Question 1

Mergers are closely scrutinized by the government because

Accepted Answer

A) they might allow the firms involved to dominate the market and act as a legalized cartel (monopoly). 
B) they always result in a more efficient market. 
C) they always result in lower joint profits of the firms involved. 
D) all mergers are undesirable. 
A) they might allow the firms involved to dominate the market and act as a legalized cartel (monopoly). 
B) they always result in a more efficient market. 
C) they always result in lower joint profits of the firms involved. 
D) all mergers are undesirable.

Question 2

The market for electricians in a small town might have a different structure than in a large city because

Accepted Answer

A) cartels are legal in large cities but not in small towns. 
B) the small town market can only support a few electricians. 
C) unions are stronger in large cities than in small towns. 
D) None of the above. 
A) cartels are legal in large cities but not in small towns. 
B) the small town market can only support a few electricians. 
C) unions are stronger in large cities than in small towns. 
D) None of the above.

Question 3

When the market demand curve is relatively inelastic

Accepted Answer

A) it is unrealistic for a cartel to form because profits will be lower. 
B) penalties for forming an illegal cartel will be relatively low. 
C) the lower the price the cartel sets, the greater the benefits to the cartel. 
D) the higher the price the cartel sets, the greater the benefits to the cartel. 
A) it is unrealistic for a cartel to form because profits will be lower. 
B) penalties for forming an illegal cartel will be relatively low. 
C) the lower the price the cartel sets, the greater the benefits to the cartel. 
D) the higher the price the cartel sets, the greater the benefits to the cartel.

Question 4

In the long run a monopolistic competitor

Accepted Answer

A) set MR = MC. 
B) produces where P = AC. 
C) sets P > MC. 
D) All of the above. 
A) set MR = MC. 
B) produces where P = AC. 
C) sets P > MC. 
D) All of the above.

Question 5

If AC > p where MR = MC

Accepted Answer

A) firms earn positive profits and new firms will enter. 
B) firms earn negative profits and existing firms will leave. 
C) firms earn zero profits and new firms will not enter and no existing firms will leave. 
D) None of the above. 
A) firms earn positive profits and new firms will enter. 
B) firms earn negative profits and existing firms will leave. 
C) firms earn zero profits and new firms will not enter and no existing firms will leave. 
D) None of the above.

Question 6

Suppose two Cournot duopolist firms operate at zero marginal cost. The market demand is p = a - bQ. Firm 1's best-response function is

Accepted Answer

A) q1 = (a - bq2)/2b. 
B) q1 = (a - 2bq2)/2b. 
C) q1 = a/b. 
D) q1= a/2b. 
A) q1 = (a - bq2)/2b. 
B) q1 = (a - 2bq2)/2b. 
C) q1 = a/b. 
D) q1= a/2b.

Question 7

-The above figure shows the reaction functions for two pizza shops in a small isolated town. Collusion would result in

Accepted Answer

A) each firm producing 25 pizzas. 
B) each firm producing 40 pizzas. 
C) the firms splitting the production of 100 making 50 pizzas each. 
D) firm A monopolizing the market by selling 50 pizzas. 
A) each firm producing 25 pizzas. 
B) each firm producing 40 pizzas. 
C) the firms splitting the production of 100 making 50 pizzas each. 
D) firm A monopolizing the market by selling 50 pizzas.

Question 8

An example of a market where a Bertrand model would be plausible is the market for

Accepted Answer

A) oil. 
B) wheat. 
C) beer. 
D) sugar. 
A) oil. 
B) wheat. 
C) beer. 
D) sugar.

Question 9

The number of firms in a monopolistically competitive market will be smaller if

Accepted Answer

A) the market demand curve shifts rightward. 
B) minimum efficient scale is lower. 
C) fixed costs are smaller. 
D) fixed costs are larger. 
A) the market demand curve shifts rightward. 
B) minimum efficient scale is lower. 
C) fixed costs are smaller. 
D) fixed costs are larger.

Question 10

In a Bertrand duopoly with product differentiation, explain how a change in one firm's marginal cost can have an effect on the price charged by the other firm.

Accepted Answer

Each firm's price is a functio

Question 11

The Cournot Model of Oligopoly assumes that

Accepted Answer

A) firms decide what quantity to produce. 
B) firms make their decisions simultaneously. 
C) firms do not cooperate. 
D) All of the above. 
A) firms decide what quantity to produce. 
B) firms make their decisions simultaneously. 
C) firms do not cooperate. 
D) All of the above.

Question 12

A cartel might fail because

Accepted Answer

A) it does not control enough of the output in a market to raise prices enough. 
B) there is an incentive for members to cheat. 
C) too many firms leave the cartel, causing the cartel price to fall. 
D) All of the above. 
A) it does not control enough of the output in a market to raise prices enough. 
B) there is an incentive for members to cheat. 
C) too many firms leave the cartel, causing the cartel price to fall. 
D) All of the above.

Question 13

In monopolistically competitive markets

Accepted Answer

A) price is greater than it would be in perfect competition. 
B) price is less than it would be in perfect monopoly. 
C) quantity is greater than it would be in perfect monopoly. 
D) All of the above. 
A) price is greater than it would be in perfect competition. 
B) price is less than it would be in perfect monopoly. 
C) quantity is greater than it would be in perfect monopoly. 
D) All of the above.

Question 14

Two identical firms that share a market and produce a homogeneous good will find which of the following market outcomes LEAST desirable?

Accepted Answer

A) Bertrand Oligopoly 
B) Cournot Oligopoly 
C) Cartel 
D) All are equally preferable. 
A) Bertrand Oligopoly 
B) Cournot Oligopoly 
C) Cartel 
D) All are equally preferable.

Question 15

Compared to a cartel, firms in a Cournot Oligopoly

Accepted Answer

A) make more joint profit. 
B) sell less output. 
C) make less joint profit. 
D) act independently. 
A) make more joint profit. 
B) sell less output. 
C) make less joint profit. 
D) act independently.

Question 16

In a Bertrand model, market power is a function of

Accepted Answer

A) marginal cost. 
B) the number of firms. 
C) price elasticity of supply. 
D) product differentiation. 
A) marginal cost. 
B) the number of firms. 
C) price elasticity of supply. 
D) product differentiation.

Question 17

In a sense, a cartel is self-destructive because

Accepted Answer

A) it reduces consumer surplus. 
B) it sets price above marginal cost. 
C) each cartel member has the incentive to cheat on the cartel. 
D) each cartel member earns economic profit. 
A) it reduces consumer surplus. 
B) it sets price above marginal cost. 
C) each cartel member has the incentive to cheat on the cartel. 
D) each cartel member earns economic profit.

Question 18

Explain why gasoline stations across the street from each other with large signs displaying their prices may "legally" jointly set monopoly prices.

Accepted Answer

A gasoline station posts its prices on a

Question 19

A typical firm in a cartel will hold which of the following attitudes?

Accepted Answer

A) If everyone cheats, I'm better off, and so is everyone in the cartel. 
B) If I alone cheat, I'm better off; if everyone cheats, I'm worse off. 
C) I can never do better for myself than following agreed-upon cartel rules. 
D) If I suspect others are planning to cheat, I'll do best for myself by deciding not to cheat. 
A) If everyone cheats, I'm better off, and so is everyone in the cartel. 
B) If I alone cheat, I'm better off; if everyone cheats, I'm worse off. 
C) I can never do better for myself than following agreed-upon cartel rules. 
D) If I suspect others are planning to cheat, I'll do best for myself by deciding not to cheat.

Question 20

Suppose a monopolistically competitive industry evolved into a perfectly competitive industry. Which of the following statements is correct?

Accepted Answer

A) The industry would produce more output and charge a lower price after the change. 
B) The industry would produce at decreasing returns to scale. 
C) Elasticity of demand for the firm's product would remain the same after this change occurred. 
D) This industry would produce the same level of output at lower prices in the long run than before the change. 
A) The industry would produce more output and charge a lower price after the change. 
B) The industry would produce at decreasing returns to scale. 
C) Elasticity of demand for the firm's product would remain the same after this change occurred. 
D) This industry would produce the same level of output at lower prices in the long run than before the change.

Mergers are closely scrutinized by the government because

The market for electricians in a small town might have a different structure than in a large city because

When the market demand curve is relatively inelastic

In the long run a monopolistic competitor

If AC > p where MR = MC

Suppose two Cournot duopolist firms operate at zero marginal cost. The market demand is p = a - bQ. Firm 1's best-response function is

-The above figure shows the reaction functions for two pizza shops in a small isolated town. Collusion would result in

An example of a market where a Bertrand model would be plausible is the market for

The number of firms in a monopolistically competitive market will be smaller if

In a Bertrand duopoly with product differentiation, explain how a change in one firm's marginal cost can have an effect on the price charged by the other firm.

The Cournot Model of Oligopoly assumes that

A cartel might fail because

In monopolistically competitive markets

Two identical firms that share a market and produce a homogeneous good will find which of the following market outcomes LEAST desirable?

Compared to a cartel, firms in a Cournot Oligopoly

In a Bertrand model, market power is a function of

In a sense, a cartel is self-destructive because

Explain why gasoline stations across the street from each other with large signs displaying their prices may "legally" jointly set monopoly prices.

A typical firm in a cartel will hold which of the following attitudes?

Suppose a monopolistically competitive industry evolved into a perfectly competitive industry. Which of the following statements is correct?

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Government and Business

Global Business

Filters

Exam 11: Oligopoly and Monopolistic Competition

Mergers are closely scrutinized by the government because

The market for electricians in a small town might have a different structure than in a large city because

When the market demand curve is relatively inelastic

In the long run a monopolistic competitor

If AC > p where MR = MC

Suppose two Cournot duopolist firms operate at zero marginal cost. The market demand is p = a - bQ. Firm 1's best-response function is

-The above figure shows the reaction functions for two pizza shops in a small isolated town. Collusion would result in

An example of a market where a Bertrand model would be plausible is the market for

The number of firms in a monopolistically competitive market will be smaller if

In a Bertrand duopoly with product differentiation, explain how a change in one firm's marginal cost can have an effect on the price charged by the other firm.

The Cournot Model of Oligopoly assumes that

A cartel might fail because

In monopolistically competitive markets

Two identical firms that share a market and produce a homogeneous good will find which of the following market outcomes LEAST desirable?

Compared to a cartel, firms in a Cournot Oligopoly

In a Bertrand model, market power is a function of

In a sense, a cartel is self-destructive because

Explain why gasoline stations across the street from each other with large signs displaying their prices may "legally" jointly set monopoly prices.

A typical firm in a cartel will hold which of the following attitudes?

Suppose a monopolistically competitive industry evolved into a perfectly competitive industry. Which of the following statements is correct?

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Government and Business

Global Business

Filters