Question 1

In the short run,the monopolistic competitive firm will charge a price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is the result of competing through advertising for a monopolistically competitive firm?

Accepted Answer

A)  Long-run average costs shift downward. 
B)  The firm's demand curve become flatter and shifts inward. 
C)  The firm's demand curve keeps the same slope and shifts inward. 
D)  Long-run average costs shift upward. 
A)  Long-run average costs shift downward. 
B)  The firm's demand curve become flatter and shifts inward. 
C)  The firm's demand curve keeps the same slope and shifts inward. 
D)  Long-run average costs shift upward.

Question 3

The entry of new firms into a monopolistic competitive industry will shift the:

Accepted Answer

A)  market demand curve to the right. 
B)  market demand curve to the left. 
C)  existing firm's demand curve to the right. 
D)  existing firm's demand curve to the left. 
E)  market supply curve to the left. 
A)  market demand curve to the right. 
B)  market demand curve to the left. 
C)  existing firm's demand curve to the right. 
D)  existing firm's demand curve to the left. 
E)  market supply curve to the left.

Question 4

The theory of oligopolistic interdependence means that the outcome is uncertain because price and output decisions depend on responses of rivals.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is the best example of a monopolistically competitive market?

Accepted Answer

A)  Wheat. 
B)  Automobiles. 
C)  Diamonds. 
D)  Retail sales. 
A)  Wheat. 
B)  Automobiles. 
C)  Diamonds. 
D)  Retail sales.

Question 6

The automobile,steel,and oil markets are all examples of:

Accepted Answer

A)  perfectly competitive markets. 
B)  monopolies. 
C)  monopolistically competitive markets. 
D)  oligopolies. 
A)  perfectly competitive markets. 
B)  monopolies. 
C)  monopolistically competitive markets. 
D)  oligopolies.

Question 7

Exhibit 9-4 Two-Firm Payoff Matrix
  
-Suppose costs are identical for the two firms in Exhibit 9-4.If both firms assume the other will compete and charge a lower price,equilibrium will be established by:

Accepted Answer

A)  Beta Co. charging $1,000 and Alpha Co. charging $1,000. 
B)  Beta Co. charging $1,000 and Alpha Co. charging $500. 
C)  Beta Co. charging $500 and Alpha Co. charging $500. 
D)  Beta Co. charging $500 and Alpha Co. charging $1,000. 
A)  Beta Co. charging $1,000 and Alpha Co. charging $1,000. 
B)  Beta Co. charging $1,000 and Alpha Co. charging $500. 
C)  Beta Co. charging $500 and Alpha Co. charging $500. 
D)  Beta Co. charging $500 and Alpha Co. charging $1,000.

Question 8

Exhibit 9-6 Two-Firm Payoff Matrix
  
-Suppose costs are identical for the two firms in Exhibit 9-6.Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price.Under these "tit-for-tat" conditions,equilibrium will be established by:

Accepted Answer

A)  Camel charging the high price and Marlboro charging the high price. 
B)  Camel charging the high price and Marlboro charging the low price. 
C)  Camel charging the low price and Marlboro charging the low price. 
D)  Camel charging the low price and Marlboro charging the high price. 
A)  Camel charging the high price and Marlboro charging the high price. 
B)  Camel charging the high price and Marlboro charging the low price. 
C)  Camel charging the low price and Marlboro charging the low price. 
D)  Camel charging the low price and Marlboro charging the high price.

Question 9

Defenders of advertising argue that it:

Accepted Answer

A)  informs buyers and broadens the market for goods. 
B)  enhances economic efficiency by lowering prices. 
C)  enables small firms to compete more effectively with large ones. 
D)  all of the above. 
A)  informs buyers and broadens the market for goods. 
B)  enhances economic efficiency by lowering prices. 
C)  enables small firms to compete more effectively with large ones. 
D)  all of the above.

Question 10

Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries.The primary reason for the complication is the:

Accepted Answer

A)  fewness of firms. 
B)  brand loyalty of consumers. 
C)  powerful effect of advertising. 
D)  variability of concentration ratios. 
E)  mutual interdependence of firms. 
A)  fewness of firms. 
B)  brand loyalty of consumers. 
C)  powerful effect of advertising. 
D)  variability of concentration ratios. 
E)  mutual interdependence of firms.

Question 11

A market situation where a small number of sellers dominate the entire industry is called:

Accepted Answer

A)  monopolistic competition. 
B)  monopsony. 
C)  monopoly. 
D)  oligopoly. 
A)  monopolistic competition. 
B)  monopsony. 
C)  monopoly. 
D)  oligopoly.

Question 12

Which of the following statements best describes firms under monopolistic competition?

Accepted Answer

A)  There is little price or quality competition. 
B)  The firms compete, using quality, location, advertising, and price. 
C)  Firms do not compete using advertising. 
D)  There is little competition between firms. 
A)  There is little price or quality competition. 
B)  The firms compete, using quality, location, advertising, and price. 
C)  Firms do not compete using advertising. 
D)  There is little competition between firms.

Question 13

Which of the following is not a characteristic of the monopolistic competition market structure?

Accepted Answer

A)  Many sellers, each small in size relative to the overall market. 
B)  Few sellers. 
C)  Differentiated product. 
D)  Easy, low-cost entry and exit. 
A)  Many sellers, each small in size relative to the overall market. 
B)  Few sellers. 
C)  Differentiated product. 
D)  Easy, low-cost entry and exit.

Question 14

In an oligopoly,the outcome is uncertain because price and output decisions depend on the response of rivals.

Accepted Answer

A) True 
 B)False

Question 15

In the long run in monopolistic competition,

Accepted Answer

A)  economic profits are zero. 
B)  P = MC. 
C)  P = minimum ATC. 
D)  firms have an incentive to leave. 
E)  the demand curve is tangent to the MC curve. 
A)  economic profits are zero. 
B)  P = MC. 
C)  P = minimum ATC. 
D)  firms have an incentive to leave. 
E)  the demand curve is tangent to the MC curve.

Question 16

Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

Accepted Answer

A)  price equals average total cost. 
B)  marginal cost equals average total cost. 
C)  marginal cost equals price. 
D)  marginal revenue equals marginal cost. 
A)  price equals average total cost. 
B)  marginal cost equals average total cost. 
C)  marginal cost equals price. 
D)  marginal revenue equals marginal cost.

Question 17

Tombstones are produced in a monopolistic competitive market.One producer,Rolling Stones,sells 20 tombstones a week at a price of $500 each.Its average total cost is $600.From this information,we can tell:

Accepted Answer

A)  new tombstone firms will want to enter. 
B)  this producer is losing $2,000 a week. 
C)  this producer is making an economic profit of $400. 
D)  this producer is setting MR = MC. 
E)  this producer should increase production. 
A)  new tombstone firms will want to enter. 
B)  this producer is losing $2,000 a week. 
C)  this producer is making an economic profit of $400. 
D)  this producer is setting MR = MC. 
E)  this producer should increase production.

Question 18

The purpose of a cartel is to:

Accepted Answer

A)  promote product innovation. 
B)  increase market competition. 
C)  act like a monopoly. 
D)  diversify operations. 
E)  decrease market concentration. 
A)  promote product innovation. 
B)  increase market competition. 
C)  act like a monopoly. 
D)  diversify operations. 
E)  decrease market concentration.

Question 19

If a monopolistically competitive firm can earn a profit,it will increase production until:

Accepted Answer

A)  MR > AVC. 
B)  MR = ATC. 
C)  MC > MR. 
D)  MR = AR. 
E)  MR = MC. 
A)  MR > AVC. 
B)  MR = ATC. 
C)  MC > MR. 
D)  MR = AR. 
E)  MR = MC.

Question 20

A monopolistically competitive firm,like a perfectly competitive firm,is a price taker.

Accepted Answer

A) True 
 B)False

Exam 9: Monopolistic Competition and Oligopoly

In the short run,the monopolistic competitive firm will charge a price equal to marginal cost.

Which of the following is the result of competing through advertising for a monopolistically competitive firm?

The entry of new firms into a monopolistic competitive industry will shift the:

The theory of oligopolistic interdependence means that the outcome is uncertain because price and output decisions depend on responses of rivals.

Which of the following is the best example of a monopolistically competitive market?

The automobile,steel,and oil markets are all examples of:

Exhibit 9-4 Two-Firm Payoff Matrix -Suppose costs are identical for the two firms in Exhibit 9-4.If both firms assume the other will compete and charge a lower price,equilibrium will be established by:

Exhibit 9-6 Two-Firm Payoff Matrix -Suppose costs are identical for the two firms in Exhibit 9-6.Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price.Under these "tit-for-tat" conditions,equilibrium will be established by:

Defenders of advertising argue that it:

Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries.The primary reason for the complication is the:

A market situation where a small number of sellers dominate the entire industry is called:

Which of the following statements best describes firms under monopolistic competition?

Which of the following is not a characteristic of the monopolistic competition market structure?

In an oligopoly,the outcome is uncertain because price and output decisions depend on the response of rivals.

In the long run in monopolistic competition,

Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

Tombstones are produced in a monopolistic competitive market.One producer,Rolling Stones,sells 20 tombstones a week at a price of $500 each.Its average total cost is $600.From this information,we can tell:

The purpose of a cartel is to:

If a monopolistically competitive firm can earn a profit,it will increase production until:

A monopolistically competitive firm,like a perfectly competitive firm,is a price taker.

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters