Question 1

If a perfectly competitive firm maximizes short-run profits,its marginal revenue will be positive and less than its price.

Accepted Answer

A) True 
 B)False

Question 2

In an oligopoly market

Accepted Answer

A) the pricing decisions of all other firms have no effect on an individual firm. 
B) individual firms pay no attention to the behavior of other firms. 
C) advertising of one firm has no effect on all other firms. 
D) one firm's pricing decision affects all the other firms. 
A) the pricing decisions of all other firms have no effect on an individual firm. 
B) individual firms pay no attention to the behavior of other firms. 
C) advertising of one firm has no effect on all other firms. 
D) one firm's pricing decision affects all the other firms.

Question 3

A Nash equilibrium is

Accepted Answer

A) reached when an oligopoly's market demand and supply intersect. 
B) reached when each player chooses the best strategy for himself and for the group. 
C) reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group. 
D) an equilibrium comprising non-dominant strategies only. 
A) reached when an oligopoly's market demand and supply intersect. 
B) reached when each player chooses the best strategy for himself and for the group. 
C) reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group. 
D) an equilibrium comprising non-dominant strategies only.

Question 4

Assume that price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118,then to maximize profits the firm should increase its output.

Accepted Answer

A) True 
 B)False

Question 5

A monopolistically competitive firm that is profitable in the short run will face competition that will eventually eliminate the firm's profits in the long run.But the firm can stave off competition and continue to earn economic profits if

Accepted Answer

A) it can successfully sue its competitors for copyright infringement. 
B) it can move to another country where there is less competition. 
C) it can lobby the government to establish a price floor for its product. 
D) it can find new ways to differentiate its product. 
A) it can successfully sue its competitors for copyright infringement. 
B) it can move to another country where there is less competition. 
C) it can lobby the government to establish a price floor for its product. 
D) it can find new ways to differentiate its product.

Question 6

Economies of scale can lead to an oligopolistic market structure because

Accepted Answer

A) if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B) if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms. 
C) a few firms can force rivals to produce at low levels of output. 
D) a few firms can use high profits to keep out new entrants. 
A) if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B) if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms. 
C) a few firms can force rivals to produce at low levels of output. 
D) a few firms can use high profits to keep out new entrants.

Question 7

Table 11-6
 \(\begin{array}{c}
 \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad\text { Godrickporter's (G) Choices }\
\text { Star Connections' (S) Choices }
\begin{array}{|c|c|c|}
\hline & {\begin{array}{c}
\text { Increase } \
\text { advertising } \
\text { budget }
\end{array}} & {\begin{array}{c}
\text { Leave } \
\text { advertising } \
\text { budget as is }
\end{array}} \
\hline \begin{array}{c}
\text { Increase advertising } \
\text { budget }
\end{array} & \begin{array}{c}
\mathrm{G}: \$ 16,000 \text { profit } \
\mathrm{S}: \$ 8,000 \text { profit }
\end{array} & \begin{array}{c}
\mathrm{G}: \$ 12,000 \text { profit } \
\mathrm{S}: \$ 15,000 \text { profit }
\end{array} \
\hline \begin{array}{c}
\text { Leave advertising } \
\text { budget as is }
\end{array} & \begin{array}{l}
\mathrm{G}: \$ 8,000 \text { profit } \
\mathrm{S}: \$ 10,000 \text { profit }
\end{array} & \begin{array}{l}
\mathrm{G}: \$ 6,000 \text { profit } \
\mathrm{S}: \$ 12,000 \text { profit }
\end{array} \
\hline
\end{array}\end{array}\) 
Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 11-6 shows the payoff matrix for this advertising game.
-Refer to Table 11-6.Is there a dominant strategy for Godrickporter and if so,what is it?

Accepted Answer

A) No, its outcome depends on what Star Connections does. 
B) Yes, Godrickporter should increase its advertising spending. 
C) Yes, Godrickporter should reduce its advertising spending. 
D) Yes, Godrickporter's dominant strategy is to collude with Star Connections. 
A) No, its outcome depends on what Star Connections does. 
B) Yes, Godrickporter should increase its advertising spending. 
C) Yes, Godrickporter should reduce its advertising spending. 
D) Yes, Godrickporter's dominant strategy is to collude with Star Connections.

Question 8

Marginal revenue for an oligopolist is

Accepted Answer

A) identical to the demand for the firm's product. 
B) difficult to determine because the firm's demand curve is typically unknown. 
C) downward sloping beneath the firm's demand curve. 
D) horizontal on a price-quantity diagram. 
A) identical to the demand for the firm's product. 
B) difficult to determine because the firm's demand curve is typically unknown. 
C) downward sloping beneath the firm's demand curve. 
D) horizontal on a price-quantity diagram.

Question 9

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is

Accepted Answer

A) more elastic because there are many close substitutes for the product of a monopolistically competitive firm. 
B) less elastic because monopolistically competitive firms produce similar, but not identical, products. 
C) just as elastic because there are many sellers in both markets. 
D) more elastic because in the long run, the demand curve is tangent to the firm's average total cost curve. 
A) more elastic because there are many close substitutes for the product of a monopolistically competitive firm. 
B) less elastic because monopolistically competitive firms produce similar, but not identical, products. 
C) just as elastic because there are many sellers in both markets. 
D) more elastic because in the long run, the demand curve is tangent to the firm's average total cost curve.

Question 10

The financial situation at Starbucks in the late 2000s illustrates the fact that maintaining long-run profits in a monopolistically competitive market is

Accepted Answer

A) impossible. 
B) very difficult. 
C) fairly easy. 
D) almost always guaranteed. 
A) impossible. 
B) very difficult. 
C) fairly easy. 
D) almost always guaranteed.

Question 11

Suppose we want to use game theory to analyze how an oligopolist selects its optimal price.The cells of the payoff matrix show

Accepted Answer

A) the profit that each producer can expect to earn by pursuing a single strategy. 
B) the profit that each producer can expect to earn from every combination of strategies by the firms in the market. 
C) the strategy that a firm must pursue to earn various levels of profit. 
D) the expected profits of rival firms. 
A) the profit that each producer can expect to earn by pursuing a single strategy. 
B) the profit that each producer can expect to earn from every combination of strategies by the firms in the market. 
C) the strategy that a firm must pursue to earn various levels of profit. 
D) the expected profits of rival firms.

Question 12

Figure 11-13
  
-Refer to Figure 11-13.What is the profit maximizing output level?

Accepted Answer

A) Q₁ units 
B) Q₂ units 
C) Q₃ units 
D) Q₄ units 
A) Q₁ units 
B) Q₂ units 
C) Q₃ units 
D) Q₄ units

Question 13

An oligopolist differs from a perfect competitor in that

Accepted Answer

A) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B) firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly. 
A) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B) firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

Question 14

A patent is an example of

Accepted Answer

A) how ownership of a key input creates a barrier to entry. 
B) a government-imposed barrier to entry. 
C) occupational licensing. 
D) how market failure can lead to oligopoly. 
A) how ownership of a key input creates a barrier to entry. 
B) a government-imposed barrier to entry. 
C) occupational licensing. 
D) how market failure can lead to oligopoly.

Question 15

Figure 11-4
   
Figure 11-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 11-4.What is the area that represents the total fixed cost of production?

Accepted Answer

A) 0P₁aQₐ 
B) P₀adP₃ 
C) P₁bdP₃ 
D) That information cannot be determined from the graph. 
A) 0P₁aQₐ 
B) P₀adP₃ 
C) P₁bdP₃ 
D) That information cannot be determined from the graph.

Question 16

Table 11-12
   
The payoff matrix shown above assumes that Perfect Plants and Florabunda Florist must decide whether to offer same-day delivery for their products. The matrix shows how much profit each firm will earn if it does or does not offer same-day delivery.The amount of profit for one firm depends on whether the other firm offers same-day delivery.
-Refer to Table 11-12.Which of the following statements is true?

Accepted Answer

A) Given that Florabunda offers same-day delivery, Perfect's best strategy is to not offer same-day delivery. 
B) Given that Perfect offers same-day delivery, Florabunda's best strategy is to offer same-day delivery. 
C) Perfect and Florabunda will agree to collude in order to maximize their profits. 
D) Neither Perfect nor Florabunda will offer same-day delivery; this decision will decrease their costs and allow each firm to earn more than $1,800 million in profits. 
A) Given that Florabunda offers same-day delivery, Perfect's best strategy is to not offer same-day delivery. 
B) Given that Perfect offers same-day delivery, Florabunda's best strategy is to offer same-day delivery. 
C) Perfect and Florabunda will agree to collude in order to maximize their profits. 
D) Neither Perfect nor Florabunda will offer same-day delivery; this decision will decrease their costs and allow each firm to earn more than $1,800 million in profits.

Question 17

If economies of scale are relatively important in an industry,the typical firm's

Accepted Answer

A) marginal cost curve will decline continuously until it reaches minimum efficient scale. 
B) long-run average cost curve will begin rising before it reaches minimum efficient scale. 
C) long-run average cost curve will reach a minimum at a level of output that leaves room for a large number of firms to enter the industry. 
D) long-run average cost curve will reach a minimum at a level of output that is a relatively large fraction of total industry sales. 
A) marginal cost curve will decline continuously until it reaches minimum efficient scale. 
B) long-run average cost curve will begin rising before it reaches minimum efficient scale. 
C) long-run average cost curve will reach a minimum at a level of output that leaves room for a large number of firms to enter the industry. 
D) long-run average cost curve will reach a minimum at a level of output that is a relatively large fraction of total industry sales.

Question 18

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

Accepted Answer

A) True 
 B)False

Question 19

The approach economists use to analyze competition among oligopolists is called

Accepted Answer

A) marginal analysis. 
B) game theory. 
C) oligopoly theory. 
D) competition among the few. 
A) marginal analysis. 
B) game theory. 
C) oligopoly theory. 
D) competition among the few.

Question 20

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Accepted Answer

A) Nash equilibrium. 
B) dominant strategy. 
C) collusion. 
D) pay-off matrix. 
A) Nash equilibrium. 
B) dominant strategy. 
C) collusion. 
D) pay-off matrix.

If a perfectly competitive firm maximizes short-run profits,its marginal revenue will be positive and less than its price.

In an oligopoly market

A Nash equilibrium is

Assume that price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118,then to maximize profits the firm should increase its output.

A monopolistically competitive firm that is profitable in the short run will face competition that will eventually eliminate the firm's profits in the long run.But the firm can stave off competition and continue to earn economic profits if

Economies of scale can lead to an oligopolistic market structure because

Marginal revenue for an oligopolist is

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is

The financial situation at Starbucks in the late 2000s illustrates the fact that maintaining long-run profits in a monopolistically competitive market is

Suppose we want to use game theory to analyze how an oligopolist selects its optimal price.The cells of the payoff matrix show

Figure 11-13 -Refer to Figure 11-13.What is the profit maximizing output level?

An oligopolist differs from a perfect competitor in that

A patent is an example of

Figure 11-4 Figure 11-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-4.What is the area that represents the total fixed cost of production?

If economies of scale are relatively important in an industry,the typical firm's

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

The approach economists use to analyze competition among oligopolists is called

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

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

If a perfectly competitive firm maximizes short-run profits,its marginal revenue will be positive and less than its price.

In an oligopoly market

A Nash equilibrium is

Assume that price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118,then to maximize profits the firm should increase its output.

A monopolistically competitive firm that is profitable in the short run will face competition that will eventually eliminate the firm's profits in the long run.But the firm can stave off competition and continue to earn economic profits if

Economies of scale can lead to an oligopolistic market structure because

Marginal revenue for an oligopolist is

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is

The financial situation at Starbucks in the late 2000s illustrates the fact that maintaining long-run profits in a monopolistically competitive market is

Suppose we want to use game theory to analyze how an oligopolist selects its optimal price.The cells of the payoff matrix show

Figure 11-13 -Refer to Figure 11-13.What is the profit maximizing output level?

An oligopolist differs from a perfect competitor in that

A patent is an example of

Figure 11-4 Figure 11-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-4.What is the area that represents the total fixed cost of production?

If economies of scale are relatively important in an industry,the typical firm's

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

The approach economists use to analyze competition among oligopolists is called

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

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