Question 1

Explain what a cartel is and the difficulties faced in maintaining a cartel.

Accepted Answer

A cartel is a group of firms acting toge

Question 2

A firm is spending the profit-maximizing amount on product development when

Accepted Answer

A) people perceive the firm's product to be better than those of its competitors. 
B) the marginal cost of product development is equal to the marginal revenue from product development. 
C) the price of the good is higher than its marginal cost. 
D) the advertising costs are covered. 
E) the firm's total revenue exceeds its total costs. 
A) people perceive the firm's product to be better than those of its competitors. 
B) the marginal cost of product development is equal to the marginal revenue from product development. 
C) the price of the good is higher than its marginal cost. 
D) the advertising costs are covered. 
E) the firm's total revenue exceeds its total costs.

Question 3

A Nash equilibrium i. is named after the Nobel prize winning economist, John Nash.
Ii. occurs when each player chooses the best strategy given the strategy of the other player.
Iii. must give the best possible outcome for each player.

Accepted Answer

A) i only 
B) ii only 
C) iii only 
D) i and ii 
E) ii and iii 
A) i only 
B) ii only 
C) iii only 
D) i and ii 
E) ii and iii

Question 4

In monopolistic competition in the long run, firms ________.

Accepted Answer

A) make zero economic profit and require more capacity 
B) incur an economic loss and require more capacity 
C) make an economic profit and have excess capacity 
D) make zero economic profit and have excess capacity 
E) make an economic profit and require more capacity 
A) make zero economic profit and require more capacity 
B) incur an economic loss and require more capacity 
C) make an economic profit and have excess capacity 
D) make zero economic profit and have excess capacity 
E) make an economic profit and require more capacity

Question 5

Suppose a duopoly had reached the monopoly outcome and then the first firm increased its production. If the second firm next increases its production, the second firm's profit ________ and the first firm's profit ________.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases 
E) increases; does not change 
A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases 
E) increases; does not change

Question 6

-The above figure represents Tony's Pizza Parlor, a firm in monopolistic competition.
a. What quantity will be produced?
b. What price will be charged?
c. What is Tony's total cost?
d. What is Tony's total revenue?
e. What is Tony's economic profit or loss?
f. Is this a long-run equilibrium?
 Why or why not?

Accepted Answer

a. 40 pizzas per day
b. $12.00 per pizza

Question 7

Two firms are competing in a duopoly and are trying to decide which price to set. The two prices under consideration are a high monopoly price and a low competitive level. If both seller A and seller B chose the monopoly price, each will earn $20 million of economic profit. However, if one picks the monopoly price while the other picks the competitive price, the high-price firm will lose $1 million while the low-price firm will earn $32 million. If both sell at the competitive level, they both earn a normal profit. Complete the payoff matrix below and determine the Nash equilibrium.

Accepted Answer

@#IMG-DLM& The completed payoff matrix i

Question 8

Which of the following is correct?

Accepted Answer

A) Monopoly has a four-firm concentration ratio of 100. 
B) Perfect competition has a four-firm concentration ratio near zero. 
C) Monopolistic competition has a four-firm concentration ratio of more than 40. 
D) Both answers A and B are correct. 
E) Both answers A and C are correct. 
A) Monopoly has a four-firm concentration ratio of 100. 
B) Perfect competition has a four-firm concentration ratio near zero. 
C) Monopolistic competition has a four-firm concentration ratio of more than 40. 
D) Both answers A and B are correct. 
E) Both answers A and C are correct.

Question 9

The efficiency of monopolistic competition

Accepted Answer

A) is as clear-cut as the efficiency of perfect competition. 
B) depends on whether the gain from extra product variety offsets the selling costs and the extra cost that arises from excess capacity. 
C) comes from its excess capacity. 
D) is eliminated in the long run. 
E) is equal to that of monopoly. 
A) is as clear-cut as the efficiency of perfect competition. 
B) depends on whether the gain from extra product variety offsets the selling costs and the extra cost that arises from excess capacity. 
C) comes from its excess capacity. 
D) is eliminated in the long run. 
E) is equal to that of monopoly.

Question 10

-The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. Which of the following statements is correct?

Accepted Answer

A) If the firms play this game repeatedly, one would end up charging $20 and the other $10. 
B) If the firms cooperate, they could both earn $55,000 in economic profit. 
C) The Nash equilibrium in this game is for both firms to set P = $20 because that maximizes their combined profit. 
D) Firm B's strategy is to always set P= $20 because that gives Firm B the highest possible profit. 
E) If Firm B sets P = $20, then Firm A will maximize its profit by setting its P = $20. 
A) If the firms play this game repeatedly, one would end up charging $20 and the other $10. 
B) If the firms cooperate, they could both earn $55,000 in economic profit. 
C) The Nash equilibrium in this game is for both firms to set P = $20 because that maximizes their combined profit. 
D) Firm B's strategy is to always set P= $20 because that gives Firm B the highest possible profit. 
E) If Firm B sets P = $20, then Firm A will maximize its profit by setting its P = $20.

Question 11

Collusion results when a group of firms i. act separately to limit output, lower prices, and decrease economic profits.
Ii. act together to limit output, raise prices, and increase economic profits.
Iii. in the United States legally fix prices.

Accepted Answer

A) i only 
B) ii only 
C) iii only 
D) i and iii 
E) ii and iii 
A) i only 
B) ii only 
C) iii only 
D) i and iii 
E) ii and iii

Question 12

It would be impossible for members of the fast-food industry to collude to fix prices because

Accepted Answer

A) there are too many fast-food firms in the market. 
B) collusion is illegal. 
C) there are not enough fast-food firms in the market. 
D) the price of fast-food is too low. 
E) demanders would not buy from firms that collude. 
A) there are too many fast-food firms in the market. 
B) collusion is illegal. 
C) there are not enough fast-food firms in the market. 
D) the price of fast-food is too low. 
E) demanders would not buy from firms that collude.

Question 13

$$\begin{array} { c c } 
\text { Firm } & \begin{array} { c } 
\text { Market share } \
\text { (percent) }
\end{array} \
\hline \text { A } & 32 \
\text { B } & 17 \
\text { C } & 15 \
\text { D } & 10 \
\text { E } & 7 \
\text { F } & 7 \
\text { G } & 5 \
\text { H } & 4 \
\text { I } & 2 \
\text { J } & 1
\end{array}$$
-Suppose there are ten firms that occupy the Odell, Oregon cherry pie market. The market share of each firm is listed in the above table.
a. What is the Herfindahl-Hirschman Index for this market?
b. If Firm H and Firm A merge, what is the new Herfindahl-Hirschman Index for this market?
c. A severe winter causes every firm except A, B, and E to close. With only these three firms operating, Firm A's market share is 71 percent, Firm B's market share is 23 percent, and Firm C's market share is 6 percent. What is the Herfindahl-Hirschman Index for this market now?

Accepted Answer

a. The Herfindahl-Hirschman In

Question 14

A differentiated product has

Accepted Answer

A) many perfect substitutes. 
B) no close substitutes. 
C) no substitutes of any kind. 
D) close but not perfect substitutes. 
E) many different complements. 
A) many perfect substitutes. 
B) no close substitutes. 
C) no substitutes of any kind. 
D) close but not perfect substitutes. 
E) many different complements.

Question 15

$$\begin{array} { c c } 
\text { Firm } & \begin{array} { c } 
\text { Market share } \
\text { (percent) }
\end{array} \
\hline \text { Gary's Gourmet } & 30 \
\text { Allen's Extras } & 25 \
\text { Travis' Treats } & 15 \
\text { Orin's Eats } & 10 \
\text { Reed's Riches } & 10 \
\text { Seth's Sweetest } & 5 \
\text { Uriah's Foodfest } & 5 \
\hline
\end{array}$$
-Suppose there are 7 firms in the candy industry with the market shares shown above. What is the HHI for the industry?

Accepted Answer

A) 1850 
B) 2000 
C) 6400 
D) 100 
E) 20 
A) 1850 
B) 2000 
C) 6400 
D) 100 
E) 20

Question 16

Describe the characteristics of an oligopoly.

Accepted Answer

There are a small number of firms that a

Question 17

Which of the following is NOT a characteristic of monopolistic competition?

Accepted Answer

A) few firms compete 
B) easy entry and exit 
C) small market share 
D) differentiated product 
E) no barriers to entry or exit 
A) few firms compete 
B) easy entry and exit 
C) small market share 
D) differentiated product 
E) no barriers to entry or exit

Question 18

The figure above shows a firm's demand and marginal revenue curves and its cost curves.
-As long as the firm illustrated above remains open, it will set a price of ________ per month and it will ________.

Accepted Answer

A) $50; earn an economic profit 
B) $50; incur an economic loss 
C) $40; earn an economic profit 
D) $40; incur an economic loss 
E) less than $20; incur an economic loss 
A) $50; earn an economic profit 
B) $50; incur an economic loss 
C) $40; earn an economic profit 
D) $40; incur an economic loss 
E) less than $20; incur an economic loss

Question 19

-The above figure shows the market demand curve for long-distance telephone calls. Suppose the marginal cost of a long-distance telephone call is 2¢ a minute for a call no matter how many minutes of calls are made and there are 3 firms in the industry. If the firms in the industry operate as perfect competitors, the price of a call is ________ per minute and if the firms in the industry operate as a monopoly, the price of a call is ________ per minute.

Accepted Answer

A) 2 cents; more than 3 cents and less than 4 cents 
B) more than 3 cents and less than 4 cents; more than 3 cents and less than 4 cents 
C) 1 cents; 2 cents 
D) 2 cents; either equal to 4 cents or more than 4 cents 
E) either equal to 4 cents or more than 4 cents; 2 cents 
A) 2 cents; more than 3 cents and less than 4 cents 
B) more than 3 cents and less than 4 cents; more than 3 cents and less than 4 cents 
C) 1 cents; 2 cents 
D) 2 cents; either equal to 4 cents or more than 4 cents 
E) either equal to 4 cents or more than 4 cents; 2 cents

Question 20

What is the Herfindahl-Hirschman Index and what does it measure?

Accepted Answer

The Herfindahl-Hirschman Index, or HHI,

Explain what a cartel is and the difficulties faced in maintaining a cartel.

A firm is spending the profit-maximizing amount on product development when

A Nash equilibrium i. is named after the Nobel prize winning economist, John Nash. Ii. occurs when each player chooses the best strategy given the strategy of the other player. Iii. must give the best possible outcome for each player.

In monopolistic competition in the long run, firms ________.

Suppose a duopoly had reached the monopoly outcome and then the first firm increased its production. If the second firm next increases its production, the second firm's profit and the first firm's profit .

Which of the following is correct?

The efficiency of monopolistic competition

-The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. Which of the following statements is correct?

Collusion results when a group of firms i. act separately to limit output, lower prices, and decrease economic profits. Ii. act together to limit output, raise prices, and increase economic profits. Iii. in the United States legally fix prices.

It would be impossible for members of the fast-food industry to collude to fix prices because

A differentiated product has

Firm Market share (percent) Gary's Gourmet 30 Allen's Extras 25 Travis' Treats 15 Orin's Eats 10 Reed's Riches 10 Seth's Sweetest 5 Uriah's Foodfest 5 -Suppose there are 7 firms in the candy industry with the market shares shown above. What is the HHI for the industry?

Describe the characteristics of an oligopoly.

Which of the following is NOT a characteristic of monopolistic competition?

The figure above shows a firm's demand and marginal revenue curves and its cost curves. -As long as the firm illustrated above remains open, it will set a price of per month and it will .

What is the Herfindahl-Hirschman Index and what does it measure?

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Fiscal Policy and Monetary Policy

Filters

Exam 13: Monopolistic Competition and Oligopoly

Explain what a cartel is and the difficulties faced in maintaining a cartel.

A firm is spending the profit-maximizing amount on product development when

A Nash equilibrium i. is named after the Nobel prize winning economist, John Nash. Ii. occurs when each player chooses the best strategy given the strategy of the other player. Iii. must give the best possible outcome for each player.

In monopolistic competition in the long run, firms ________.

Suppose a duopoly had reached the monopoly outcome and then the first firm increased its production. If the second firm next increases its production, the second firm's profit ________ and the first firm's profit ________.

Which of the following is correct?

The efficiency of monopolistic competition

-The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. Which of the following statements is correct?

Collusion results when a group of firms i. act separately to limit output, lower prices, and decrease economic profits. Ii. act together to limit output, raise prices, and increase economic profits. Iii. in the United States legally fix prices.

It would be impossible for members of the fast-food industry to collude to fix prices because

A differentiated product has

Firm Market share (percent) Gary's Gourmet 30 Allen's Extras 25 Travis' Treats 15 Orin's Eats 10 Reed's Riches 10 Seth's Sweetest 5 Uriah's Foodfest 5 -Suppose there are 7 firms in the candy industry with the market shares shown above. What is the HHI for the industry?

Describe the characteristics of an oligopoly.

Which of the following is NOT a characteristic of monopolistic competition?

The figure above shows a firm's demand and marginal revenue curves and its cost curves. -As long as the firm illustrated above remains open, it will set a price of ________ per month and it will ________.

What is the Herfindahl-Hirschman Index and what does it measure?

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Fiscal Policy and Monetary Policy

Filters

Suppose a duopoly had reached the monopoly outcome and then the first firm increased its production. If the second firm next increases its production, the second firm's profit and the first firm's profit .

The figure above shows a firm's demand and marginal revenue curves and its cost curves. -As long as the firm illustrated above remains open, it will set a price of per month and it will .