{array}{l}
\text { does not offer free pickup } \
\text { and delivery }
\end{array} & \begin{array}{l}
\text { Ming } \$ 30,000 \
\text { Henri: } \$ 40,000
\end{array} & \begin{array}{l}
\text { Ming } \$ 15,000 \
\text { Henri } \$ 45,000
\end{array} \
\hline
\end{array}\end{array}$ 
Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby.Both consider offering free pickup and delivery services. Table 11-10 shows the payoff matrix containing the expected quarterly profits for each firm.
-Refer to Table 11-10.What is the Nash equilibrium in this game?

Accepted Answer

A) There is no Nash equilibrium. 
B) Ming offers free pickup and delivery, but Henri does not. 
C) Henri offers free pickup and delivery, but Ming does not. 
D) Both Ming and Henri offer free pickup and delivery. 
A) There is no Nash equilibrium. 
B) Ming offers free pickup and delivery, but Henri does not. 
C) Henri offers free pickup and delivery, but Ming does not. 
D) Both Ming and Henri offer free pickup and delivery.

Question 18

Assuming that the total market size remains constant,a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

Accepted Answer

A) new entrants into the market are more likely to have cutting edge products. 
B) as the firm raises its price in the long run, it will lose some customers to new entrants in the market. 
C) some of its customers have switched to purchasing the products of new entrants in the market. 
D) its costs of production rises. 
A) new entrants into the market are more likely to have cutting edge products. 
B) as the firm raises its price in the long run, it will lose some customers to new entrants in the market. 
C) some of its customers have switched to purchasing the products of new entrants in the market. 
D) its costs of production rises.

Question 19

A game in which each player adopts its dominant strategy

Accepted Answer

A) will not lead to an equilibrium. 
B) must be a cooperative game. 
C) could result in a Nash equilibrium. 
D) can never result in a Nash equilibrium. 
A) will not lead to an equilibrium. 
B) must be a cooperative game. 
C) could result in a Nash equilibrium. 
D) can never result in a Nash equilibrium.

Question 20

Economists use game theory to analyze oligopolies because

Accepted Answer

A) real markets are too complicated to analyze without using games. 
B) it is more enjoyable for economists and students to learn by playing games. 
C) game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies. 
D) game theory is useful in understanding the actions of firms that are price takers. 
A) real markets are too complicated to analyze without using games. 
B) it is more enjoyable for economists and students to learn by playing games. 
C) game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies. 
D) game theory is useful in understanding the actions of firms that are price takers.

When large firms in oligopoly markets cut their prices

Which of the following is important in determining the extent of competition in an industry?

Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.

Figure 11-7 Figure 11-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. -Refer to Figure 11-7.Which of the following statements describes the best course of action for the firm depicted in the diagram?

Figure 11-6 -Refer to Figure 11-6.Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 13-2.Dell will maximize profits if it produces ________ notebook computers per month.

Unlike a perfectly competitive firm,a monopolistic competitor does not have a short-run shut-down point.

Because of the shortcomings of concentration ratios,some economists prefer another measure of competition called

What is meant by "excess capacity"? How does it relate to consumer utility?

Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.

In the long run,if price is less than average cost

Figure 11-18 -Refer to Figure 11-18.Which of the following statements is true?

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Figure 11-8 Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced-tea. -Refer to Figure 11-8.What is the firm's profit-maximizing price?

A market comprised of only two firms is called a

Figure 11-17 -Refer to Figure 11-17.What is the amount of excess capacity?

Assuming that the total market size remains constant,a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

A game in which each player adopts its dominant strategy

Economists use game theory to analyze oligopolies because

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

When large firms in oligopoly markets cut their prices

Which of the following is important in determining the extent of competition in an industry?

Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.

Figure 11-7 Figure 11-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. -Refer to Figure 11-7.Which of the following statements describes the best course of action for the firm depicted in the diagram?

Figure 11-6 -Refer to Figure 11-6.Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 13-2.Dell will maximize profits if it produces ________ notebook computers per month.

Unlike a perfectly competitive firm,a monopolistic competitor does not have a short-run shut-down point.

Because of the shortcomings of concentration ratios,some economists prefer another measure of competition called

What is meant by "excess capacity"? How does it relate to consumer utility?

Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.

In the long run,if price is less than average cost

Figure 11-18 -Refer to Figure 11-18.Which of the following statements is true?

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Figure 11-8 Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced-tea. -Refer to Figure 11-8.What is the firm's profit-maximizing price?

A market comprised of only two firms is called a

Figure 11-17 -Refer to Figure 11-17.What is the amount of excess capacity?

Assuming that the total market size remains constant,a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

A game in which each player adopts its dominant strategy

Economists use game theory to analyze oligopolies because

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