Question 1

Which of the following is true about long-run equilibrium in a monopolistically competitive market?

Accepted Answer

A)  Firms earn zero economic profit because price equals long-run average cost, but the equilibrium is not allocatively efficient because price exceeds the marginal cost of the last unit produced. 
B)  They may earn negative, zero, or positive economic profit because monopolistically competitive firms are price takers. 
C)  Each firm faces a perfectly elastic demand curve and earns zero economic profit because price equals long-run average cost, and are allocatively efficient because price equals marginal cost for the last unit sold. 
D)  None of the above are correct. 
A)  Firms earn zero economic profit because price equals long-run average cost, but the equilibrium is not allocatively efficient because price exceeds the marginal cost of the last unit produced. 
B)  They may earn negative, zero, or positive economic profit because monopolistically competitive firms are price takers. 
C)  Each firm faces a perfectly elastic demand curve and earns zero economic profit because price equals long-run average cost, and are allocatively efficient because price equals marginal cost for the last unit sold. 
D)  None of the above are correct.

Question 2

Supporters of advertising claim that it:

Accepted Answer

A)  makes demand for a firm's product more elastic. 
B)  is a barrier to entry. 
C)  promotes better quality products. 
D)  all of the above. 
A)  makes demand for a firm's product more elastic. 
B)  is a barrier to entry. 
C)  promotes better quality products. 
D)  all of the above.

Question 3

Which of the following statements is always true with respect to oligopolists?

Accepted Answer

A)  They react slowly to actions taken by other firms 
B)  They lower prices together 
C)  They raise prices together 
D)  They know with certainty what they other firms will do 
E)  They take into consideration how other firms might react. 
A)  They react slowly to actions taken by other firms 
B)  They lower prices together 
C)  They raise prices together 
D)  They know with certainty what they other firms will do 
E)  They take into consideration how other firms might react.

Question 4

Exhibit 9-6 Two-Firm Payoff Matrix
  
-Suppose costs are identical for the two firms in Exhibit 9-6.If both firms assume the other will compete and charge a lower price,equilibrium will be established by:

Accepted Answer

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

Question 5

In a price leadership oligopoly model,

Accepted Answer

A)  a cartel of leading firms determines price and industry output. 
B)  the industry in consortium with the government determines price and output. 
C)  one firm is the price leader and all other firms follow. 
D)  the firms abandon a profit-maximizing goal. 
E)  firms do not operate where MR = MC. 
A)  a cartel of leading firms determines price and industry output. 
B)  the industry in consortium with the government determines price and output. 
C)  one firm is the price leader and all other firms follow. 
D)  the firms abandon a profit-maximizing goal. 
E)  firms do not operate where MR = MC.

Question 6

When oligopolists take into account their competitors' behavior,this situation is called:

Accepted Answer

A)  mutual interdependence. 
B)  monopolistic competition. 
C)  independent. 
D)  price discrimination. 
E)  loss minimization. 
A)  mutual interdependence. 
B)  monopolistic competition. 
C)  independent. 
D)  price discrimination. 
E)  loss minimization.

Question 7

Which of the following best describes a cartel?

Accepted Answer

A)  As a monopolist, a group of monopolistically competitive firms that jointly reduce output and raise the price. 
B)  As a monopolist, a group of cooperating oligopolists that jointly reduce output and raise the price. 
C)  A monopolist that reduces output and raises price. 
D)  A group of identical non-cooperative oligopolists that are able to reproduce a monopoly equilibrium through price rivalry. 
A)  As a monopolist, a group of monopolistically competitive firms that jointly reduce output and raise the price. 
B)  As a monopolist, a group of cooperating oligopolists that jointly reduce output and raise the price. 
C)  A monopolist that reduces output and raises price. 
D)  A group of identical non-cooperative oligopolists that are able to reproduce a monopoly equilibrium through price rivalry.

Question 8

Which of the following is the best example of a monopolistic competitor?

Accepted Answer

A)  Wheat farmers. 
B)  Diet centers. 
C)  American Telephone and Telegraph. 
D)  General Motors. 
A)  Wheat farmers. 
B)  Diet centers. 
C)  American Telephone and Telegraph. 
D)  General Motors.

Question 9

Cartels are legal in the United States.

Accepted Answer

A) True 
 B)False

Question 10

A monopolistic competitive firm is inefficient because the firm:

Accepted Answer

A)  is not maximizing its profit. 
B)  is producing at an output where average total cost is not minimum. 
C)  earns positive economic profit in the long run. 
D)  none of the above. 
A)  is not maximizing its profit. 
B)  is producing at an output where average total cost is not minimum. 
C)  earns positive economic profit in the long run. 
D)  none of the above.

Question 11

Compare and contrast the four market models in terms of the profit-maximizing output level for each,the shut-down rule for each,the probability of long-run economic profits being earned,and their social desirability.

Accepted Answer

All firms,regardless of the market envir

Question 12

Exhibit 9-1 A monopolistic competitive firm
  
-In the long run,the demand curve for the monopolistic competitive firm shown in Exhibit 9-1:

Accepted Answer

A)  shifts leftward. 
B)  remains the same. 
C)  shifts rightward. 
D)  none of the above. 
A)  shifts leftward. 
B)  remains the same. 
C)  shifts rightward. 
D)  none of the above.

Question 13

Which of the following is true for a firm operating under perfect competition,monopolistic competition,and monopoly?

Accepted Answer

A)  Firms earn positive economic profits in the long run. 
B)  Firms earn zero economic profits in the long run. 
C)  Profits are maximized when marginal cost equals marginal revenue. 
D)  Price equals marginal cost. 
A)  Firms earn positive economic profits in the long run. 
B)  Firms earn zero economic profits in the long run. 
C)  Profits are maximized when marginal cost equals marginal revenue. 
D)  Price equals marginal cost.

Question 14

Suppose Ford,GM,and Dodge make the majority of pick-up trucks sold in the United States If they all sell for approximately the same price,and Ford offers a $2,000 rebate on new truck sales,what can Ford expect to see?

Accepted Answer

A)  an unprecedented increase in truck sales 
B)  an immediate response by GM and Dodge 
C)  a visit from the antitrust authorities of the government 
D)  a revolution from Ford stockholders 
E)  announcements by GM and Dodge that plans are underway to produce a much cheaper pick-up truck in six years 
A)  an unprecedented increase in truck sales 
B)  an immediate response by GM and Dodge 
C)  a visit from the antitrust authorities of the government 
D)  a revolution from Ford stockholders 
E)  announcements by GM and Dodge that plans are underway to produce a much cheaper pick-up truck in six years

Question 15

In the long-run,surviving firms in monopolistic competition earn:

Accepted Answer

A)  higher pure economic profits. 
B)  zero pure economic profits. 
C)  below-normal profits. 
D)  substantial economic losses. 
A)  higher pure economic profits. 
B)  zero pure economic profits. 
C)  below-normal profits. 
D)  substantial economic losses.

Question 16

In the long run,a monopolistic competitive firm will operate at a price which:

Accepted Answer

A)  is higher than minimum long-run average cost. 
B)  equals minimum long-run average cost. 
C)  equals marginal cost. 
D)  none of the above. 
A)  is higher than minimum long-run average cost. 
B)  equals minimum long-run average cost. 
C)  equals marginal cost. 
D)  none of the above.

Question 17

A cartel is an agreement among firms to divide output of a product among members.

Accepted Answer

A) True 
 B)False

Question 18

Entry of new firms will occur in a monopolistic competitive industry until:

Accepted Answer

A)  marginal cost equals zero. 
B)  marginal revenue equals zero. 
C)  marginal revenue equals marginal cost. 
D)  economic profit equals zero. 
E)  economic profit is negative. 
A)  marginal cost equals zero. 
B)  marginal revenue equals zero. 
C)  marginal revenue equals marginal cost. 
D)  economic profit equals zero. 
E)  economic profit is negative.

Question 19

An organization of sellers designed to coordinate their supply decisions to maximize joint profits is called a:

Accepted Answer

A)  consumer cooperative. 
B)  marketing association. 
C)  regulatory agency. 
D)  cartel. 
A)  consumer cooperative. 
B)  marketing association. 
C)  regulatory agency. 
D)  cartel.

Question 20

The industry that most closely approximates the conditions of the oligopoly model is:

Accepted Answer

A)  Restaurant. 
B)  Retail clothing. 
C)  Home construction. 
D)  Airlines. 
A)  Restaurant. 
B)  Retail clothing. 
C)  Home construction. 
D)  Airlines.

Exam 9: Monopolistic Competition and Oligopoly

Which of the following is true about long-run equilibrium in a monopolistically competitive market?

Supporters of advertising claim that it:

Which of the following statements is always true with respect to oligopolists?

Exhibit 9-6 Two-Firm Payoff Matrix -Suppose costs are identical for the two firms in Exhibit 9-6.If both firms assume the other will compete and charge a lower price,equilibrium will be established by:

In a price leadership oligopoly model,

When oligopolists take into account their competitors' behavior,this situation is called:

Which of the following best describes a cartel?

Which of the following is the best example of a monopolistic competitor?

Cartels are legal in the United States.

A monopolistic competitive firm is inefficient because the firm:

Compare and contrast the four market models in terms of the profit-maximizing output level for each,the shut-down rule for each,the probability of long-run economic profits being earned,and their social desirability.

Exhibit 9-1 A monopolistic competitive firm -In the long run,the demand curve for the monopolistic competitive firm shown in Exhibit 9-1:

Which of the following is true for a firm operating under perfect competition,monopolistic competition,and monopoly?

Suppose Ford,GM,and Dodge make the majority of pick-up trucks sold in the United States If they all sell for approximately the same price,and Ford offers a $2,000 rebate on new truck sales,what can Ford expect to see?

In the long-run,surviving firms in monopolistic competition earn:

In the long run,a monopolistic competitive firm will operate at a price which:

A cartel is an agreement among firms to divide output of a product among members.

Entry of new firms will occur in a monopolistic competitive industry until:

An organization of sellers designed to coordinate their supply decisions to maximize joint profits is called a:

The industry that most closely approximates the conditions of the oligopoly model is:

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