Question 1

Doctors and lawyers in every state need a license to practice.This is an example of

Accepted Answer

A) consumer protection laws. 
B) consumer advocacy. 
C) occupational licensing. 
D) ownership of a key input. 
A) consumer protection laws. 
B) consumer advocacy. 
C) occupational licensing. 
D) ownership of a key input.

Question 2

Because the monopolistically competitive firm faces a ________ demand curve for its product,it ________ the price of its output.

Accepted Answer

A) downward-sloping; cannot influence 
B) horizontal; can influence 
C) horizontal; cannot influence 
D) downward-sloping; can influence 
A) downward-sloping; cannot influence 
B) horizontal; can influence 
C) horizontal; cannot influence 
D) downward-sloping; can influence

Question 3

Producing a differentiated product occurs in which of the following industries?

Accepted Answer

A) oligopoly, monopolistic competition and perfect competition 
B) monopolistic competition only 
C) oligopoly only 
D) monopolistic competition and oligopoly 
A) oligopoly, monopolistic competition and perfect competition 
B) monopolistic competition only 
C) oligopoly only 
D) monopolistic competition and oligopoly

Question 4

A monopolistically competitive firm that earns an accounting profit in the short run

Accepted Answer

A) must also earn an economic profit in the short run. 
B) does not earn enough to earn an economic profit in the short run. 
C) could earn an economic profit, break even or suffer an economic loss in the short run. 
D) could earn an economic profit or break even, but could not suffer an economic loss in the short run. 
A) must also earn an economic profit in the short run. 
B) does not earn enough to earn an economic profit in the short run. 
C) could earn an economic profit, break even or suffer an economic loss in the short run. 
D) could earn an economic profit or break even, but could not suffer an economic loss in the short run.

Question 5

What is the incentive for a firm to join a cartel?

Accepted Answer

A) to be able to earn profits in the long run but not in the short run 
B) to be able to earn larger profits than if it was not part of the cartel 
C) to completely insulate itself from competition 
D) to produce a larger amount of output than if it was not part of the cartel 
A) to be able to earn profits in the long run but not in the short run 
B) to be able to earn larger profits than if it was not part of the cartel 
C) to completely insulate itself from competition 
D) to produce a larger amount of output than if it was not part of the cartel

Question 6

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Accepted Answer

A) True 
 B)False

Question 7

The table below shows the demand and cost data facing "Velvet Touches," a monopolistically competitive producer of velvet throw pillows.
 $$\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Quantity } & \text { Price } & \begin{array} { c } 
\text { Total } \
\text { Revenue }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Revenue }
\end{array} & \text { Total Cost } & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 1 & \$ 30 & & & \$ 32 & \
\hline 2 & 28 & & & 43 & \
\hline 3 & 26 & & & 53 & \
\hline 4 & 24 & & & 64 & \
\hline 5 & 22 & & & 76 & \
\hline 6 & 20 & & & 90 & \
\hline 7 & 18 & & & 106 & \
\hline 8 & 16 & & & 126 & \
\hline
\end{array}$$ 
Use the data to answer the following questions.
a.Complete the Total Revenue (TR),Marginal Revenue (MR)and Marginal Cost (MC)columns above.
b.What are the profit-maximizing price and quantity for Velvet Touches?
c.Is the firm making a profit or a loss? How much is the profit or loss? Show your work.
d.Is this firm operating in the long run or in the short run? Explain your answer.
e.If the firm's profit or loss is typical of all firms in the market for throw pillows,what is likely to happen in the future? Will there be more firms or will some existing firms leave the industry? Explain your answer.
f.What will happen to the typical firm's profit or loss after all entry/exit adjustments?

Accepted Answer

a.
 \[\begin{array} { | c | c | c | c |

Question 8

If a monopolistically competitive firm breaks even,the firm

Accepted Answer

A) is earning an accounting profit and will have to pay taxes on that profit. 
B) is earning zero accounting and zero economic profit. 
C) should advertise its product to stimulate demand. 
D) should expand production. 
A) is earning an accounting profit and will have to pay taxes on that profit. 
B) is earning zero accounting and zero economic profit. 
C) should advertise its product to stimulate demand. 
D) should expand production.

Question 9

Does the fact that monopolistically competitive firms do not achieve productive efficiency or allocative efficiency mean that there is a significant loss in consumer welfare?

Accepted Answer

No.Although monopolistically competitive

Question 10

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

Accepted Answer

A) prevent rival airlines from competing in that market. 
B) increase marginal revenue more than marginal cost. 
C) maximize marginal revenue. 
D) discourage rivals from matching price cuts. 
A) prevent rival airlines from competing in that market. 
B) increase marginal revenue more than marginal cost. 
C) maximize marginal revenue. 
D) discourage rivals from matching price cuts.

Question 11

There are two firms in the residential paint industry,Cool Shades (C)and Warm Hues (W).They collude to share the market equally.They jointly set a monopoly price and split the quantity demanded at that price.Here are their options:
i.They continue to collude (no cheating)and make $12 million each in profits.
ii.One firm cheats and the other does not.The firm that cheats makes a profit
of $14 million whereas the firm that doesn't makes a profit of $9 million.
iii.They both cheat and each firm makes a profit of $7 million.
a.Construct a payoff matrix for these two firms.
b.How does this situation relate to the prisoner's dilemma?
c.If each firm acted noncooperatively,how much profit would each make?
d.Are the firms better off colluding (with no cheating)or competing? Explain.

Accepted Answer

a. The payoff matrix:
 @#IMG-DLM& 
b. With a priso

Question 12

Table 11-7
 $\begin{array}{c}
\text { Wal-Mart's (W) Choices }\
\text { Target's (T) Choices }
\begin{array}{|c|c|c|} 
\hline&{\text { High Price }} & {\text { Low price }} \
\hline {\text { High Price }} & \begin{array}{l}
\text { W: } \$ 10,000 \text { profit } \
\text { T: } \$ 10,000 \text { profit }
\end{array} & \begin{array}{l}
\text { W: } \$ 5,000 \text { profit } \
\text { T: } \$ 14,000 \text { profit }
\end{array} \
\hline {\text { Low price }} & \begin{array}{l}
\text { W: } \$ 14,000 \text { profit } \
\text { T: } \$ 5,000 \text { profit }
\end{array} & \begin{array}{l}
\text { W: } \$ 7,000 \text { profit } \
\text { T: } \$ 7,000 \text { profit }\

\end{array}

\end{array}
\end{array}$ 
Table 11-7 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3.At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 11-7.Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not,why and what is the Nash equilibrium?

Accepted Answer

A) No, it is not a Nash equilibrium because each firm can do better by charging the high price.The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 
B) No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium.There is no Nash equilibrium in this game. 
C) No, the current situation is not a Nash equilibrium.The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. 
D) Yes, the current situation is a Nash equilibrium. 
A) No, it is not a Nash equilibrium because each firm can do better by charging the high price.The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 
B) No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium.There is no Nash equilibrium in this game. 
C) No, the current situation is not a Nash equilibrium.The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. 
D) Yes, the current situation is a Nash equilibrium.

Question 13

A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.

Accepted Answer

A) True 
 B)False

Question 14

A profit-maximizing monopolistically competitive firm produces and sells an allocatively efficient quantity of output.

Accepted Answer

A) True 
 B)False

Question 15

Productive efficiency does not hold for a profit-maximizing,monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.

Accepted Answer

A) True 
 B)False

Question 16

In the long run firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits,but unlike perfectly competitive firms in the long run,monopolistically competitive firms

Accepted Answer

A) charge a price that is greater than average revenue. 
B) charge a price that is equal to marginal cost. 
C) do not produce at minimum average total cost. 
D) charge a price that is equal to average total cost. 
A) charge a price that is greater than average revenue. 
B) charge a price that is equal to marginal cost. 
C) do not produce at minimum average total cost. 
D) charge a price that is equal to average total cost.

Question 17

The profit-maximizing rule for a monopolistically competitive firm is to select the quantity at which

Accepted Answer

A) marginal revenue equals marginal cost. 
B) average revenue exceeds marginal cost by the greatest amount. 
C) price equals marginal cost. 
D) average revenue equals average total cost. 
A) marginal revenue equals marginal cost. 
B) average revenue exceeds marginal cost by the greatest amount. 
C) price equals marginal cost. 
D) average revenue equals average total cost.

Question 18

A set of actions that a firm takes to achieve a goal is the definition of a

Accepted Answer

A) business plan. 
B) business strategy. 
C) business prospectus. 
D) business goal. 
A) business plan. 
B) business strategy. 
C) business prospectus. 
D) business goal.

Question 19

Which of the following is true of a typical firm in a monopolistically competitive industry?

Accepted Answer

A) Product differentiation allows a successful firm to emerge as a market leader in the industry. 
B) All firms have identical cost structures. 
C) The more successful firms have an incentive to merge in order to exert greater market power. 
D) Each firm acts independently. 
A) Product differentiation allows a successful firm to emerge as a market leader in the industry. 
B) All firms have identical cost structures. 
C) The more successful firms have an incentive to merge in order to exert greater market power. 
D) Each firm acts independently.

Question 20

Table 11-3
 $$\begin{array} { | c | c | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Total Variable } \
\text { Cost } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 21 & \$ 0 & \$ 0 & \$ 50 \
\hline 1 & 20 & 20 & 16 & 66 \
\hline 2 & 19 & 38 & 31 & 81 \
\hline 3 & 18 & 54 & 45 & 95 \
\hline 4 & 17 & 68 & 59 & 109 \
\hline 5 & 16 & 80 & 75 & 125 \
\hline 6 & 15 & 90 & 93 & 143 \
\hline 7 & 14 & 98 & 112 & 162 \
\hline 8 & 13 & 104 & 140 & 190 \
\hline 9 & 12 & 108 & 180 & 230 \
\hline 10 & 11 & 110 & 230 & 280 \
\hline
\end{array}$$ 
Table 11-3 shows the demand and cost schedules for a monopolistically competitive firm.
-Refer to Table 11-3.What is the best course of action for the firm in the short run?

Accepted Answer

A) It should shut down. 
B) It should stay in business because it covers some of its fixed cost. 
C) It should increase its sales by lowering its price. 
D) It should not cut its price but it should increase its sales by advertising. 
A) It should shut down. 
B) It should stay in business because it covers some of its fixed cost. 
C) It should increase its sales by lowering its price. 
D) It should not cut its price but it should increase its sales by advertising.

Doctors and lawyers in every state need a license to practice.This is an example of

Because the monopolistically competitive firm faces a demand curve for its product,it the price of its output.

Producing a differentiated product occurs in which of the following industries?

A monopolistically competitive firm that earns an accounting profit in the short run

What is the incentive for a firm to join a cartel?

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

If a monopolistically competitive firm breaks even,the firm

Does the fact that monopolistically competitive firms do not achieve productive efficiency or allocative efficiency mean that there is a significant loss in consumer welfare?

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.

A profit-maximizing monopolistically competitive firm produces and sells an allocatively efficient quantity of output.

Productive efficiency does not hold for a profit-maximizing,monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.

In the long run firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits,but unlike perfectly competitive firms in the long run,monopolistically competitive firms

The profit-maximizing rule for a monopolistically competitive firm is to select the quantity at which

A set of actions that a firm takes to achieve a goal is the definition of a

Which of the following is true of a typical firm in a monopolistically competitive industry?

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

Doctors and lawyers in every state need a license to practice.This is an example of

Because the monopolistically competitive firm faces a ________ demand curve for its product,it ________ the price of its output.

Producing a differentiated product occurs in which of the following industries?

A monopolistically competitive firm that earns an accounting profit in the short run

What is the incentive for a firm to join a cartel?

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

If a monopolistically competitive firm breaks even,the firm

Does the fact that monopolistically competitive firms do not achieve productive efficiency or allocative efficiency mean that there is a significant loss in consumer welfare?

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.

A profit-maximizing monopolistically competitive firm produces and sells an allocatively efficient quantity of output.

Productive efficiency does not hold for a profit-maximizing,monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.

In the long run firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits,but unlike perfectly competitive firms in the long run,monopolistically competitive firms

The profit-maximizing rule for a monopolistically competitive firm is to select the quantity at which

A set of actions that a firm takes to achieve a goal is the definition of a

Which of the following is true of a typical firm in a monopolistically competitive industry?

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

Because the monopolistically competitive firm faces a demand curve for its product,it the price of its output.